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Updating your valuation engagement letter template

Mary Ellen Biery
September 2, 2016
Read Time: 0 min

In the hustle and bustle of running your valuation practice, it can be convenient to incorporate templates for letters and documents as you accept engagements and produce valuation reports to enhance the valuation practice’s efficiency.
A standard format for engagement letters can be helpful to ensure that you have covered various aspects of the engagement when you discuss performing a valuation with the client and to protect the valuation specialist from a liability standpoint. After all, the last thing a valuation specialist wants is to have a client expecting one thing from a valuation and getting something else at the end of the process. 

Complimentary webinar replay: “How Valuation Specialists Avoid Professional Liability Claims.  Access it here

When was the last time you examined your engagement letter for valuation services to make sure it reflects the most current best practices? Various professional associations for valuation specialists recommend updating engagement letters on a regular basis, and the AICPA suggests seeking the advice of a lawyer or risk management advisor periodically. Incorporating several key pieces of information will help document the understanding of both parties regarding the engagement. Based on the AICPA’s Business Valuation Practice Management Toolkit and other sources, here are several key topics that you should cover, at a minimum, in your engagement letters:

What to cover

1. Who has entered the agreement.

2. Purpose of the valuation assignment. Is this valuation requested for a transaction or personal financial planning, or is it for a bankruptcy, for taxation or for a divorce? Since valuation methods, valuation complexity and the potential for scrutiny (by the IRS or by courts) can vary depending on the nature of the assignment, it is important to describe why the client is seeking the valuation.

3. Valuation standards expected to be applied. The AICPA’s Statement on Standards for Valuation Services No. 1 (SSVS No. 1) applies to AICPA members performing valuations for certain purposes, while the American Society of Appraisers has its own Business Valuation Standards. The National Association of Certified Valuators and Analysts (NACVA) also has standards applicable to its members.

4. Effective date of the valuation. It’s important to note the specific date for which the valuation opinion applies, since circumstances and timing can affect valuations.

5. Description of the asset or liability being valued. Is this a business or an intangible asset? Is it an ownership interest or a security?

6. Timeline. What is the targeted timeline for performing the valuation?

7. Clarification of services. Are there specific services (such as an audit or review) that are or are not part of the valuation engagement? Spell those out.

8. Work product expected to be produced. How will the results of the valuation services be communicated?

9. What is expected from the client. What materials will the client need to provide, and what responsibilities does the client have to fulfill in order ensure the work is completed?

10. Fees. Is the payment based on a flat fee, a retainer, a drawdown methodology or some other system?

11. Assumptions/limits. What are the situations and limiting conditions on the valuation analysis?

12. Resolving disputes. Describe terms that would apply to the client and valuation specialist in the event of a dispute regarding the work.

Professional liability insurance carriers may have sample engagement letters that can help you develop or revise your firm’s template. Samples may also be found on resources sections of websites for the various associations.

For information on the most common professional liability claims faced by valuation specialists and best practices to mitigate exposures, listen to a Sageworks webinar replay featuring John F. Raspante, CPA. Raspante is director of risk management for the North American Professional Liability Insurance Agency LLC (NAPLIA).

For additional help streamlining valuation workflow and scaling your existing operation, explore the features and benefits of Sageworks Valuation Solution by watching a one-minute walkthrough video

 

 

About the Author

Mary Ellen Biery

Senior Strategist & Content Manager
Mary Ellen Biery is Senior Strategist & Content Manager at Abrigo, where she works with advisors and other experts to develop whitepapers, original research, and other resources that help financial institutions drive growth and manage risk. A former equities reporter for Dow Jones Newswires whose work has been published in

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Abrigo enables U.S. financial institutions to support their communities through technology that fights financial crime, grows loans and deposits, and optimizes risk. Abrigo's platform centralizes the institution's data, creates a digital user experience, ensures compliance, and delivers efficiency for scale and profitable growth.

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