The Significance of the Valuation Date

We have recommended regularly the selection of one “neutral”¹ appraiser selected jointly by opposing parties to resolve valuation disputes.  Each party should be advised by a valuation professional not only in the selection of the neutral appraiser but in the assignment to be given to the neutral appraiser. A key aspect of the assignment is the valuation date because information not known or knowable as of the valuation date cannot be factored into the appraisal. While intuitively this seems to ignore what ones knows now, it must be remembered that if a hypothetical buyer and seller could not have known something at the time of the valuation then their agreed price for the asset and hence its fair market value could not have been affected by the now-obvious information.

Specifically, the standards for a CPA performing an appraisal state:

The valuation date is the specific date at which the valuation analyst estimates the value of the subject interest and concludes on his or her estimation of value. Generally, the valuation analyst should consider only circumstances existing at the valuation date and events occurring up to the valuation date. An event that could affect the value may occur subsequent to the valuation date; such an occurrence is referred to as a subsequent event. Subsequent events are indicative of conditions that were not known or knowable at the valuation date, including conditions that arose subsequent to the valuation date. The valuation would not be updated to reflect those events or conditions. Moreover, the valuation report would typically not include a discussion of those events or conditions because a valuation is performed as of a point in time-the valuation date-and the events described in this subparagraph, occurring subsequent to that date, are not relevant to the value determined as of that date. In situations in which a valuation is meaningful to the intended user beyond the valuation date, the events may be of such nature and significance as to warrant disclosure (at the option of the valuation analyst) in a separate section of the report in order to keep users informed (paragraphs 52(p), 71(r), and 74). Such disclosure should clearly indicate that information regarding the events is provided for informational purposes only and does not affect the determination of value as of the specified valuation date.

SSVS No. 1 (VS 100.43)

One should know there exists a litigation exemption from these standards for lost profits calculations but not for lost value calculations. (SSVS No. 1 (VS 9100.11)) These standards are incorporated into the Rules of the Texas State Board of Public Accountancy and apply to all CPAs practicing in Texas.

[1] We use the term “neutral” to mean unaffiliated. All professional appraisers are required to be objective.