This blog post is from Elizabeth Ann Schrupp, CPA/ABV/CFF, CVA, a collaboratively trained financial professional. She has been providing business valuation and forensic accounting services for attorneys for the past 22 years.
I was talking with some collaborative law professionals the other day, when it was brought to my attention that they had used a Certified Public Accountant (CPA), who had no valuation credentials, to value a business in their collaborative case. This made me curious. I asked them if they would let their general practitioner perform surgery on them. Needless to say the answer was no. My question is, “Why would you use a CPA, who is not certified nor recognized in our industry (forensic accounting and valuation services), as an ‘expert’ in business valuations?”
In collaborative law, I think it is more important to get an accredited business valuation analyst with experience, than in matrimonial litigation cases. In litigation cases, the opposing attorneys and other expert can rebut the other expert and point out all the errors and mistakes (if any) an untrained analyst can make. In collaborative law, there is only one business valuation analyst (who serves in the neutral role, working with both sides), so if the valuation conclusions are significantly wrong, the rest of the team may have no idea. What if, after the collaborative case is finished, one of the spouses realized how wrong the business valuation and the conclusion of value were? For example, what if the husband, soon after the divorce, sells the business for twice or three times the valuation amount? This risk can substantially increase if the collaborative team hired an expert with no valuation credentials or adequate experience. Could there be liability on perhaps the whole team if there were major errors in the valuation conclusions?
There are three well-known credentials in Business Valuation. They are Accredited in Business Valuation (ABV), Accredited Senior Appraiser (ASA) and Certified Valuation Analyst (CVA). I have listed below some information about each of the credentials and the accrediting organizations:
Accredited in Business Valuation is accredited by American Institute of Certified Public Accountants (AICPA). The ABV Credential certifies that the individual has complied with a rigorous certification process developed by the AICPA, proven competence in the complexities of business valuation, advanced CPA training a broad knowledge of accounting, finance, economics, and general business principles, and skills in selecting the most appropriate valuation approaches and methodologies. ABV requirements include:
1. Must be a CPA
2. Completed at lease six business valuation engagements.
3. Must have life long learning of 45 hours of business valuation training.
4. Pass the 4 – 8 hours ABV exam.
5. Maintain approximately 20 hours of business valuation continuing professional education every year.
6. The AICPA is a not-for-profit organization and only has approximately 2,600 ABVs out of its broad membership of over 350,000 CPAs.
Accredited Senior Appraiser is certified by the American Society of Appraisers (ASA). The ASA fosters professional excellence in its membership though education, accreditation, publication and other services. The ASA credential process also tries to ensure that ASA accredited appraisers are accurate, impartial, and credible. ASA requirements include:
1. Does not have to be a CPA
2. Have 5 years of business valuation experience.
3. Submit a business valuation report for review.
4. Pass an 8 to 12 hour exam.
5. Maintain approximately 8 hours of business valuation continuing professional education every year.
6. The ASA is a not-for-profit organization and has approximately 2,200 ASAs out of a membership of 5,800.
Certified Valuation Analysts is certified by The National Association of Certified Valuation Analysts (NACVA). NACVA supports the users of business and intangible asset valuation services by training and certifying financial professionals. CVA requirements include:
1. Must be a CPA.
2. Does not have to have any business valuation experience.
3. Submit a business valuation case study report for review.
4. Pass a 5-hour exam.
5. Maintain approximately 12 hours of business valuation continuing professional education every year.
6. NACVA is a for-profit organization and has approximately 5,700 CVAs out of a membership of 7,100.
If you review the requirements the ABV and ASA, they are very similar, except an ABV has to be a CPA and maintain 12 more hours of continuing professional education a year. Both have approximately the same number of credentialed members and require some sort of business valuation experience. A CVA can be credentialed without any business valuation experience, has 5,700 certified members, and is a for-profit organization rather than a non-profit. I actually have the CVA credential, and was surprised when I took the pre-test class, in that I was sitting next to a CPA who never did a business valuation, whereas I had already been doing business valuations for the 10 years prior to when I took the class.
Collaborative professionals owe their clients a duty to understand the credentials available as well as the education and training requirements for each credential. Such requirements should be taken into account when seeking out a collaboratively trained business valuation expert. The expert discussion can involve full disclosure as to professional qualifications. The ultimate choice of the proposed expert is generally left to the clients’ discretion. Full transparency and discussion of professional qualifications improves the protection of the collaborative team from liability in the future.