Insights

Valuation services are performed for a variety of uses, such as gift and estate planning, ownership transition, financial accounting, bankruptcy, financing, management planning, and litigation support. There are two types of services—valuation engagements and calculation engagements—and it is important to understand the difference to appropriately tailor the engagement to meet the needs of your specific purpose.

In a valuation engagement, the valuation analyst considers all three generally accepted valuation methods—the income approach, the market approach and the asset-based approach—and applies the methods that he deems necessary based on his professional judgment. The resulting value is expressed as a conclusion of value.

In a calculation engagement, the procedures and valuation methodologies used are limited to those that the valuation analyst and the client agree upon. The resulting value is expressed as a calculation of value. Due to the limited scope, the calculated value could be different than the result if a full valuation was performed.

To illustrate the difference, a client who needs to determine the value of his business in conjunction with a formula derived from a buy-sell agreement could determine the value through a calculation engagement, but a client who wants to attach the report to a gift tax return would need a full-scale valuation.

Valuation is not a one-size-fits-all service, and it is essential to understand your needs and undertake the right type of valuation engagement for your purposes. 

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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.

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