Business valuations can be performed for many different purposes, and the individuals who request them have different levels of need. The three levels of business valuation reporting are calculation, summary, and detailed. Below, we’ll explain what these reports entail, how they differ, and who might benefit most from each type.
In a calculation engagement – which culminates in a calculation report – the valuation analyst and client agree on valuation approaches to take and the methods the valuation analyst will use. They also agree on the extent of procedures the valuation analyst will perform in the process of calculating the value of a subject interest. These procedures are more limited than those of a valuation engagement. For example, the valuation analyst expresses the results of these procedures as a calculated value, not an opinion of value.
This type of business valuation report is best for individuals who don’t need an opinion of value and are comfortable with more limited procedures and reporting. They may want a valuation to guide their internal buyout discussions or make decisions around succession planning.
When performing a valuation engagement – which culminates in a summary report – the valuation analyst estimates the company’s value. The analyst is free to apply the valuation approaches and methods he deems appropriate for the circumstances. The valuation analyst shares the results of the valuation as a conclusion of value.
A valuation engagement requires more procedures than a calculation engagement. And, a summary report provides a condensed version of the information provided in a detailed report but is more robust than a calculation report.
This type of report is best for users who need an opinion of value or would like more robust reporting to better understand and document the analysis performed. Individuals who want this type of report are usually involved in family law, gift and estate tax, and company stock transactions with higher levels of scrutiny or attention.
A detailed report only communicates the results of a valuation engagement (conclusion of value), not a calculation engagement. This report helps the intended users understand the data, reasoning, and analyses underlying the valuation analyst’s conclusion of value. It includes more detail than the summary level report.
This type of report is best when you expect a lot of scrutiny over the value or when there is a high level of interest in detailed support and explanation of the valuation.
When hiring a valuation analyst to perform a business valuation, it’s best to know your situation. You’ll also need to determine what level of information you and other parties want in the final report. Then, you can work with the analyst to find the best business valuation report for you.
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