Is valuation an art or a science?
Although valuation is more of an art than a science, there is authoritative guidance for certain tax and financial statement preparation in place so that taxpayers and market participants are working from the same set of rules and guidelines. The two main ones include:
- FASB Accounting Standards Update No. 2013-13, Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting.
- AICPA’s Statement on Standards for Valuation Services (SSVS) No. 1, Valuation of a Business, Business Ownership Interest, Security, or Intangible Asset (AICPA, Professional Standards, VS sec. 100).
Further, the American Institute of Certified Public Accountants (“AICPA”) has put together an Equity Securities Task Force (“Task Force”) whom have worked to arrive at a guide that would provide guidance and illustrations for preparers of financial statement, independent auditors, and valuation specialist regarding the accounting for, valuation of, and disclosures related to, privately held company equity securities issued as compensation.
The American Society of Appraisers ("ASA"), the Royal Institution of Chartered Surveyors, and the CFA Institute are other professional organizations that provide training in and guidance on various valuation considerations and methodologies.