50 examples of when to apply SSVS1.

SSVS1 applies to any AICPA member who performs "an engagement to estimate value." According to the statement, any member who performs such an engagement is called a valuation analyst.

The statement applies to any engagement to estimate value when the valuation analyst (1) "applies valuation approaches and valuation methods" and (2) "uses professional judgment." According to the statement, "the use of professional judgment is an essential component of estimating value." Even with this guidance with regard to SSVS1 implementation, some members may be concerned as to when they should apply the statement. Since the statement is new, some members may be uncertain as to what professional services are encompassed by SSVS1. Therefore, this discussion will provide some examples of common client engagement situations to which the statement does--and does not--apply.

Members should carefully consider when the statement applies to a client engagement. Unless a particular engagement is specifically excluded by the statement, SSVS1 applies to any engagement to estimate value. In determining the scope and requirements of the engagement, a member should consider (1) the needs of the valuation client and (2) the requirements of any third party for whom the valuation is intended. Such third parties may include governmental and regulatory agencies, judicial finders of fact, and accounting or legal professionals. Of course, a member should also consider all other AICPA professional standards that may apply to the valuation engagement.

The following several pages include 50 examples of general fact patterns related to various client services and indicate whether the statement applies under those circumstances.

                                                                SSVS1
Item   50 Examples                                              Applies

 1     Preparation of a business valuation for gift or
       estate tax purposes where the member applies
       the provisions of Revenue Ruling 68-609 and no
       other procedures                                           Yes
 2     Valuation of a business goodwill for income tax
       purposes only where the member applies the
       provisions of Revenue Ruling 68-609 and no
       other procedures                                           Yes
 3     Valuation of a family-owned business included
       in a marital estate, for family law purposes               Yes
 4     Engagements to estimate value for litigation
       support or expert testimony purposes                       Yes
 5     Lost profits economic damages computations for
       litigation support purposes                                No
 6     Economic damages computations that
       incorporate a terminal value                               No
 7     Economic damages calculations related to the
       lost value of a business or intangible asset for
       litigation support purposes                                Yes
 8     Mechanical calculations of value (for example,
       using actuarial tables), where valuation
       approaches and methods are not used and
       professional judgment is not required                      No
 9     Valuing a relatively small block of publicly
       traded stock (relative to the total amount of the
       corporation stock outstanding) when the
       per-share price is readily ascertainable                   No
 10    Preparing a tax return using a valuation of a
       business that was provided by a third-party
       appraiser or by the client                                 No
 11    Calculating the cash "hold back" requirements
       for tax contingencies                                      No
 12    Valuing for any purpose (including gift or estate
       tax return preparation) a block of publicly
       traded stock if the analysis includes considera-
       tion of a discount for blockage, lock-up, or other
       contractual or marketability/transferability
       restrictions                                               Yes
 13    Valuing stock that is not publicly traded                  Yes
 14    Computing the fair market value of assets in a
       charitable remainder trust (CRT) if the analysis
       requires the application of valuation approaches
       and methods and the use of professional
       judgment                                                   Yes
 15    Valuing non-publicly traded limited partnership
       interests                                                  Yes
 16    Providing advice for planning purposes (such as
       estate planning, personal financial planning, or
       merger and acquisition planning) without refer-
       ence to value                                              No
 17    Providing advice for planning purposes (such as
       estate planning, personal financial planning, or
       merger and acquisition planning) where the
       member calculates a value                                  Yes
 18    Determining the income tax deductibility of
       interest under a non-recourse loan                         No
 19    Compliance filings that require an estimate of
       the value of a company and the analysis requires
       the application of valuation approaches and
       valuation methods and the use of professional
       judgment                                                   Yes
 20    Compliance filings that require an estimate of
       the value of a company and the client or a third-
       party appraiser provides the value of the subject
       interest                                                   No
 21    Compliance filings that require an estimate of
       the value of a company and the state (or other
       government agency) follows a formula rule
       where the application of valuation approaches or
       methods is not necessary                                   No
 22    Purchase price allocations where the purchase
       price is allocated to the subject interest (that is,
       a business, business ownership interest, security, or
       intangible asset) and the client or a third party
       did not provide the member with the asset values           Yes
 23    Purchase price allocations where (after the
       allocation of the purchase price to cash,
       receivables, inventory, and tangible assets), the
       residual amount is allocated to goodwill or going
       concern value                                              No
 24    Purchase price allocations where the member
       allocates a residual amount to specific intangible
       assets (such as to various customer-based or
       supplier-based intangibles) and that allocation is
       based on the assets relative value                         Yes
 25    Computing the fair market value of an interest
       in a family limited partnership (FLP) for gift or
       estate tax purposes, without applying any
       valuation discounts                                        Yes
 26    Computing the fair market value of assets in, or
       computing the required distribution of, a
       charitable remainder trust (CRT) where the CRT
       holds assets, such as an interest in a limited
       liability corporation (LLC)                                Yes
 27    Computing the fair market value of assets in,
       or computing the required distribution of, a
       charitable remainder trust (CRT) where the CRT
       only holds publicly traded stock with a readily
       ascertainable value                                        No
 28    Asset value assignments under IRC [section] 704(c)
       where (1) one or more of the assets is a business,
       business ownership interest, security, or
       intangible asset and (2) the client or a third party
       does not provide the valuation                             Yes
 29    Cost segregation study to allocate the costs of
       building a structure between the real property and
       personal property components of the structure              No
 30    Planning for income from discharge of indebted-
       ness under IRC [section] 108 where (1) the company
       must rely on the insolvency provisions of IRC
       [section] 108, (2) one or more of the assets for
       which value is relevant under IRC [section] 108 is
       a subject interest (that is, a business, business
       ownership interest, security, or intangible asset),
       and (3) the company or a third party does not provide
       the valuation                                              Yes
 31    Valuing a partnership interest where the client
       and the member agree that the member will
       apply an "average" valuation discount that the
       member will determine based on the results of
       published discount for lack of marketability
       studies and published case law                             Yes
 32    Informal conversations or written communica-
       tions with a client regarding the alternative tax
       consequences of gifting versus selling a business
       using a presumption of a specific value of the
       business                                                   No
 33    An IRC [section] 482 transfer pricing study that
       involves the use of specific methodologies, data,
       terminology and documentation requirements
       that are provided in the IRS regulations and
       procedures (where methodologies and
       documentation requirements differ from those
       contained in SSVS1)                                        No
 34    Settlements or negotiations of value in
       offers-in-compromise or tax disputes                       No
 35    Determining the value of accounts receivable               No
 36    Determinations of value by a member employed
       in industry, government, or education who
       "moonlights" as a valuation expert witness                 Yes
 37    Assignments from an employer to an employee
       member not in public practice to prepare a valu-
       ation for internal financial reporting purposes            No
 38    Personal financial planning services that include
       estimating the proceeds from a hypothetical
       future sale of the client's business interest              No
 39    Personal financial planning services that include
       estimating the proceeds from a hypothetical
       future sale of the client's business interest              No
 40    Personal financial planning services that include
       (1) estimating the proceeds from a hypothetical
       future sale of the client's business interest and (2)
       the client or another party provides the current
       value                                                      No
 41    Personal financial planning services that include
       estimating the proceeds from a hypothetical future
       sale of a client's business interest, including
       a general discussion with the client of valuation
       concepts or industry pricing multiples based on
       the member's industry knowledge, where the
       discussion assists the client in determining a
       hypothetical or assumed value                              No
 42    Preparing a personal financial plan that includes
       an estimate of the future proceeds from a sale of
       the business interest at retirement, where the
       member estimates the future proceeds based on
       a current business value estimated by applying a
       rule of thumb multiple for the subject industry-
       but the member does not consider the risk
       factors of the subject interest or exercise other
       professional judgment in applying the rule of
       thumb multiple                                             No
 43    Valuation of a not-for-profit business to be
       purchased by a for-profit client, for private
       inurement purposes                                         Yes
 44    Estimation of the fair value of a debtor's assets
       to determine solvency or insolvency in a
       bankruptcy matter                                          Yes
 45    Valuation of purchased goodwill for FASB 142
       intangible asset impairment testing                        Yes
 46    Valuation of purchased franchise agreements for
       FASB 144 long-lived asset impairment testing               Yes
 47    Estimation of a trademark or patent fair,
       arm's-length royalty rate for intellectual
       property infringement purposes                             No
 48    Valuation of a going concern business unit for
       state or local ad valorem property tax appeal
       purposes                                                   Yes
 49    Valuation of a shareholder's stock purchase
       price based on the buy/sell provisions of a
       shareholders' agreement                                    No
 50    Valuation of a law firm partner's capital account,
       based on application of the partnership agreement
       buy-in/buy-out formula, for family law purposes            No

John R. Gilbert, CPA, ASA, is managing director of The Financial Valuation Group, Great Falls, Mont. His e-mail address is [e-mail].