Manipulating a value of a company is relatively easy.  Unfortunately it is difficult to determine if the manipulation is intentional or an error in judgment.  An intentional error is performed to provide the client with a desired result while an error in judgment is not intentional or the valuation analyst is not experienced enough to recognize his/her error.  The type of error discussed here was made in a business valuation report I received a few days ago that was signed by two Accredited Senior Appraisers (“ASA”).[1]

I have been preparing and reviewing business valuation since 1985 and have never seen this error before.  The two ASAs’ were not Certified Public Accountants and apparently do not understand the relationship between depreciation expense and Fair Market Value.



The financial statements are supposed to be adjusted to Generally Accepted Accounting Principles, then adjusted to Fair Market Value.  In this business valuation report, the two Accredited Senior Appraisers estimated the “Fair Value” of the personal property to be at 75% of the assets original cost.  This may work for an accounting estimate but has nothing to do with Fair Market Value.  These two individuals are required to follow the Uniform Standards of Appraisal Practice and this not how the professional standards for personal property are applied.


Fair Market Value of Personal Property

The basic process for determining the Fair Market Value of personal property consists of the following steps”

  1. Identify the type of property to be appraised
  2. Identify comparable types of property. Depending on the property, the comparability may consist of the make and model of the asset, the condition, wear and tear, etc.  Then if the two items are comparable, what was the comparable property sold for.  That would be the Fair Market Value of the property, Not some made up number that has no real defined definition.

The Market Values they have used have no defined definition within the business valuation community.

Financial Statement Presentation

Presented below is a section from the two Accredited Senior Appraisers’ business valuation report.  I have changed their original book value but maintained the critical error of their calculations.  It can be seen that the “market value” does not in fact represent Fair Market Value.  Also, it is rare that leasehold improvements that are custom made for the current owner can be transferred to a hypothetical buyer.  The lease hold improvements are normally excluded from the Fair Market Value.  Therefore, the assets are overstated by the “market value” of the leasehold improvements.

The Problem


The problem is that the two Accredited Senior Appraisers have attempted to calculate the fair market value of personal property apparently without the proper education, training and experience.


When attorneys notice there is an adjustment to the value of assets using depreciation, the stated value is more than likely than not, incorrect.

Why should the attorney be concerned?

The attorney will be advised of a result that does not have a basis for reliability.

The unreliable value may be to the detriment of your client and this may be embarrassing to explain to a client.

I provide a more thorough analysis in a report so it will withstand scrutiny.

I provide calculations imbedded in the report for most analysis instead of just stating a result.

I have earned the most difficult business valuation designations for valuations of closely held companies.

I have earned a Master’s Degree in Business Valuations and apply those skills to my everyday business valuations.

Because you as the attorney need to detect the deficiencies in business valuation (damages reports).  The better informed you are, the better the outcome of your cases…for you and your clients!

Richard Claywell has been valuing closely held companies since 1985.  He has earned two of the highest designations in the business valuation field , the Certified Business Appraiser (“CBA”) and Accredited Senior Appraiser (“ASA”),  Richard is a Certified Public Accountant, has a Master’s in Business Valuation (MBV)  and holds the ASA, CBA, ABV, ICVS, CVA, MAFF, CFD, CVGA, ICVS-A credentials.

I welcome and encourage comments and feedback. If you are benefiting from this series, please recommend to your friends and colleagues and suggest that they sign up to receive posts regularly.

[1] The Accredited Senior Appraiser requires extensive training and proof of a minimum of 10,000 hours of experience in performing business valuations.