SEC staff find "frequent deficiencies" in valuation reports


A spokesperson for the SEC at today’s ASA Advanced BV Conference in Boston pointed out that “we look to valuation reports to learn more about what assumptions a company has made about valuations.   Frequently we see deficiencies.”  Obviously, these comments are from an individual at the SEC, and don’t reflect official position—but this staff member comments that what he really expects to see is full description of the major valuation assumptions.   “It doesn't help us as third parties if you just list them; we want to understand how you arrived at these assumptions, and what factors you considered, or ignored.”  One example is the determination of weights between varying methods;   how did the appraiser determine the weights, and what things were considered?  Another red flag is a lack of supporting schedules, for how the WACC or other factor was calculated, for example.   Generally, though, reports can appear to be deficient; for instance, if a 15 page report has seven pages on economic conditions. In the opinion of this individual, a report like this “suggests that there wasn’t full consideration of the specific company or industry in creating the significant valuation assumptions.”


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