Carl Schultz, Chair of the Appraisal Standards Board, has just kicked off the public hearing about the second draft of the changes to USPAP, scheduled to go into effect in 2014. The most recent comments deadline was last week, October 5th, and the Board "received 25 comments," including those from the ASA Business Valuation Committee. As a state real property regulator from Kentucky said "this is a meeting of USPAP geeks." No one disagreed, and another attendee suggested bringing the proposed USPAP revisions home with a bottle of wine as a way to "have a romantic evening with your partner." But, at least one of the current changes could have an impact on how business appraisers stay in compliance.
Obviously, the sometimes "radioactive" nature of the real estate appraisal association, particularly around independence, dominate the agenda. The ASB has been doing a lot of education, both live and via video, to try to continue to to improve the standards of that part of the appraisal world. There's a study by John Brennan on the proliferation of real property valuation tools outside of appraisal reports.
There was a report from the Appraisal Subcommittee, which monitors the state appraisal societies and the national registry. Chairman Jim Park comments that the subcommittee was given a lot more power under Dodd-Frank, at least in regard to real property and state regulators.
But BV is well represented here at the Hotel Madison, including standards leadership stalwarts Jay Fishman, and Tony Aaron. Jay, the vice chair of the committee of the ASB that produces working group reports, updated the regulators and others at this pubic hearing on the two current and one upcoming business valuation working groups--the first two on customer relationships and control premia, and an upcoming one, currently collecting experts to be involved in the project, on contingent considerations (a topic that was covered extensively at the ASA Advanced Business Valuation Conference in Phoenix earlier this week).
Assignment results and report requirements. The current definition of these terms is "broad," the exposure draft clarifies that opinions and conclusions are both included, and that all parts of the report are considered. The concern with the term "report" is when it's complete. There's now "a better clarification of when it's a report," which is when there's a signed certification. But this change in the USPAP Section 2a concept of assignment results is one that has drawn attention from the BV committee.
BVC is particularly concerned about the impact on this change in litigation engagements. They point out that, contrary to the emerging trend in federal litigation that precludes most draft appraisers from discovery, the broader definition of “assignment results” could elevate an interim analysis or calculation to the status of a final (and discoverable) opinion of value.
Accordingly—should the ASB go ahead with the USPAP revision—“we request that you consider creating a litigation exception,” says the BVC's comment letter.
We urge the ASB to reconsider its exposed proposal for edits to the current definition of “Assignment Results.” Only an appraisal assignment’s final opinion of value represents the true “Assignment Results” in a given assignment. Other aspects of the assignment may represent important factors in the final opinion of value, but they are not assignment results in their own right. While the proposed definition is a step in the right direction from the initial proposed change that included interim appraisal analyses, there are too many ways that other aspects of an assignment could be construed as something more than relevant in the context that they support a final opinion of value.
We wish to express our concern to the ASB about a possible unintended consequence that the adoption of this proposed revision might have regarding assignments that involve litigation support. In such assignments, business valuation appraisers are frequently requested to perform an important service to the Court or other trier of fact. We first expressed our concern about this in our July 6, 2012 Comments to the ASB on its First Exposure Draft on USPAP 2014-2015. We remain concerned that, contrary to an emerging trend in jurisprudence in the area of discoverable work, an interim analysis or calculation would be elevated to the status of a final opinion of value in the form of an “Assignment Result.”
The U.S. legal community has signaled its intent to focus discovery on final opinions of value with respect to an “Assignment Result.” Under the amended Federal Rules of Evidence (F.R.C.P 26), interim or draft indications of value and supporting analyses now fall outside the legal window of discovery in legal disputes. It is important, therefore, that the definition of “Assignment Results” not create confusion in the legal community and other important intended users of appraisal services. We remain concerned that ASB’s proposed edit to the definition may still be too broad in this respect. Therefore, should the ASB adopt its proposed revision, we request that you consider creating a litigation exception to this proposed definition of “Assignment Results.”Other comments about when a report is a report. The new language says that a report doesn't become a report until it's signed. The spokesperson from the Appraisal Institute congratulated the ASB, saying that "the draft review process is working, and we're getting closer to something that will help the profession. She did, however, ask that the Board continue to review the idea of the "report," and whether the interim communications prior to the "signature" be marked as such--as "interim," or "not yet finished," or "draft" or whatever. "These communications are snippets; they aren't the real report, and should not be treated as such."