Page 15 - Bankruptcy and Reorganization Services

 FASB ASC 820, Fair Value Measurement

Applicability of Litigation Services Guidelines to Business Valuation in Bankruptcy

Practitioners often provide various types of reports and schedules as part of the services rendered in the
bankruptcy and insolvency arena. These services often involve the valuation of the business; therefore,
practitioners must assess whether their reports must comply with professional standards or are exempt
from these standards under the litigation exemption guidelines.

When the practitioner begins an engagement involving bankruptcy or insolvency issues, the practitioner
must be certain about the scope of the engagement and which standards must be adhered to. The AICPA
practice aid Serving as an Expert Witness or Consultant, 2nd edition, notes that the role of the practi-
tioner in a litigation engagement is different from the practitioner’s role in an attestation services en-
gagement. When involved in an attestation engagement, the practitioner firm expresses a conclusion
about the fairness of a written assertion of another party and would be required to comply with the ap-
plicable attest standards (generally accepted auditing standards [GAAS], SSAEs, or SSARSs) to develop
that opinion. In contrast, the practitioner who performs litigation services gathers and interprets facts and
renders his or her own opinion, which is subject to challenges in cross-examination or regulatory exami-
nation. The foundation of and audience for this opinion are different from those addressed by the attesta-
tion standards.

Practitioners regularly provide both consulting and attest services in connection with bankruptcy or re-
structuring and, therefore, must assess the scope of a potential engagement prior to accepting the work.
This includes understanding the intended use of the work product and identifying the parties who may
rely on the work. In order for the litigation services exemption to apply, the services must be rendered in
connection with the litigation and the parties to the proceeding must have an opportunity to analyze and
challenge the work of the practitioner. fn 3 It is not uncommon for a practitioner to accept engagements
that require compliance with attest standards for some of the services and not for others. For situations
like this, practitioners should consider clearly disclosing on the face of the documents, or in a separate
report, the extent of services rendered and the responsibility assumed by the practitioner, if any. This
type of disclosure helps the reader understand the extent of the practitioner’s role and the intended use of
the work product.

Application of SSFS No. 1 to the Valuation Engagement

Effective for engagements accepted on or after January 1, 2020 the practitioner will need to assess if
SSFS No. 1 will apply to the engagement. Generally SSFS No. 1 will apply when the matter is associat-
ed with litigation, as defined and the member is undertaking an Investigation, as defined. fn 4

fn 3 For a thorough discussion on the litigation exemption, see paragraph .15 of VS section 9100, Valuation of a Business, Business
Ownership Interest, Security, or Intangible Asset: Valuation Services Interpretations of Section 100.

fn 4 Litigation. An actual or potential legal or regulatory proceeding before a trier of fact or a regulatory body as an expert witness,
consultant, neutral, mediator, or arbitrator in connection with the resolution of disputes between parties. The term litigation as used
herein is not limited to formal litigation but is inclusive of disputes and all forms of alternative dispute resolution.

Investigation. A matter conducted in response to specific concerns of wrongdoing in which the member is engaged to perform
procedures to collect, analyze, evaluate, or interpret certain evidential matter to assist the stakeholders (for example, client, board of
directors, independent auditor, or regulator) in reaching a conclusion on the merits of the concerns.

© 2020 Association of International Certified Professional Accountants 13