Page 56 - FINAL CFA II SLIDES JUNE 2019 DAY 8

LOS 33.l: Describe the role of valuation READING 33: PRIVATE COMPANYVALUATION
standards in valuing private companies.
MODULE 33.4: VALUATION DISCOUNTS

In part, due to fair value estimates for financial reporting, there is increased focus on the valuation of private companies.

Several standards exist:

• The Uniform Standards of Professional Appraisal Practice (USPAP) were created by the Appraisal Foundation, these cover real
estate, fixed income, and private business valuations (although the Appraisal Foundation is a congressionally authorized
provider of standards, business appraisers are not required to adhere to the standards).

• The International Valuation Standards Committee (IVSC) has created the International Valuation Standards, covering
businesses, business interests, real estate, and tangible as well as intangible assets. These standards also include a separate
application standard covering valuations for financial reporting.

Implementation challenges of appraisal standards:
• Compliance is usually at the discretion of the appraiser because most buyers are still unaware of them.
• Because most valuation reports are private, it is very difficult for the organizations to ensure compliance to the standards.
• Although the organizations provide technical guidance on the use of their standards, it is necessarily limited due to the
heterogeneity of valuations.