June 14, 2005
 
Janice Fredericks
Financial Planning Project Manager
AICPA
Harborside Financial Center,
201 Plaza Three
Jersey City, NJ 07311-3881

Dear Ms. Fredericks,
 
I am responding to the exposure draft of the Business Valuation Standards as proposed by the AICPA on behalf of the California Society of CPAs’ (CalCPA) Estate Planning Committee.  Our Committee is comprised of CPAs, Attorneys and Investment Advisors that are members of the CalCPA, practicing in the area of estate planning. Our Committee’s response to this exposure draft is prompted by our concerns that applying these standards to all types of engagements performed by AICPA members involving valuations without exemptions or exceptions other that litigation.       
 
We as a committee support the AICPA’s effort to set professional standards and provide guidance for our profession. It is these standards that define who we are as a profession, create uniformity as to the minimum quality of the work that we perform and help create the value to our services. However, standards applied too broadly and without consideration for the ultimate user of the work are detrimental to the profession and to the clients that we serve.
 
When looking at tax compliance and planning engagements that are typically a part of an accounting practice the need for valuations often arises in the preparation of estate and gift tax returns, in pass-thru entities where a Section 745 election is in effect and the tax practitioner is faced with allocation of additional basis or in allocating assets when funding sub-trust following the administration period of a family trust.  In these and other instances the tax practitioner is called upon to use his judgment and professional expertise in valuing some if not all of the assets under consideration. In many cases the scope of the practitioner’s engagement will be limited by the client.  This would be the type of engagement that would appear to be a “calculation analysis” under the proposed standards and the CPA would be required to issue a “calculation report”. As such this would call for the wording of the conclusion as “an indication of value” and not the “conclusion of value” as with the valuation report. Is it our concern that this wording could present problems when we are representing our clients before the taxing authorities and possibly in a court of law. The difference between these two phrases is significant because we are required to use “value” the issuance of a “computation report” could be considered worthless or contrary to statute. We would also suggest that even in using the procedures set forth for a “valuation analysis” there can be significant differences. The published records of tax litigation cases are full of examples. The standards by which a CPA is held to in the area of tax compliance are presently high and well defined by the taxing authorities, the courts and AICPA's Statements on Standards for Tax Services. By holding CPAs to these additional standards when engaged in tax compliance work would in our judgment limit our ability to be effective advocates for our clients and expose us to greater risk of litigation.              
 
We also see the broad application of these standards as a detriment to our ability as estate planning professionals to provide quality and precise services to our clients for a reasonable fee. Applying these standards to work performed on behalf of clients seeking our judgment and expertise in estate planning and tax compliance engagements would by our own governance create a new and at most times undesired and unneeded business valuation engagement. The client for whom these standards are suppose to protect and serve would be placed in the position of having to pay for something that they do not want and may perceive as having no value to them. Consequently, they then may possibly seek the assistance of another professional that is not governed by these standards. We as professionals will have to make the decision whether or not to support an organization that sets standards that will impede our ability to provide high quality professional services to our clients. 
 
We as a committee think that the AICPA has to consider needs of the public that uses and pays for our services in setting the scope of these standards. A valuation used in a tax compliance or an estate planning engagement should not necessarily be held to the same type of standards as a specific valuation engagement to provide a value to be used in a transaction or computation that effects third parties. In the former types of engagements the professional is more in an advocacy role for the client, many times using guidelines established through the judicial process. In the latter type of engagement we are representing not only our client but a third party who may or may not be privy to the full valuation process and is expecting a thorough analysis of the factors that determine value and an independent determination of value based on this analysis. 
 
We as a committee strongly suggest that the AICPA consider exempting from these standards those engagements which are for the purpose of tax compliance or estate planning and where the purpose of the valuation is for use in discussions between a practitioner and his client. This would enable AICPA to set the standards for business valuation engagements while giving its members the ability to provide high quality professional services to their clients at a reasonable cost.
 
We leave you with this one thought: high standards can be beneficial to both the profession and the public we serve, high standards too broadly applied can be restrictive and detrimental to the profession and the public we serve.

We thank you for the opportunity to provide these comments and hope that you will consider them in your deliberations.
 
Sincerely,

 
Tim Anderson
2004-2005 Chair, Estate Planning Committee
California Society of CPAs