Checklist for Valuation Standards Compliance

Brandon Chicotsky
Nov 3
11 min read

Valuation standards ensure accurate and reliable business appraisals, especially for smaller businesses with an EBITDA of $25 million or less. Non-compliance can result in severe financial, legal, and reputational risks. Here's a quick summary of what you need to know:

Key Standards: USPAP (ethics and documentation), AICPA SSVS (valuation reporting for CPAs), and IRS standards (tax compliance).
Required Documents: Financial statements (3–5 years), tax filings, ownership records, contracts, asset documentation, and licenses.
Valuation Methods: Income (cash flow-based), Market (comparable businesses), and Asset (valuation of assets/liabilities).
Report Essentials: Signed certification, appraiser qualifications, supporting data, and clear methodologies.
Legal/Ethical Obligations: GAAP compliance, confidentiality protocols, and independent appraisers.

To stay compliant, maintain updated records, conduct regular reviews, and work with certified professionals like NACVA appraisers. This approach minimizes risks and ensures your valuations meet stakeholder and regulatory expectations.

Required Documents and Record Management

Keeping your documentation in order is crucial for meeting valuation standards. Without complete and accurate records, compliance with USPAP, AICPA SSVS, or IRS standards can fall apart.

Required Business and Financial Documents

To ensure compliance, you’ll need to gather a variety of documents that reflect your business’s financial and operational health:

Financial statements: These are the foundation of your records. Collect balance sheets, income statements, and cash flow statements from the past 3–5 years. These should follow Generally Accepted Accounting Principles (GAAP) and include both audited and unaudited versions.
Tax filings: These offer an independent verification of your financial performance. Be sure to gather federal, state, and local tax returns for the same 3–5-year period.
Ownership records: These documents establish who owns the business. Include articles of incorporation, partnership agreements, operating agreements, stock ledgers, and shareholder lists. Don’t forget to include amendments, complete with dates and signatures.
Contracts and agreements: Organize customer contracts, supplier agreements, employment contracts, non-compete clauses, and lease agreements. Include both active contracts and recently expired ones that could still affect future performance.
Asset documentation: For tangible assets, maintain equipment lists, inventory records, real estate deeds, and recent appraisals. For intangible assets, keep records of patents, trademarks, copyrights, customer lists, and proprietary processes.
Licenses and permits: Ensure your business complies with legal and regulatory requirements by gathering all necessary business licenses, certifications, environmental permits, and approvals.

Document Category	Required Period
Financial Statements	3–5 years
Tax Returns	3–5 years
Ownership Records	Current + history
Major Contracts	Active + recent
Asset Documentation	Current

Once these documents are in order, make it a priority to review them regularly to maintain their accuracy.

Document Review and Update Schedule

After assembling the required documents, establish a routine for keeping them up to date and compliant.

Monthly, quarterly, and annual reviews: Check monthly bank statements and payroll records, perform quarterly reconciliations, and conduct an annual audit of all financial documents.
Annual comprehensive reviews: Use this time to update contracts, renew licenses, assess asset values, and verify ownership records. Archive older documents and organize everything for potential audits.

The general rule is to retain supporting documents for at least five years after completing a valuation report [4]. Develop a system for both physical and digital storage, ensuring backups are in place for added security.

"Confidentiality enables businesses to maintain their value without operational disruption or internal discord. Our processes factor this priority in each stage."God Bless Retirement

Digital document management plays a key role in staying organized and compliant. Use systems that offer version control, secure storage, and access logs to track changes and ensure data integrity.

Valuation Process and Method Requirements

When it comes to business valuation, sticking to industry standards is critical. A well-structured process not only ensures your valuation is accurate but also builds trust with key stakeholders - whether you're dealing with banks, courts, or other parties.

Setting Purpose and Scope

Every valuation begins with a clear purpose and scope. This step lays the groundwork for the standards and level of detail required.

"Our process begins with an evaluation of your goals. We listen. We don't pitch. If we can help, we will clearly detail what value we can offer." - God Bless Retirement [3]

Start by defining the specific purpose of the valuation. Different objectives require different approaches and levels of documentation. For example, valuations for selling a business, mergers, tax reporting, estate planning, litigation, or securing financing all demand tailored methods. Each purpose comes with its own set of standards and reporting needs.

Next, define the scope by identifying the intended audience and specifying the valuation date. The audience determines the type of information required. For instance, a bank reviewing a loan application will need different details than a court handling a divorce case. Similarly, the IRS has distinct documentation requirements for tax-related valuations compared to what private buyers might expect. The valuation date is equally important - it should align with the specific event or transaction being assessed. For example, in a merger, the valuation must reflect the agreed transaction date, not an outdated or arbitrary reference point [1][2].

Once the purpose and scope are clear, the next step is selecting the appropriate valuation method.

Choosing and Using Valuation Methods

The choice of valuation method depends on the nature of the business, the data available, and the valuation's intended use.

Income Approach: This method evaluates the business based on its ability to generate future cash flows. It's best suited for businesses with stable earnings. You'll need to document revenue projections, discount rates, and growth assumptions using market data. Be sure to explain any adjustments made to historical financials in detail.
Market Approach: This approach involves comparing the business to similar companies or recent transactions. It requires thorough documentation of comparable businesses, why they were chosen, and adjustments made for differences. Include transaction multiples, market conditions at the time of comparison, and any premiums or discounts applied.
Asset Approach: This method values the business based on its assets and liabilities. It's commonly used for asset-heavy businesses or those in liquidation. You'll need to provide current fair market values for significant assets, supported by recent appraisals for items like real estate, equipment, or intangible assets.

Valuations performed by professionals certified by the National Association of Certified Value Analysts (NACVA) are often more reliable, as these experts are trained to choose the right methods for different business types and document their work thoroughly [3].

"Our NACVA-certified valuations and appraisals are accepted by buyers, sellers, banks, courts, and the IRS. We do not use ballpark estimates that could cost you thousands or millions." - God Bless Retirement [3]

Once you've chosen your method, the last step is to ensure the valuation report meets compliance requirements.

Valuation Report Requirements

To meet professional standards, a valuation report must include specific elements:

Requirement	Compliant Report	Non-Compliant Report
Signed Certification	Present and complete	Missing or incomplete
Appraiser Qualifications	Fully disclosed	Not disclosed or vague
Supporting Data	Comprehensive documentation	Incomplete or missing sources
Logical Consistency	Clear reasoning throughout	Contradictory conclusions
Replicability	Sufficient detail provided	Insufficient methodology detail

Signed Certification: The report must include a certification statement confirming the appraiser's independence, qualifications, and adherence to professional standards. This document must be fully executed to ensure compliance.

Appraiser Qualifications: Clearly disclose the appraiser's credentials, relevant experience, and any potential conflicts of interest. Certifications like those from NACVA demonstrate adherence to recognized standards and help build credibility with stakeholders.

Supporting Documentation: Provide detailed explanations for every assumption, adjustment, and conclusion. A superficial checklist won't cut it - each element must logically support the valuation's findings.

Data Sources: Reference all data sources, including financial statements, market data, and industry reports. Transparency is key; reviewers need to see how you verified the accuracy of your information.

Organizations like The Appraisal Foundation and the American Society of Appraisers (ASA) offer detailed checklists and guidelines to help ensure valuation reports are thorough, logically consistent, and compliant with professional standards [1][5].

Legal, Regulatory, and Ethics Requirements

Sticking to legal standards is essential for ensuring your valuation is trusted and credible. Business valuations are influenced by a maze of legal and regulatory requirements, which depend on the purpose and intended use of the valuation.

Meeting Legal Standards

Complying with legal standards in business valuations means adhering to clear and well-documented guidelines across various areas.

GAAP Compliance: Financial statement adjustments and normalizations must be clearly documented and justified.
Section 409A Compliance: For businesses with deferred compensation plans, this requires independent appraisers and annual updates to avoid penalties and immediate taxation.
Industry-Specific Regulations: These add another layer of complexity. For example, healthcare businesses must address HIPAA requirements, financial services navigate banking regulations, and publicly traded companies adhere to SEC guidelines.

To meet these legal requirements, using NACVA-certified appraisers is often critical. These appraisers are recognized by key entities like banks, courts, and the IRS.

"Our NACVA-certified valuations and appraisals are accepted by buyers, sellers, banks, courts, and the IRS." - God Bless Retirement [3]

Once legal standards are addressed, ethical protocols become the next focus.

Confidentiality and Ethics Requirements

Confidentiality and ethics are cornerstones of a trustworthy valuation process. Mishandling these can derail transactions and harm reputations.

Confidentiality Protocols: Start with NDAs (non-disclosure agreements) for everyone involved in the valuation. These agreements should outline what information is considered confidential, how it can be used, and the consequences of unauthorized disclosure.
Information Security: Protect sensitive data like financial records, customer lists, and proprietary processes with encrypted file transfers, password-protected documents, and restricted access.
Ethical Standards: Appraisers must remain independent, steering clear of conflicts of interest or personal relationships with involved parties. Organizations like NACVA and the American Society of Appraisers (ASA) enforce strict codes of ethics, including continuing education and peer reviews.
Ethical Documentation: Every valuation report should include statements confirming appraiser independence, disclosing any potential conflicts of interest, and affirming compliance with professional standards.

Regular Compliance Reviews

Even after meeting legal and ethical standards, regular reviews are essential to ensure ongoing compliance.

Annual Compliance Audits: These audits should review completed valuations and processes to confirm adherence to current standards. Check for required certifications, disclosures, and complete supporting documentation.
Process Documentation: Maintain consistency by using written procedures for each type of valuation. Include document checklists, standard certification language, and report templates.
Professional Development: Keep teams up-to-date with changing standards through continuing education, participation in professional organizations, and monitoring of regulatory updates.

For high-volume practices, quarterly reviews can help maintain compliance, while smaller operations may find annual reviews sufficient, supplemented by occasional spot checks. Regularly reviewing documentation, processes, and technology systems ensures your valuations remain accurate, secure, and trusted.

Maintaining Compliance and Quality Control

Keeping valuations accurate and defensible is an ongoing process. It requires robust internal controls, expert input, and meticulous documentation to ensure consistent, reliable outcomes. Here's how you can strengthen your compliance and quality control efforts.

Setting Up Internal Controls

Effective internal controls are your first line of defense against compliance issues. These systems help monitor critical aspects of your valuation process and minimize the chances of errors or oversights.

Incorporate quality checkpoints at key stages of the process and require multi-team reviews to double-check calculations, data sources, and documentation. Standardized templates and checklists can help maintain consistency by ensuring all necessary certifications, disclosures, and supporting documents are included.

Make sure valuation reports are signed for certification purposes, as unsigned reports may not hold up during audits or regulatory reviews. Regularly schedule reviews where senior team members examine completed valuations to confirm they align with compliance standards and use consistent methodologies.

While internal controls are essential, bringing in external expertise can further enhance your valuation process.

Working with Professional Networks

Tapping into a network of professionals adds valuable expertise to your valuations, making them stronger and more defensible.

Certified Public Accountants (CPAs) with knowledge of corporate finance, mergers and acquisitions (M&A), and tax law can provide third-party validation by reviewing financial data and addressing tax considerations. Financial planners and tax advisors contribute by clarifying the broader financial implications of valuations, which supports better strategic decisions.

For example, organizations like God Bless Retirement connect you with professionals such as CPAs, financial planners, and private equity specialists. This multi-disciplinary input ensures your valuations are well-rounded and more likely to gain acceptance.

Additionally, due diligence experts and investment bankers bring market insights and verification, helping your valuations reflect current industry trends and conditions.

Documentation and Audit Preparation

Strong documentation practices go hand in hand with internal controls and professional input, creating a comprehensive audit trail that supports your valuations.

Record every step of your valuation process, from confidentiality measures and data verification to quality checkpoints. Keep detailed records of important files like non-disclosure agreements, letters of interest, confidential information memoranda, and asset purchase agreements. This level of organization demonstrates your commitment to process management and confidentiality.

Include detailed research notes, market data sources, and explanations for any adjustments to justify your chosen methodologies. Also, document how you protect sensitive information, such as through access controls, encryption, and strict sharing protocols.

Maintain up-to-date records of certifications, continuing education, and compliance training for your team members. These records not only support internal reviews but also validate external input from professionals.

To stay audit-ready, conduct monthly reviews of your documentation to ensure all files are complete and accessible. Using checklists recommended by professional organizations like the ASA (American Society of Appraisers) and AICPA (American Institute of Certified Public Accountants) can help reinforce both quality and compliance in your valuation practices.

Conclusion

Valuation compliance is the cornerstone of maintaining legal, financial, and ethical integrity in any transaction. The checklist approach we've discussed ensures your valuations align with the high standards demanded by buyers, sellers, banks, courts, and the IRS. At its core, this commitment to compliance starts with a foundation of legal integrity.

Legal integrity relies on partnering with certified professionals whose valuations hold up in legal settings. For instance, NACVA-certified valuations are widely recognized and accepted by key stakeholders, including the IRS and courts. On the other hand, rough estimates can lead to significant financial losses, potentially in the thousands or even millions. Superficial reports that merely touch on critical factors like management or competition often fail during reviews due to their lack of depth and relevance.

Financial integrity requires a thorough and well-documented approach. Every assumption, methodology, and adjustment in the valuation process must be backed by clear evidence. Shifting from rough estimates to detailed analyses can have a profound financial impact, protecting your bottom line and ensuring accuracy.

Ethical integrity safeguards all parties by upholding strict confidentiality and professional standards. This not only preserves the value of the business but also minimizes the risk of operational disruptions during the valuation process.

By adhering to this checklist, you strengthen the legal, financial, and ethical framework of your business valuation. For business owners and brokers, the message is clear: work with certified experts, maintain meticulous documentation, and utilize professional networks. Whether you're collaborating with CPAs, M&A specialists, or due diligence professionals, their expertise adds credibility and ensures compliance.

Achieving compliance isn’t a one-time task - it requires ongoing attention to documentation, regular process reviews, and continuous learning. By embracing this approach, you set the stage for successful transactions that protect all parties involved and withstand scrutiny when it matters most.

FAQs

What happens if a small business doesn’t comply with valuation standards?

Failing to meet valuation standards can spell trouble for small businesses. Skipping these standards often leads to inaccurate valuations, which can damage your reputation with buyers, sellers, and financial institutions. On top of that, it can spark legal disputes, create tax complications, or cause headaches during mergers and acquisitions.

Following proper valuation standards is key to maintaining transparency, accuracy, and trust in every business transaction. For professional support, God Bless Retirement provides certified business valuations along with a detailed checklist to help you stay on track and compliant at every stage.

What is the best way to choose the right valuation method for my business?

Determining the best valuation method for your business hinges on factors like its size, industry, and financial performance. The three most common approaches are asset-based, income-based, and market-based, each tailored to fit specific situations.

At God Bless Retirement, their certified valuation professionals are ready to help you navigate this process. They work to ensure the chosen method aligns with your objectives and provides an accurate picture of your business's worth. With their expertise and connections to a network of financial specialists, they make what might seem like a daunting task much more manageable.

How can I ensure my business valuation stays compliant with legal and ethical standards over time?

To ensure your business valuation adheres to legal and ethical standards, it’s crucial to stick to established valuation methods and collaborate with certified experts. By keeping your valuation updated, you can make sure it accurately reflects current market trends and meets industry expectations.

God Bless Retirement offers professional valuation services tailored to meet these requirements. Their certified valuations are trusted by buyers, sellers, financial institutions, courts, and the IRS - providing peace of mind about their precision and compliance.