Rating the Business Valuation Credentials

Imagine a world where your accountant's audit team came with assorted credentials. Instead of just Certified Public Accountants (CPAs), there were Accredited Senior Auditors (ASAs), Accredited Public Accountants (APAs), even Chartered Business Accountants (CBAs), each with different levels of training and experience, and all arguing that their credential demonstrates superior knowledge of the profession. It would certainly make ascertaining the basic competence of an auditor more difficult.

That is precisely the dilemma faced by users of business valuation experts. BV is a tiny profession, with estimates of just 5,000 credentialed experts nationwide, yet we support not one, not two, but FIVE credentials. There is the Accredited Senior Appraiser (ASA) credential offered by the American Society of Appraisers, the Accredited in Business Valuation (ABV) offered by the AICPA, the Certified Valuation Analyst (CVA) and Accredited Valuation Analyst (AVA) credentials offered by the National Association of Valuation Analysts (NACVA), and the Certified Business Appraiser (CBA) credential offered by the Institute of Business Appraisers (IBA). Both the NACVA and the IBA are owned by the Consultants Training Institute (CTI). Got all that?
 
This BV equivalent of interservice rivalry has had good and bad effects. On the plus side, people argue that competition among the BV credentialing organizations has led to more continuing professional education options and more published BV journals. On the negative side, it makes it hard to establish a public image for the BV profession, which leads to a lack of knowledge among the public, and creates skepticism in important subsets of the public, such as judges. Moreover, with competition among multiple credentials, there is the temptation for one credential to attract more members by watering down the requirements for entry. If the public cannot tell the difference from one credential to the other, people looking to enter the BV profession might choose the easiest, shortest (and cheapest) route.
 
So let's take a look under the hood of the BV credentials. All of them require a college degree (or equivalent) and professional references, so no differentiation there. (Let's hope the college degree is in a subject related to valuation, such as finance, accounting, economics or business). Now look at valuation-specific training. The CTI credential seekers all take the same 45 hour course, and the ABV training is better at 75 hours, but the ASA requires 5 courses comprising 123 hours. Huge difference here. All the credentials include a case study in their training, but only the ASA and CBA require the submission of client valuation reports for accreditation. Approval of a client report is an acid test of whether a BV expert can put it all together. Advantage ASA andCBA.
 
For experience, the ABV only requires 150 hours, which I will call one month of experience.  The CTI credentials require two years of either CPA or valuation experience. The ASA leads again, requiring 5 years of full time valuation experience (those with only 2 years of experience are given the lesser credential of Accredited Member until they practice five years).   All the credentials require the holder to participate in significant continuing education.
 
So what is really required to make a good expert? In my opinion, the ASA is on the right track to require significant valuation training. The business valuation profession has developed unique concepts not normally part of accounting or finance curriculums at colleges, so a 120 hour minimum valuation-specific education and training requirement is not much to ask before someone claims to be an expert. Moreover, valuation is a profession that requires judgment, and judgment is developed from education tempered by practical experience doing valuations. A two year valuation experience minimum should be required to earn a credential, and I like the idea of a master level credential for experts with more than five years of experience.
 
Of course, when you raise these issues among BV professionals, they say it will never happen because there are too many people with the current credentials who will oppose any change. I think this problem can be overcome by counting continuing education. In other words, give all holders of BV credentials five years to get their 120 hours of valuation training. Since all current BV credential holders are starting with at least 45 hours, that is not much more than the existing CPE requirements. Having them all submit one client report for peer review by their respective BV organization within five years is also reasonable. Requiring two years of full time valuation experience to hold a credential is the minimum to be credible. (Note to CTI: Having three BV credentials with essentially the same requirements is ridiculous, combine them into one credential).
 
The bonus is that when every BV credential requires 120 hours of training and at least 2 years of valuation experience, it would be possible to create an umbrella credential for the whole profession that would accrue automatically to holders of the individual credentials from the various BV organizations. Combine this with an umbrella organization to promote business valuation to the public and lobby Congress on behalf of the profession, and we are on our way to getting the recognition with the general public and pull with Congress that the CPAs enjoy today. Plus we still get to keep the course diversity, social networking and professional development generated by the current competition between the BV credentialing societies.

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Raymond J. ("RJ") Dragon MBA, MS, ASA, CFFA is a Principal in Citrin Cooperman's Valuation & Forensic Services practice in the New Jersey / New York City area.  His work encompasses valuations for litigation support, marital dissolution, shareholder disputes, estate and gift tax, intangible asset valuation, purchase price allocation and financial reporting.

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