Accountant’s Letter or Valuation Report? | IBV™

An accountant’s letter may confirm financial information or explain an accounting treatment within a defined scope. It may not express an independent opinion of market value. Read the wording and limitations rather than treating every letter as equivalent. Ask whether the author has analysed the subject interest, valuation date, assumptions and appropriate methods or simply summarised supplied figures.

Does the scope address related party dealings, owner responsibilities and material contractual restrictions? Is asset inclusion clear? Has the author explained conflicts or relationships that could affect independence? Are information gaps disclosed? A document that leaves these questions unanswered may require further work, regardless of the professional title of its author or the number of pages supplied.

Request a written description of deliverables, exclusions, permitted reliance and follow-up arrangements. Do not compare prices for unlike tasks or assume a cheaper document carries the same analysis. This guide does not publish competitor fees or claim that any format guarantees acceptance. A useful deliverable is a requirements matrix matching each recipient’s request to the proposed work.

Suppose an owner needs a document for a proposed shareholder exit. Their accountant confirms last year's revenue and net profit in a letter. Those figures may be accurate, but they do not answer how much the departing shareholder's interest is worth. That second question requires consideration of the interest's rights, sustainable earnings, financing and the assumptions relevant to the exit. The difference is between establishing a financial starting point and reaching a reasoned conclusion from it.

An accountant can also undertake valuation work where appropriately qualified and engaged to do so. It would therefore be wrong to dismiss a document because an accountant prepared it, or to treat the word “independent” on a cover as sufficient assurance. Read the actual assignment: what question was answered, what information was examined and what work was excluded? The author's role and the substance of the analysis matter more than the document's name.

Financial statements describe recognised income, expenses, assets and liabilities under an accounting framework. A valuation uses relevant records to assess the economic benefits and risks of a defined interest. The two exercises can overlap without being interchangeable. Historical profit does not automatically describe future maintainable earnings, and an accounting asset balance does not automatically establish its market value.

Consider an owner who takes little salary but manages sales, staffing and customer relationships. A profit figure that ignores the commercial cost of replacing those duties can overstate the earnings available to a purchaser. Conversely, a documented exceptional expense may require different treatment from an ordinary recurring cost. The report should explain adjustments individually, including why any replacement expenditure is or is not necessary.

Then ask how an operating-business conclusion becomes the value of the particular interest. Relevant debt, cash, surplus assets, working-capital assumptions and ownership rights may need consideration. A letter that simply multiplies last year's profit without explaining these boundaries might leave the recipient unable to understand what the number represents.

APES 225 distinguishes valuation, limited-scope valuation and calculation engagements. These descriptions concern the agreed scope and nature of the work; they are not merely different document lengths. An engagement that restricts information or predetermines approaches should not be read as though the valuer had unrestricted access and discretion. Ask which engagement is proposed and how its limitations affect the conclusion.

IBV voluntarily aligns with APES 225 guidance; its mandatory member requirements do not apply universally to every provider. The practical question for an owner remains whether the scope can answer the intended question. A package name or page count cannot settle that issue. Obtain a plain-language explanation of the work to be undertaken before signing the engagement.

A useful proposal identifies the information expected from management, any verification or corroboration planned, methods to be considered and important exclusions. It should explain what happens if the evidence proves incomplete. Otherwise a client may assume that matters outside the agreed scope have been investigated when they have not.

This is an illustrative decision scenario, not an IBV client matter. Two shareholders wish to use the same financial information to discuss an exit. Their records show a related-party loan, a premises lease approaching renewal and an owner performing an unpaid operational role. A short letter confirms the recorded balances and annual profit. A valuation engagement would need to assess which of those facts affect the instructed shareholding and how.

The adviser should also check the shareholder agreement for any prescribed valuation basis, date or process. A market-value opinion may not be the contractual answer if the agreement requires something else. Independence cannot resolve an incorrectly framed instruction; the parties must first agree what the document is intended to establish.

The owner can then compare proposals by asking whether each addresses owner replacement costs, the loan, lease continuity, the rights of the holding and permitted reliance. This comparison is more meaningful than asking which provider supplies the thickest report or the cheapest document.

Read who can value a business and discuss legal or tax requirements with your adviser. Current IBV pricing belongs on the central fees page. Whoever you engage, ask how they are paid first—why an independent business valuation changes the answer explains what the fee structure reveals. Standard delivery is 5–7 business days after complete information and a signed engagement are received.

This guide provides general information, not legal or tax advice. Examples are illustrative, not client cases or market benchmarks. Your adviser should confirm the requirements applicable to your transaction.