STANDARD 9.

In developing a business appraisal, an appraiser must be aware of, understand, and correctly employ those recognized methods and techniques that are necessary to produce a credible appraisal.

Comment: Standard 9 is directed toward the same substantive aspects set forth in Standard 1, but addresses business appraisal. Standards Rule 1-9.

In developing a business appraisal, an appraiser must:

1. (a) be aware of, understand, and correctly employ those recognized methods and techniques that are necessary to produce a credible appraisal;

   Comment: S.R. 9-1(a) is identical in scope and purpose to S.R. 1-1(a). Changes and developments in the economy and in investment theory have a substantial impact on the business appraisal profession. Important changes in the financial arena, securities regulation, tax law and major new court decisions may result in corresponding changes in business appraisal theory and practice.

2. (b) not commit a substantial error of omission or commission that significantly affects an appraisal;

   Comment: S.R. 9-1(b) is identical in scope and purpose to S.R. 1-1(b).

3. (c) not render appraisal services in a careless or negligent manner, such a series of errors that, considered individually, may not significantly affect the results of an appraisal, but which, when considered in the aggregate, would be misleading.

   Comment: S.R. 9-1(c) is identical in scope and purpose to S.R. 1-1(c).

   Standards Rule 9-2.

   In developing a business appraisal, an appraiser must observe the following specific appraisal guidelines:

4. (a) adequately identify the business enterprise, assets, or equity under consideration, define the purpose and the intended use of the appraisal, consider the scope of the appraisal, describe any special limiting conditions, and identify the effective date of the appraisal;

5. (b) define the value being considered.

   1. (i) if the appraisal concerns a business enterprise or equity interests, consider any buy-sell agreements, investment letter stock restrictions, restrictive corporate charter or partnership agreement clauses, and any similar features or factors that may have an influence on value.

   2. (ii) if the appraisal concerns assets, the appraiser must consider whether the assets are:

      1. (I) appraised independently; or

      2. (II) appraised as parts of a going concern.

         Comment: The value of assets held by a business enterprise may change significantly depending on whether the basis of valuation is acquisition or replacement, continued use in place, or liquidation.

   3. (iii) if the appraisal concerns equity interests in a business enterprise, consider whether the interests are appraised on a majority or minority basis.

      Comment: S.R. 9-2(b)(iii) is identical in scope and purpose to S.R. 1-2(d).

      Standards Rule 9-3.

      In developing a business appraisal relating to a majority interest in a business enterprise, an appraiser must investigate the possibility that the business enterprise may have a higher value in liquidation than for continued operation as a going concern. If liquidation is the indicated basis of valuation, any real estate or personal property to be liquidated must be valued under the appropriate standard.

      Comment: This rule requires the appraiser to recognize that continued operation of a marginally profitable business is not always the best approach as liquidation may result in a higher value. It should be noted, however, that this should be considered only when the business equity being appraised is in a position to cause liquidation. If liquidation is the appropriate basis of value, then assets such as real estate and personal property must be appraised under Standard 1 and Standard 7, respectively.

      Standards Rule 9-4.

      In developing a business appraisal, an appraiser must observe the following specific appraisal guidelines when applicable:

   Comment: S.R. 9-2(b) is identical in scope and purpose to S.R. 1-2(b).

6. (a) value the business enterprise, assets or equity by an appropriate method or technique.

7. (b) collect and analyze relevant data regarding:

   1. (i) the nature and history of the business;
   2. (ii) financial and economic conditions affecting the business enterprise, its industry, and the general economy;
   3. (iii) past results, current operations, and future prospects of the business enterprise;
   4. (iv) past sales of capital stock or partnership interest in the business enterprise being appraised;
   5. (v) sales of similar businesses or capital stock of publicly held similar businesses;
   6. (vi) prices, terms, and conditions affecting past sales of similar business assets;

   7. (vii) physical condition, remaining life expectancy, and functional and economic utility or obsolescence.

      No pertinent information shall be withheld.

      Comment: This guideline directs the appraiser to study the prospective aspects of the business enterprise and to study it in terms of the economic and industrial environment within which it operates. Further, sales of securities of the business itself or  similar businesses for which sufficient information is available should also be considered.

      This guideline also requires the appraiser to investigate and take into account not only that loss of value that results from deterioration due to age but also loss of value due to functional and economic obsolescence. Economic obsolescence is a major consideration when assets are considered as parts of a going concern. It is also the criterion in deciding that liquidation is the appropriate as if for valuation.

      Standards Rule 9-5.

      In developing a business appraisal, an appraiser must:

8. (a) select one or more approaches that apply to the specific appraisal assignments;

9. (b) consider and reconcile the quality and quantity of data available for analysis within the approaches that are applicable.

   Comment: This rule requires the appraiser to use all approaches for which sufficient reliable data are available. However, it does not mean that the appraiser must use all approaches in order to comply with the rule if certain approaches are not applicable.