Acc 9993 Midterm 1-3

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Baruch College, CUNY *

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9993

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Accounting

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Apr 3, 2024

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NACVA/IBA's Professional Standards refer to "Conclusion of Value" as a. Appraisals and calculations b. Opinions of value and estimate of value c. Appraisal reports and specific opinion of value d. Estimates and appraisals The value of an interest in a closely-held business is typically considered to be equal to: a. The past benefits that will be received from the business, projected to the present, at an appropriate discount rate b. The future benefits that will be received from the business, discounted to the present, at an appropriate discount rate c. Current year benefits d. All of the above e. None of the above Which is often regarded as the single most important piece of valuation literature? a. Revenue Ruling 59-60 b. Revenue Ruling 68-609 c. Revenue Ruling 93-12 d. Revenue Ruling 77-287 Within a business context, the concept that property has no value unless it can be exploited essentially meas that, above all else, value is derived from: a. A proven record of earnings capitalized at an appropriate rate of return based on the investor's risk preference b. Future benefits discounted to the present c. Tangible assets that have functional use in a going concern d. All of the above In estimating the value of the enterprise a. Do not create a work file to document detailsas this will land you in court and someone else will steay your ideas. b. Review your files, deleting all resources that you did not request specific permission to use c. Document your work papers so that the firm you work for signs the report, which will keep your insurance premiums lower. d. Remember to keep the same standard of value throughout your report As a general rule, business valuations should NOT be performed for companies that have buy-sell agreements a. Incorrect b. Correct Buy-sell agreements: a. Cannot be based upon a formula described within the agreement b. Always require an independent valuation c. Never require an independent valuation d. All of the above e. None of the above In generalall categories of business valuation fall under two main valuationswhich are:

a. Tax related and non-tax related b. Fair Market Value and Investment Value determination c. Estate tax and marital divorces d. Purchase or sale of business Non-tax related valuations include a. Allocations of lump-sum purchase price b. Estate tax c. Employee Stock Ownership Plan (ESOP) d. None of the above What event in the 1920s forced the need for valuations of a closely-held business? a. Prohibition b. The Depression c. The end of World War 1 d. The creation of the AICPA What is the basic difference between an appraisal and a valuation? a. The act or process of determining the value of a business, business ownership interestsecurity, or intangible asset is an appraisal whereas a valuation is the process of determining the value of gems, equipment, furnishings, and other tangible assets to be used in determining the value of a business b. Nothing; they are the same thing c. An appraisal is usually for a tangible asset and a valuation is usually for stock or interest in stock of a company or other intangible asset d. Valuation is usually for stock or bond or other public security and an appraisal is usually for a non-public assetstockor bond Which factors have dramatically increased the demand for business valuation? a. IRS requirements b. Economic instability and age demographics C. More marketing by NACVA d. Increase in the number of available business valuation analysts Which of the following statements does NOT describe "Fair Market Value?" a. All parties to the sale have full and complete knowledge of the relevant facts b. In order to adequately account for the expected transaction benefits, an income approach is often considered most appropriate and functional c. Property would exchange hands between a hypothetical willing and able buyer and a hypothetical willing and able seller. d. The transaction is not conducted under compulsion or duress Which standard of value is used when preparing valuations under U.SGenerally Accepted Accounting Principles (GAAP)? a. Fair Market Value b. Intrinsic Value c. Fair Value d. Investment Value All buy-sell agreements do NOT necessitate an independent valuation to be performed.

a. Incorrect b. Correct Synergistic Value" is best defined as: a. The ability to quickly convert property to cash at minimal cost b. The value of future economic benefits calculated using an appropriate discount rate c. The value that reflects the subjective relationship between a particular investor and a given investment d. The value an investor places on the acquisition of a stock that rounds out the investor's portfolio diversification "The price at which property would change hands between a willing buyer and a willing seller, when the former is NOT under any compulsion to buy and the latter is NOT under any compulsion to sellboth parties have reasonable knowledge of the relevant facts" reflects which standard of value? a. Investment Value standard b. Fair Market Value standard c. Fair Value standard d. Market Value standard Fair Value is the same as Fair Market Value. a. Incorrect b. Correct If the standard of value is Fair Market Value, then: a. The value is to a hypothetical buyer or seller b. The value is to a particular buyer or seller c. The cost of capital is a function of the investment not the investor d. Both a and c In valuation services involving mergerswhich standard of value is most generally used? a. Investment Value b. Fair Market Value c. Fair Value d. All of the above The value to a particular investor based on individual investment requirements and expectations is the definition of a. Fair Market Value b. Fair Value c. Investment Value d. Capitalized Value There are three theoretical standards of valueThey are: a. Investment ValueGoing Concern Valuc, and Fair Market Value b. Fair Market Value, Investment Value, and Fair Value c. Going Concern Value, Asset Value, and Fair Value d. Asset Value, Fair Market Valueand Liquidation Value Valuation analyses differ finder different standards of value because different underlying assumptions lead to different conclusions.

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a. Incorrect b. Correct What are the types of services recognized by NACVA/IBA's Professional Standards? a. NACVA/IBA Professional Standards recognize three broad types of services, Conclusion of Value ServicesOpinion of Value Servicesand Estimate of Value Services b. NACVA/IBA Professional Standards recognize two broad types of services, Conclusion of Value Services and Opinion of Value Services. c. NACVA/IBA Professional Standards recognize two broad types of servicesConclusion of Value and Calculation of Value d. NACVA/IBA Professional Standards recognize two broad types of services, Conclusion of Value Services and Estimate of Value Services What is the definition of Fair Value? a. The cash received for an asset or paid to transfer a liability in a transaction between market participants at the closing date. b. The price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date c. The price that would be received for an asset or paid to transfer a liability in a transaction between the buyer and the seller at the measurement date. d. The price that would be received for an asset or paid to transfer a liability in a liquidation transaction between market participants at the measurement date. The standard used in all Federal tax matterswhether it be gift taxes, estate taxes, income taxes, or inheritan taxes is: a. Fair Value b. Fair Market Value c. Investment Value dGoing Concern Value d. Intrinsic Value An orderly liquidation of assets occurs when a company's assets are sold as quickly as possible. a. Incorrect b. Correct Going Concem Value may include the following: a. A fully operational computer system b. Equipment with a book value of zero c. A trained work force d. Both b and c e. All of the above Liquidation Value and Going Concern Value are examples of a. Premises of Value b. Standards of Value c. Both a and b d. Neither a or b The cost to replace an asset under a particular fact situation is known as:

a. Replacement cost b. Strategic Value c. Fair Market Value d. Fair Value The definition of Fair Market Value found in Revenue Ruling 59-60 states that a. The buyer and seller are willing and able to act b. The buyer and seller are hypothetical c. The buyer and seller have reasonable knowledge of the relevant facts d. All of the above The two main types of business valuations are: a. Controlling and minority interest valuations b. Tax valuations and divorce valuations c. Capitalization and discounting method valuations d. All of the above Which of the following is a premise of value? a. Going Concern Value b. Liquidation Valuc c. Neither a or b d. Both a and b Which of the following is included in the five categories of the fundamental elements of value" used by investors? a. Prospects for liquidity b. Capital appreciation c. Dividend yield d. Both b and c e. All of the above Which value is typically the highest? a. Going concern b. Orderly liquidation c. Forced liquidation d. Auction value All other things equala company would generally sell for more in an asset sale than in a stock sale (scenario) a. Incorrect b. Correct All of the following are acceptable reports under the AICPA's Statements of Standards for Valuation Services EXCEPT: a. Detailed b. Estimated c. Calculation d. Summary Capitalization and discount rates are always on a

a. Marketable basis b. Non-marketable basis c. Control basis d. Minority basis In generalwhen would the market pay a premium for a security interest? a. When the buyer has no expected synergies from the entity b. When the buyer obtains liquidity and control in the acquisition c. When the transaction is for financing purposes d. None of the above The general valuation model describes Enterprise Value as all of the following EXCEPT: a. Present value of net cash flows to creditors plus present value of net cash flows to stockholders b. Market capitalization plus leverage (debt) c. Present value of net cash flows to total invested capital d. Market value of common equity Under an Investment Value standard, what is the term for the formula Net Cash Flow (invested capital basis)/Required Return" a. Enterprise Value b. Essence of Value c. Present Value d. Drivers of Value What is the difference between an opinion of value and an estimate of value? a. An estimate of value is intended to be the most unambiguous expression of value andtherefore, can only be expressed as a single valueAn opinion of value may be stated as a range of values whenin the sole professional judgment of the valuation analyst, an estimate of value cannot be stated b. An estimate of value is the value provided verbally by the analyst before all the qualifications are determinedwhereas an opinion of value is provided by the analyst in the reportThese two values may be different but both are valid. c. An opinion of value is intended to be the most unambiguous expression of value and, therefore, can only be expressed as a single valueAn estimate of value may be stated as a range of values when, in the sole professional judgment of the valuation analyst, an opinion of value cannot be stated d. An opinion of value is a single numberas calculated by the analyst; an estimate of value is a single numberwhich is approximately midway between a range of values estimated by the analyst When valuing a controlling interest: a. The Discounted Cash Flow Method cannot be used b. Consideration of the value of invested capital is generally preferred over equity values c. Capital Asset Pricing Model (CAPM) cannot be used because it represents minority interests d. All of the above Which item is true about a lack of control interest in a company? a. No voting rights b. Tends not to be able to set management compensation

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c. Will receive dividends secondarily after controlling interests d. Can purchase and sell assets held by the company e. None of the above Which of the following may be a method for determining minority interest? a. The Bottom-up Method b. The Discounted Cash Flows Method c. The Horizontal Method d. All of the above A scope limitation identifies areas of: a. Concern the analyst has about the company's finances b. Work not done by the analyst which affects the reliability of the results c. Public company losses in the stock market d. Concern about the global nature of the economy Independence for the valuation analyst means: a. You cannot give a Conclusion of Value orally b. You cannot give a Conclusion of Value to a friend c. You cannot give a Conclusion of Value when you own stock in the company without disclosing your ownership interest in the report d. All of the above The IRS's definition of Fair Market Value" includes all of the following EXCEPT a Willing buyer and willing seller b. Both parties have reasonable knowledge of the relevant facts c. The willing buyer is under no compulsion to buy and the willing seller is under no compulsion to sell d. The terms of the deal must satisfy the expectations of both parties The three standards defined by NACVA/IBA are a. General development and reporting b. General ethical, and reporting c. Reporting, developmental, and valuation methods d. Ethical independence and reporting When using the value of real estate provided to you by a third-party appraiser, which of the following information listed below should be included in your valuation report or workpapers? a. The date of the third-party's appraisal report b. The name of the appraiser c. A description of the property that was appraised d. All of the above Which of the following statements is correct about cost of capital and terminology? a. The terms "discount rateand "capitalization rate" should be used interchangeably b. The "discount rateequals the capitalization rateminus expected sustainable long-term rate of growth c. The capitalization rateequals the discount rate" minus expected sustainable long-term rate of growth d. None of the above

Revenue Ruling 82-120: a. Amplified Revenue Ruling 59-60 b. Preceded Revenue Ruling 59-60 c. Contains guidelines for valuing preferred stock d. Both a and c A firm cannot sign the valuation report a. Incorrect b. Correct A valuator relies on quantifiable objective data in performing a valuation, attempting to remove as much subjectivity as possibleAn advocate: a. Does essentially the same thing for a specific client b. Introduces subjective factors and attempts to rely more heavily on qualitative factors c. Is a valuator who works only for attorneys d. Is an attorney who works for a valuation firm to edit valuation reports to prevent ambiguous terms and advocates the use of proper legal terms so the firm won't be sued According to the Development Standardsa member must identify all of the following EXCEPT a. Premise of value b. Valuator's industry experience c. Subject to be valued d. Purpose and use of the valuation Adherence to NACVA/IBA's Reporting Standards is required when rendering a. Conclusion of Valuc b. Valuation for Litigation c. Calculated Valuc d. Both a and b e. Both a and c An engagement letter for valuation services should identify the purpose of the valuation engagement a. Incorrect b. Correct Development Standards include which of the following: a. Contingent fees b. Valuation approaches and methods c. Integrity and objectivity d. Understandings and communications with clients Engagement letters for valuation engagements are a. Useless from a liability standpoint b. Always required if you are certified by NACVA or the IBA c. An unnecessary nuisance d. Not required by professional standards if the understanding with the client was communicated orally FASB's ASC 805-Business Combinations (formerly known as SFAS 141R) sets forth standards that apply to the following:

a. Guidance on the application of the purchase method of accounting b. Guidance on the application of the pooling of interest method of accounting c. Establishes useful lives for purchasing goodwill and intangibles d. Retrospective and prospective business combinations If a member is following NACVA/IBA's Professional Standards they may NOT find it necessary to consider guidelines and/or requirements established by other organizations such as the IRS a. Incorrect b. Correct NACVA/IBA's Professional Standards apply to reports for valuing economic loss or damages: a. When Rule 26(a)2(b) is invoked b. When the underlying asset is real estate, and Uniform Standards of Professional Appraisal Practice (USPAP) applies c. For CVAS, so that they may be in compliance with AICPA standards d. Not at all NACVA/IBA's Development and Reporting Standards apply only to the following work product: a. Calculations of Value ayd Estimates of Value b. Estimates of Value and Appraisals of Value c. Opinions of Value and Estimates of Value d. Appraisal Reports and Oral Reports The date of the report: a. Should be as close to the valuation date as possible b. Should match the valuation date to be most accurate c. Is not related to the date of the valuation d. Will impact the taxes paid by the company owner or stockholder Which of the following items is NOT required to be included in a Conclusion of Value report? a. List of stockholders b. A statement regarding financial independence or lack thereof c. Description of interest being valued d. Identification of the premise of value Which of the following items should be included in the "body" of a Conclusion of Value report? a. Applicare court cases for your report b. Description of interest being valued b c. Purpose of the valuation d. Both b and c e. All of the above Which of the following would cause you NOT to be independent in accordance with NACVA/IBA's Ethical Standards? a. Your firm prepares annual reviewed financial statements for the subject company b. You own less than 5% of the company c. You own more than 5% of the company d. Both b and c What is the difference in valuations when one is acting as an expert and one as a consultant? a. Objectivity b. Cost and credibility

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c. The credentials held d. There is almost no difference A valuator may perform a valuation engagement for a contingent fee when expressing a Conclusion of Value. a. Incorrect b. Correct Although there is conceptual support for applying discounts for the built-in gain or the capital gains tax at liquidation, the IRS has yet to support such a discount a. Incorrect b. Correct Any intangible asset (such as a trained and assembled workforce) that does NOT meet the separate recognition tests set forth in ASC 805 (formerly known as SFAS 141R) should be classified as part of goodwill a. Incorrect b. Correct Because of variances in the findings of different tax courts, the text indicates there is little value in reading and understanding court rulings for planning purposes and to further ensure the defensibility of valuation reports a. Incorrect b. Correct Besides NACVA/IBA's Professional Standardsmembers may also find it necessary to consider guidelines and/or other requirements established by other organization or authoritiesMembers must consider which of the following: a. Department of Labor regulations b. Internal Revenue Service rulings and regulations c. Federal and State laws d. Rules of applicable courts e. All of the above Copyrighted formulas meet the criteria of ASC 805-Business Combinations (formerly known as SFAS 1412) as a technology-based intangible asset a. Incorrect b. Correct FASB's ASC 350 addresses how goodwill and other intangible assets should be accounted for after they have been recognized in the financial statements a. Incorrect b. Correct In which of the following cases was the Internal Revenue Code (IRC) 6660 (the predecessor section to 6662) penalty ultimately affirmed by the courts? a. Mandelbaum b. Berg c. Carpenter d. None of the above

IRC 2703 states that for estategift, and other tax purposes, the value of any property is determined without regard to any right or restriction relating to the propertyUnder IRC 2703an exception exists for any optionagreementrightor restriction which: a. Is comparable to similar arm's length arrangements b. Is a bona fide business arrangement c. Is not a device to transfer property for less than its Fair Market Value d. Both a and c e. All of the above Market participants are buyers and sellers in the principal or most advantageous) market that are a. Independent of the reporting entity, knowledgeable of an asset in the transaction; able to purchase an asset; motivated to purchase the asset b. Knowledgeable of the reporting entity and the asset in the transaction; able to purchase an asset; motivated to purchase the asset c. Knowledgeable of the reporting entityindependent of an asset in the transaction; able to purchase an asset; motivated to purchase the asset d. Independent of the reporting entity and the asset in the transaction, able to purchase an assetmotivated to purchase the asset New provisions in the Pension Protection Act (PPA) signed into law in August 2006 provide for increased penalties to valuators in certain circumstances Some steps a valuator should consider taking to reduce the chances of a valuation penalty are: a. Refuse to value any entity or asset outside the valuator's area of expertise or authority b. Disclose all known, relevant facts in the valuation report c. Refuse or withdraw from any engagements if influenced to arrive at a preconceived value or result d. Use an appropriate, extensive information gathering process e. All of the above Patents, trademarks, and copyrights all have statutory damages. a. Incorrect b. Correct Revenue Ruling 59-60 indicates that sound valuations must consider: a. The application of a reasoned assessment b. The use of all available rumors about the business c. A review and analysis of all the relevant facts of the business d. The use of tangential economic tables e. The valuators use of common sense Revenue Ruling 59-60 lists certain factors that must be considered in a valuation. They are: a. The earning capacity of the company b. An appraisal of all of the fixed assets of the company c. The nature and history of the business d. Both a and b e. Both a and c Revenue Ruling 59-60 mentions which of the following

a. Dividend paying capacity b. Regression analysis c. Using a capitalization rate of at least 18%-20% d. Using a discount rate of at least 25%-30% e. None of the above Revenue Ruling 59-60 recognizes the need for the analyst to have: a. Common sense and informed judgment b. The ability to perform tax research c. A professional credential in the field of business valuation d. All of the above Revenue Ruling 59-60 was issued in 1960. a. Incorrect b. Correct Revenue Ruling 59-60 was written to provide the following guidance: a. How to determine the Investment Value of closely-held stock when merging two companies b. How to determine the Fair Market Value of closely-held stock for gift and estate tax valuations c. How to determine the Fair Value of closely-held stock for dissenting stockholdersappraisal rights d. None of the above Revenue Ruling 68-609: a. Introduced the "formula" approach used in determining the Fair Market Value of intangible assets b. Modified Revenue Ruling 65-193 c. Both a and b d. Neither a or b Revenue Ruling 77-287 offers procedures to a. Develop the capitalization rate used to value closely-held stock b. Offer guidance for the valuation of real estate C. Support use of the income approach to value closely-held stock d. Value stock for federal income tax purposes that is restricted by federal securities laws Select the best responseCan a valuation professional value a business if he or she also performs attestation or other accounting services for a client? a. Always b. Never C. Providing it is not a Securities and Exchange Commission (SEC) client, it gets disclosed in the reportand the valuation does not have a material impact on the financial statements d. Only if the client does not represent a material amount of revenues for the accounting practice The four possible outcomes of any tax audit related to valuations include which of the following: a. Not agreed b. No change C. Agreed d. All of the above The major point(s) of Internal Revenue Code 2703 is(arc)

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a. Each right or restriction must be tested separately. A right or restriction is considered to meet the three 'safe harborrequirements if more than 50% of the applicable property is owned by individuals who are not members of the transferor's family. Property owned by non-family members must be subject to the same rights or restrictions b. For estate, gift, and other tax purposes, the value of any property is determined without regard to any right or restriction relating to the property c. An exception to restrictions on property exists for any option, agreementright, or restriction which (1) is a bona fide business arrangement(2) is not a device to transfer property for less than its fair market value, (3) is comparable to similar arm's length arrangements, and (4) these safe harbors must be independently satisfied. The mere showing that a right or restriction to property is a bona fide business arrangement is not sufficient to establish the absence of a device d. Both b and c e. All of the above The valuation factors described in Revenue Ruling 59-60 are widely accepted for tax and non-tax purposes a. Incorrect b. Correct The willing buyers and sellers mentioned in Revenue Ruling 59-60 are: a. Your clients b. Hypothetical buyers or sellers c. Specific buyers and sellers d. All of the above Under Revenue Ruling 59-60, current and prospective economic conditions are NOT necessary to consider in valuing closely-held stock. a. Incorrect b. Correct What statement established the basic standards for gift, estate, and inheritance taxes? a. TAM 69543330005 b. Revenue Ruling 59-60 c. Revenue Ruling 69-50 d. FASB Accounting Standards Codification 820 (formerly known as SFAS 157) 27Which IRS pronouncement introduced the key concepts of1) goodwill exists if a business has excess earnings, and 2) goodwill value is determined by capitalizing excess earnings? a. ARM 34issued in 1920 b. Revenue Ruling 68-609, which introduced a "formula" method C. Revenue Raling 65-193which modified Revenue Ruling 59-60 d. Revenue Ruling 59-60 Which is considered the most important IRS pronouncement regarding business valuation theory? a. ARM 34 b. Revenue Ruling 68-609 C. Revenue Ruling 93-12

d. Revenue Ruling 59-60 Which of the following is NOT a required disclosure per the IRS Adequate Disclosure Requirements? a. Description of compliance with Uniform Standards of Professional Appraisal Practice (USPAP) b. Description of the transferred property and any consideration received c. Description of any discounts d. Description of the method used to determine the Fair Market Value of the property transferred Which of the following is NOT included in the 4-point test created in the Daubert case? a. Can theory or techniques used be tested, or have they been tested? b. Has the theory or technique been poer reviewed or published? c. Is there case law that supports the theory or technique? d Is the technique generally accepted? Which of the following is the result of Revenue Ruling 93-127 a. Discounts for lack of control are calculated differently for transfers of ownership interests to family members than to non-family members b. Ownership interests with swing vote characteristics eliminates any discount for lack of control. c. The value of interests ansferred in life is less than the value of the same interest transferred at death. d. Lack of control discounts are eliminated for ownership interest transfers to family members The purpose of IRS Revenue Ruling 59-60 is to outline and review: a. In general the approach, methods, and factors to be considered in valuing shares of capital stock of closely-held corporations for estate and gift tax purposes b. Specific approaches, methods, and factors to be considered in valuing shares of capital stock of closely held corporations for estate and gift tax purposes c.Factors to be considered in valuing shares of capital stock of closely-held corporations for estate and gift tax purposes d. Approaches and methods to be considered in valuing shares of capital stock of closely-held corporations for estate and gift tax purposes e. None of the above Which IRS pronouncement introduced the valuation method referred to as the Excess Earnings Method? a Revenue Ruling 59-60 b. ARM 34 c. Revenue Ruling 68-609 d. Revenue Ruling 98-34 Revenue Ruling 59.60 requires consideration of which of the following: a. Dividend paying capacity b. Regression analysis c. Using a capitalization rate d. All of the above Businesses that have less than $5,000,000 a year in gross revenues are NOT required to have annual business valuations performed for their Employee Stock Ownership Plans (ESOPs) a. Incorrect

b. Correct In order to perform the necessary due diligence in a business valuation, the analyst requests certain information from the clientWhich of the following would LEAST likely be requested? a. The names of cach owner and their ownership percentage b. Detailed information regarding previous transactions of company stock c. Information about the company's competition and how the company competes d. A flow chart of the company's internal controls In writing a business valuation report, the analyst purchases outside research as a resourceThis is: a. Unethical because it means the analyst doesn't really understand the company being valued b. Unethical because the business owner doesn't want to pay anyone else c. Ethical so long af the analyst reads and understands and directly relates the material provided by the outside resources to the company being valued d. Ethical so long as the business owner doesn't have to pay directly for the research report Which of these is usually considered the first of the five major steps of a valuation engagement? a. Analyze information b. Estimate the enterprise value c. Define the valuation engagement d Gather necessary information e. Prepare and issue the valuation report You have been engaged to valuefor estate tax purposes, a manufacturing company with $1,000,000 in salesAt what point should you make a site visit? a. Before performing any analysis of the company b. After a preliminary analysis of the company c. After examining all financial records but before doing any analysis d. Only if the executor of the estate asks you to e. Only if you have not valued a manufacturing company before Under Sarbanes-Oxleyan independent auditor is explicitly forbidden to provide appraisal valuation servicesfairness opinions, or contribution-in-kind reports" for any of its audit clients. a. Incorrect b. Correct Defining the valuation engagement is considered the initial step in performing a valuation service. a. Incorrect b. Correct Delivery of your report to your client ends your engagement. a. Incorrect b. Correct Identify the type of valuation engagements that are primarily performed for tax purposes? a. Allocation of the purchase price of an acquired business b. Annual Employee Stock Ownership Plan (ESOP) valuation c. Valuation of merger participants d. All of the above

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If a valuation report were prepared as of November 302002, which of the following dates would NOT be an acceptable valuation report issue date? a. April 16, 2003 b. January 30, 2003 c. November 29, 2002 d. December 312002 In defining the valuation engagement prior to issuing a valuation report: a. Define the ownership interest to be valued as this will affect any premiums or discounts to be discussed in the final report b. Ascertain whether the necessary plient information and technical resources are available. If not, decline the valuation c. You must obtain a client engagement letter d. You must obtain a client representation letter One of the final stages in the valuation process is the communication of the results to the client or other user of the report. a. Incorrect b. Correct Reporting standards: a. Apply if the valuation analyst will be deposed and a trial is imminent b. Do not apply in litigation engagements where the expression of a Conclusion of Value is subject to discovery and/or cross-examination, unless so directed by the client c. Do not apply in litigation cases where there will be a jury trial d. Must be adhered to in all litigation cases Tax valuations and non-tax valuations are the two main types of business valuations for closely-held companics. a. Incorrect b. Correct The final step in the valuation process is to define the engagement a. Incorrect b. Correct The five (5) major steps of a valuation engagement are: a. Define the engagement gather the information, analyze the information, estimate enterprise value and prepare/issue the valuation report b. Write the engagement letter gather the information, define the value, prepare and issue the valuation report c. Gather information on the industry and the company, analyze the information estimate company value, delineate all the limiting conditions, and issue the valuation report d. Define the engagement write the valuation engagement letter gather company information prepare the data, and issue the valuation report The valuation date will most often be different from the date the valuation report is issued a. Incorrect b. Correct

The valuation specialist should obtain information about the number of reporting units before proposing a fee for the engagement a. Incorrect b. Correct When considering acceptance of a valuation engagement which is the first and probably most critical issue a valuation analyst must address? a. Define the ownership interest to be valued b. Define the purpose of the valuation engagement c. Consider any real or presumed conflicts of interest d. Ascertain whether the necessary information is available When defining the engagement the member should identify; a. Purpose, ownership interest, and profitability of the subject entity b. Purpose, valuation date and valuation approach to be utilized c. Purpose, ownership interest and valuation date d. Ownership interest, report date, and valuation approach Which of the following statements apply to a scope limitation? a. The member can only prepare an oral Conclusion of Value if there is a scope limitation. b. The member can compensate for the scope limitation by applying a higher discount and/or capitalization rate. c. The member must identify and evaluate limitations on the scope of work, which affect the research, analysis, and/or level of reliance the member places on the valuation results. d. The member can never express a Conclusion of Value if there is any scope limitation You are asked to establish the Fair Market Value of a 1% interest in Company A's Employee Stock Ownership Plan (ESOP)This valuation calculation would appropriately apply to which of the following valuation engagements for Company A's stock? a. 1% interest for a gift transfer b. 49% interest for the death of a shareholder c. 10% interest in divorce d. Both a and b e. None of the above A consulting expert: a. Offers no oral testimony b. Is there for the purpose of offering advice on facts, technical issuesand strategy c. Offers no written report or work product d. All of the above Engagement letters should NEVER be used in litigation engagements because they are subject to discovery a. Incorrect b. Correct Obtaining an engagement letter is unnecessary in performing valuation services a. Incorrect b. Correct On an engagement letter, it is encouraged to include:

a The results of your last valuation b. Purpose of the engagement c. Fees for the engagement d. Both b and c The engagement letter for valuation services should identify all of the following EXCEPT: a. The name of the business being valued b. Valuation date c. The percentage interest to be valued d. Purpose of valuation e. A description of the business being valued When deciding whether or not to accept an engagement which of the following would NOT be considered as a real or presumed conflict of interest material to the financial statements? a. The valuation analyst has a material financial interest in the subject company b. The valuation is material to the financial statements of the analyst's client. c. The valuation analyst is also the CPA and audits the client's business. d. Valuations performed for tax planning, tax compliance, estate planning, or gifting are not usually considered material to the financial statements of the client and should not cause a valuation bias Which of the following statements is NOT relative to a properly written engagement letter? a. The engagement letter communicates the terms of payment for the services to be rendered. b. The engagement letter will determine if sufficient relevant data is readily available. c. The engagement letter clearly delineates the scope of the services the analyst will provide d. The engagement letter documents and communicates the particulars of the engagement as understood by the client and the valuation analyst Before starting an engagement the valuator must obtain a signed engagement letter from his or her client a. Incorrect b. Correct A perceived conflict of interest should NOT influence your decision to accept a valuation engagement as long as it is not an actual conflict of interest a. Incorrect b. Correct Independence would NOT be impaired if a member performs an appraisal valuation, or actuarial service where the results of the service, individually or in the aggregate would be material to the financial statements and the appraisal valuation, or actuarial service involves a significant degree of subjectivity a. Incorrect b. Correct Performing a business valuation for tax or accounting clients who are divorcing is considered more prudent a. Incorrect b. Correct What are the most critical factors in a decision to accept an engagement?

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a. Business cycle and economic benefits b. Knowledge and experience c. Standard and method of value d. Type of opinion and ownership interest You have been hired to value a company by two shareholders for purposes of buy/sell. A buy/sell agreement exists which of the following statements is correct? a. It is required that the company be valued at "investment value" b. The process of determining the value of the company is directed by the buy/sell agreement c. It is required that a valuation professional value the company d. All of the above

Acc 9993 Midterm 1-3

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