Premise of Value
Defining the scope of each valuation engagement involves identifying the applicable standard of value and premise of value.
Most business valuations are geared toward producing a conclusion of Fair Market Value. Fair Market Value, as defined by Treasury Regulation Section 20.2031-1(b) and Revenue Ruling 59-60, 1959-1 C.B. 237 is:
"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 sell, both parties having reasonable knowledge of the relevant facts. Court decisions frequently state in addition that the hypothetical buyer and seller are assumed to be able, as well as willing, to trade and to be well informed about the property and concerning the market for such property.”
Other standards of value include investment value, which may be applicable for a transaction specific situation, and Fair Value, which is required by Generally Accepted Accounting Principles (GAAP) for financial statement presentation.
The premise of value of value is concerned with assumptions related to the most likely transactional circumstances applicable to a valuation. Most valuation engagements use a going concern premise, which assumes a business will continue operations into the foreseeable future.
All CVVA valuations ensure that both the standard of value and premise of value is well defined within the scope of each engagement.