APPRAISAL STANDARDS FOR BUSINESS APPRAISERS Business appraisers are not required to be licensed by any state or federal agencies. This is in part due to there having been minimal litigation involving business appraisers' purposeful wrong doings. However, business appraisers are subject to state administrative and civil law, as well as professional codes of ethics and practice standards promulgated by the quasi-federal governmental agency known as the Appraisal Foundation through its Uniform Standards of Professional Appraisal Practice (USPAP), and the professional business valuation associations. All states have administrative laws that governing canons of professional ethics and conduct of professionals such as attorneys, accountants, doctors, and appraisers. These canons include: Fidelity Canon – The professional owes a fiduciary responsibility to the client and must treat other parties to a transaction fairly. Integrity Canon – The professional must avoid misrepresentation by words, deeds, or omissions, and should use prudence and caution Competency Canon – Obligates the professional to be knowledgeable and educated about business and market conditions. The professional must exercise judgment and skill while performing duties. Discriminatory Practices Canon – Requires the professional to not inquire about or make a disclosure that indicates a preference, limitation, or discrimination based on race, color, religion, sex, national origin, ancestry, or familial or handicap status. Posting Consumer Information Canon – Deals with the requirement to post consumer information about the methods disgruntled consumers can use to file a complaint with the regulatory body that regulates the professional. Civil law covers many of the same issues as administrative law; however, civil law generally provides for more lucrative recoveries by way of the state Deceptive Trade Practices Act. This Act prohibits representing the following: Goods or services have approval, characteristics, benefits, or quantities that they do not have. Goods or services are of a particular standard, quality, or grade if they are of another Agreements that confers or involves rights, remedies, or obligations that they do not have. Failing to disclose material information The Uniform Standards of Professional Appraisal Practice are federal standards required to be followed by licensed state real estate appraisers and recommended as minimal best practice standards for other appraisal disciplines that include personal property appraisers, machinery & equipment appraisers, and business appraisers. USPAP Standards 9 and 10 are specific to business appraisers when conducting and reporting business valuations. There are several national appraisal organizations that promulgate codes of ethics and practice standards for their business appraiser members. These organizations include: The American Society of Appraisers, The Institute of Business Appraisers, The National Association of Certified Valuation Analysts, and the American Institute of Certified Public Accountants. The code of ethics typically cover many of the same issues addressed in administrative and civil law and are usually mandatory for the appraisal societies' members to follows. These issues include the appraiser's primary duty and responsibilities, obligation to his client, obligation to other appraisers and parties to a transaction, and unethical and unprofessional appraisal practices. Practice standards are usually guidelines that outline best practices recommendations for appraisers to follow. Standards address issues that are specific to the appraisal profession and include procedures for developing a business valuation; criteria for making financial statement adjustments; procedures for applying valuation methods; procedures for correlation of indications of value; instructions on how to handle discounts for marketability, lack of control, and other issues; and recommended content for appraisal reports. The American Society of Appraisers is one of the oldest appraisal organizations that provide professional designations for business appraisers. This organization has a comprehensive code of ethics required of its members. Their business valuation discipline established the first practice standards in the world through its Standards Committee. Jeff Jones has served on this committee for the past 12 years and is the current co-chair. These standards have become the corner stone for USPAP 9 & 10, as well as the standards developed by the other business appraisal organizations. The ASA code of ethics and practice standards can be obtained at the ASA website www.appraisers.org. BVS-I General Requirements for Developing a Business Valuation BVS-II Financial Statement Adjustments BVS-III Asset-Based Approach to Business Valuation BVS-IV Income Approach to Business Valuation BVS-V Market Approach to Business Valuation BVS-VI Reaching a Conclusion of Value BVS-VII Valuation Discounts and Premiums BVS-VIII Comprehensive Written Business Valuation Report While business appraisers are not required to be licensed by any state or federal agencies, there are ample safe guards to protect the public when conducting business valuations. These safeguards include administrative law, civil law, and code of ethics and practice standards promulgated by USPAP and each of the national organizations that designate business appraisers who adhere to these codes of ethics and standards, take educational courses, pass pier review, and meet other professional requirements for membership. When hiring a business appraiser, look for persons who meet these requirements and avoid unnecessary litigation. Brief Bio: Jeff Jones, ASA, CBA is President of Certified Appraisers, Inc., where he manages the firm's multidiscipline appraisal practice that includes valuation of businesses, machinery & equipment and real estate. As President of Advanced Business Brokers, Inc. he and his staff have been involved in the sale of over one thousand small and midsize businesses since 1976. He frequently testifies in depositions and courts of law as an expert witness on business valuation litigation matters. His clients include closely held companies, publicly held companies, financial institutions, the IRS and other governmental agencies. Jeff is the co-editor of two books published by John Wiley & Sons: "Handbook of Business Valuation" and "Mergers and Acquisitions Handbook For Small and Midsize Companies". Jeff holds a Masters Degree from Pepperdine University. He is licensed by the Texas Real Estate Commission and the Texas Securities Commission. He is a designated member of the American Society of Appraisers (ASA); the Institute of Business Appraisers (CBA); Texas Association of Business Brokers (BCB); and is a Fellow of the International Business Brokers Association (CBI). 5225 Katy Frwy, # 250, Houston, Texas 77007 Phone: 713-680-3290    Fax: 713-680-9915 Contact Jeff: jdj@certifiedappraisers.com