Depending on the use of the valuation report, the body governing or regulating the valuation requirement will usually specify what effective date must be reflected in the appraisal.

Appraisers determine value based on what is known or knowable as of a specific point in time. While an appraiser is expected to look to the future, value conclusions are driven by the information available as of a specific date. Events such as the collapse of Lehman Brothers or September 11 could not be reasonably foreseen but had significant negative valuation impacts. Most assets were worth significantly more the day before these events occurred.

Many times the purpose of an engagement will drive the valuation date. Included below are some examples of projects where the valuation must be performed as of a specific date:

• Date of Death – Two things are known in life, death and taxes. When an owner in a privately-held company passes on, the IRS requires their ownership be valued as of their date of death for estate tax purposes. In instances when values have significantly declined, the estate has the option of paying taxes based on the value of the ownership interest six months after the date of death.
   
• Gift Tax – Ownership of a company will be transferred as of a specific date. Gifting privately-held shares is a tax efficient way to reduce the size of a taxable estate. The IRS requires that the ownership interest be valued as of the gifting date.
   
• Purchase Price Allocation – The purchase of a company happens on a specific date. Therefore, the allocation of the assets to the appropriate balance sheet accounts must also occur as of that date.
   
• Lending – Lenders typically need the most-up-to date data possible for their lending decisions. In these cases, a current valuation date is almost always ideal.

Mis-specifying the valuation date can lead to gross errors in value conclusions or additional costs in obtaining another appraisal! Hiring appraisers that recognize these types of issues will save professionals both time and money, and will result in better work products.

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