Grade Me: A 30-Minute Framework for Reviewing Valuation Reports

The concept behind my “Grade Me” framework is straightforward: Valuation professionals can improve report quality by reviewing their work from the perspective of an informed reader who does not have the preparer’s background knowledge. A structured 30-minute review can identify issues before they become client concerns or litigation problems.

Every valuation report is eventually reviewed by someone other than the person who prepared it. The reviewer may be a firm partner, a client, opposing counsel, a trier of fact, a regulator, a credentialing organization, or another valuation professional. Each reviewer approaches the report with a different perspective, but all are likely to ask a similar question: Can a qualified reader understand how the analyst moved from the available information to the valuation conclusion?

That question involves more than being accurate mathematically. A report may contain correct calculations and still be difficult to understand or defend if its purpose is unclear, its assumptions are buried, its analysis is not connected to the conclusion, or its limitations are too general to be meaningful.

The concept behind my “Grade Me” framework is straightforward: Valuation professionals can improve report quality by reviewing their work from the perspective of an informed reader who does not have the preparer’s background knowledge. A structured 30-minute review can identify issues before they become client concerns or litigation problems.

The framework described below is designed as a focused first-pass quality and defensibility screen. It is not a substitute for a complete technical review, recalculation, engagement-specific quality-control procedures, or any formal review required by applicable professional standards, licensing requirements, credentialing requirements, court orders, regulatory requirements, or firm policies.

Step 1. Start With the Assignment: Minutes 1–5

The first step is to determine whether the report clearly defines the assignment. Before evaluating the analysis, the reviewer should be able to identify the purpose of the valuation, the valuation date, the subject interest, the standard of value, and the premise of value.

The reviewer should also identify the professional standards applicable to the engagement. Depending on the practitioner’s credentials, licensing, assignment, and jurisdiction, those standards may include NACVA’s Professional Standards, standards issued by another valuation or accounting organization, licensing requirements, court or regulatory requirements, or engagement-specific instructions. The report should be prepared and reviewed consistently with the standards applicable to the professional and the assignment. A strong review does not treat standards as a checklist applied at the end of the process; it considers them when evaluating engagement acceptance, scope, procedures, assumptions, documentation, reporting, and conclusions.

The report should also explain the scope of the engagement and identify any significant limitations. If the assignment involves a minority interest, a controlling interest, a specific ownership percentage, or a particular transaction, those details should be stated consistently throughout the report.

A report can become vulnerable when the assignment is described one way in the introductory sections and another way in the valuation conclusion. For example, a report may refer initially to the valuation of a controlling ownership interest but later discuss discounts or assumptions that appear more applicable to a minority interest. Even if the underlying analysis is reasonable, inconsistent descriptions can cause the reader to question whether the correct interest was analyzed.

The applicable standards should also be considered when evaluating whether the assignment has been properly defined and whether the report’s scope, limitations, methods, and disclosures are appropriate.

A useful opening question is: “If the financial schedules and valuation conclusion were removed, could a qualified reader still explain exactly what was being valued, and why?” If the answer is no, the report may need clarification before the reviewer proceeds to the calculations.

Step 2. Evaluate the Factual Foundation: Minutes 6–11

The next step is to determine whether the report adequately describes the information supporting the analysis. The reviewer is not necessarily re-performing every procedure during a first-pass review. The objective is to determine whether the report identifies the relevant information and explains how that information was used.

Depending on the engagement, the factual foundation may include a variety of items such as financial statements, tax returns, management representations, ownership records, industry data, economic information, customer or supplier concentration, non-operating assets, debt, and subsequent events.

The reviewer should ask:

• Does the report identify the periods and sources of financial information?
• Does it explain whether the information was audited, reviewed, compiled, or provided by management?
• Are significant changes in revenue, margins, compensation, debt, or working capital addressed?
• Are unusual or non-recurring items identified and explained?
• Does the company description agree with the financial information and the valuation analysis?
• What professional standards apply to the engagement?
• Are the scope, procedures, assumptions, and disclosures consistent with those standards?
• Are there licensing, credentialing, jurisdictional, court, or regulatory requirements that affect the assignment?
• Does the report clearly distinguish between the analyst’s professional judgment and requirements imposed by applicable standards?

A common weakness is the unexplained use of information that appears in the schedules but is not discussed in the narrative. A significant adjustment may be mathematically correct, but if the report does not explain its nature, rationale, and effect, the reader may not know whether the adjustment is appropriate.

A strong report does not just list its sources. It explains which sources are important, what limitations were applied, and how the information influenced the valuation process.

Step 3. Examine the Assumptions: Minutes 12–17

Valuation requires professional judgment. The existence of assumptions is not itself a weakness. Concern arises when significant assumptions are difficult to identify, unsupported, or disconnected from the analysis.

A reviewer should consider whether each significant assumption is:

• Clearly stated
• Reasonably supported
• Consistent with historical performance and other report sections
• Applied consistently
• Connected to the valuation conclusion

For example, if projected revenue growth is substantially higher than historical growth, the report should explain the reasons for the difference. The explanation may involve new contracts, capacity expansion, pricing changes, market conditions, or other company-specific factors. The report should make clear whether the assumption is based on evidence, management expectations, industry data, or professional judgment.

The same principle applies to assumptions involving margins, owner compensation, working capital, capital expenditures, taxes, discount rates, capitalization rates, growth rates, or discounts for lack of marketability and control.

The reviewer should pay particular attention to assumptions that materially affect the conclusion. A report does not need to avoid judgment, but it should make judgment visible and explain why the selected assumption is reasonable in the circumstances.

One helpful test is to ask: “Could another valuation professional identify the assumption, locate its support, and understand its effect without asking the preparer for additional information?” If not, the report may be technically complete but insufficiently documented.

Step 4. Review the Analytical Narrative: Minutes 18–22

A valuation report should tell a coherent story. The reader should be able to follow the progression from historical information to adjustments, projections, methodology, weighting, and conclusion.

The reviewer should be able to answer the following questions:

1. What did the business look like historically?
2. What adjustments were made, and why?
3. What future performance was assumed?
4. Why were the selected valuation methods appropriate?
5. How did the assumptions affect the result?
6. Why does the final conclusion fall within a reasonable range?

A report may include all of the necessary schedules and still fail to communicate the reasoning behind them. For example, a report may present a market approach calculation without explaining why the selected guideline companies are comparable. It may calculate a discount rate without connecting the rate to the company’s specific risk profile. It may apply weights to multiple methods without explaining the relevance of each method to the assignment.

The reviewer should look for connections between the narrative and the schedules. The report’s explanations should help the reader understand not only what the numbers are, but also why they were selected and how they relate to the conclusion.

Step 5. Check Reconciliation and Internal Consistency: Minutes 23–27

Reconciliation is more than confirming that numbers foot. A report should explain differences among methods, periods, assumptions, and conclusions.

The reviewer should compare key sections for internal consistency, including:

• Revenue assumptions and the financial analysis
• Risk discussion and the discount or capitalization rate
• Company characteristics and selected guideline companies
• Adjusted earnings and the valuation methods
• Asset descriptions and the asset approach
• Method weighting and the stated rationale
• Ownership characteristics and any applied discounts or premiums

This review often identifies issues that are not apparent when each section is read independently. A company may be described as highly dependent on a small number of customers, while the selected comparable companies may have substantially different customer profiles. The report may describe the business as mature and stable while projecting rapid growth without explaining the change. A discount rate may be increased for risk even though the narrative describes the company as less risky than its peers.

These differences do not necessarily mean the conclusion is wrong. They do mean the report should explain the apparent inconsistency. A reviewer’s role is to identify where the reader may have questions and determine whether the report answers them.

Step 6. Apply the Credibility Test and Prioritize Comments: Minutes 28–30

The reviewer should conclude by evaluating overall credibility and prioritizing the most important review comments.

The credibility test includes questions such as:

• Are the important judgments visible?
• Are significant limitations specific and meaningful?
• Does the report avoid unsupported positions?
• Are the conclusions proportional to the quality of the available information?
• Does the tone reflect appropriate professional objectivity?
• Can the analyst explain why the selected methods and assumptions were appropriate?

A report becomes more defensible when it acknowledges uncertainty instead of suggesting a level of precision that the evidence cannot support. A valuation conclusion stated to the exact dollar may create questions if the underlying projections, market data, or assumptions involve substantial uncertainty.

Likewise, broad disclaimers do not necessarily improve defensibility. A statement that the valuation is subject to numerous limitations is less useful than a specific explanation of what information was unavailable, how that limitation affected the analysis, and whether additional procedures were considered.

The reviewer should finish by identifying three strengths, three deficiencies, and the highest-priority improvement. Review comments should be specific, standards-based, prioritized, and actionable. Stating that a section “needs work” does not tell the author what to change. A more useful comment would be: “Explain how the selected industry data applies to the subject company and identify any significant differences that required consideration.”

It may also be helpful to classify comments as critical, significant, editorial, or optional. A critical comment may affect the conclusion or compliance with professional requirements. A significant comment may impair understanding or support. An editorial comment may improve readability or consistency. An optional comment may enhance presentation but is not essential to the report’s reliability.

The 30-Minute Review at a Glance

The 30-minute review is not intended to produce a final sign-off. It is a disciplined screening process that helps determine whether the report is ready for final review or requires additional attention. A focused review can also create a common review language within the firm and help less-experienced professionals learn how senior reviewers evaluate valuation work.

The appropriate follow-up depends on what the first-pass review identifies. Some reports may require only clarification or editorial revisions. Others may require additional support, recalculation, expanded procedures and more comprehensive technical review.

Conclusion

Every valuation report is being graded by someone, whether the reviewer uses a formal scorecard or simply forms an opinion while reading. A 30-minute review gives the analyst an opportunity to conduct that evaluation before the report is issued.

The process is long enough to examine the assignment, factual foundation, significant assumptions, analytical narrative, reconciliation, and overall credibility, yet short enough to be incorporated into a firm’s normal review procedures.

The most useful final questions are simple:

1. What would a new reviewer misunderstand?
2. Which assumption would be most difficult to defend?
3. What important conclusion is supported only by implication (when the reader needs to infer the reasoning) rather than documentation?

Answering those questions during the 30-minute review transforms peer review from a final checkpoint into a disciplined first step: one that identifies and resolves clarity, support, consistency, and defensibility issues before the report proceeds to detailed technical review and final quality-control procedures. The process makes the subsequent detailed review more focused, more efficient, and more meaningful.

[Terminology note: In this article, the terms “review” and “peer review” refer to an informal, structured evaluation of a valuation report by another qualified professional or by the report author from a reviewer’s perspective. They are not being used in the technical sense associated with a CPA financial statement review engagement, an AICPA peer review, or any other formal attestation, licensing, or quality-control program. The 30-minute process described here is a preliminary quality and defensibility screen and does not replace the detailed procedures required by applicable professional standards or firm policies.]

Karen Lascelle, CPA, CVA, CPE is a partner at TSS Advisors and originally wrote this article for QuickRead.