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IBA Applicant’s Handbook 2011 ©2011 Institute of Business Appraisers

IBA APPLICANT’S HANDBOOK

for accreditation with

For further information contact:

INSTITUTE OF BUSINESS APPRAISERS

The Pioneer of Business Appraisal

HEADQUARTERS P.O. Box 17410

Plantation, FL 33318-7410 Tel: (954) 584-1144 [email protected] www.go-iba.org

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Tel: (800) 299-4130 Fax: (866) 353-5406 [email protected]

©2011 Institute of Business Appraisers All rights reserved. No part of this work may be reproduced or used in any form or by any means — graphic, electronic, or mechanical, including photocopying, recording, taping, or information storage and retrieval systems — without prior written permission of the Institute of Business Appraisers. Copyright violations will be prosecuted to the fullest extent of the law.


Forward

The Applicant’s Handbook has been written to assist Applicants for IBA professional business valuation designations in understanding and meeting the requirements for achieving them.

Long experience has proven conclusively that many Applicants who fail to achieve the designation they seek fail not because of limitations in their appraisal skills or ability, but because they fail to follow carefully the criteria set forth for the award of the designation. For this reason, Applicants are urged to read and comply fully with the requirements laid down here.

_______________________________________ Howard Lewis, MS, AVA, ABAR Executive Director, Institute of Business Appraisers April 1, 2011 _______________________________________ _______________________________________ Michael J. Eggers, Warren S. Burkholder, CPA/ABV, MCBA, ASA, ABAR, FIBA, CBA CBI, CBA, ASA, ABAR Co-chair, IBA Qualifications Review Committee Co-chair, IBA Qualifications Review Committee April 1, 2011 April 1, 2011



TABLE OF CONTENTS

1 Introduction ........................................................................................................................................... 5

1.1 Purpose and Goals ......................................................................................................................... 5

1.2 Accreditations Offered .................................................................................................................. 5

1.3 Effective Date ............................................................................................................................... 6

1.4 Requirements Subject to Change .................................................................................................. 6

2 Accreditation as Master Certified Business Appraiser (MCBA) .......................................................... 7

2.1 Requirements for Accreditation as a Master Certified Business Appraiser ........................... 7

2.2 Application for Accreditation ..................................................................................................... 7

2.2.1 Application Form .................................................................................................................. 7

2.2.2 Review of Petitions for Award of Designation ................................................................... 7

2.2.3 Payment of Fees .................................................................................................................... 7

3 Accreditation as Certified Business Appraiser (CBA) .......................................................................... 8

3.1 Requirements for Accreditation as a Certified Business Appraiser ....................................... 8

3.1.1 Requirements for all Applicants: ......................................................................................... 8

3.1.2 Additional Requirements for Designated Applicants .......................................................... 8

3.2 Application for Accreditation ..................................................................................................... 9

3.2.1 Application Form ................................................................................................................. 9

3.2.2 Payment of Fees .................................................................................................................... 9

3.3 Written Examination ..................................................................................................................... 9

3.3.1 Time and Place for Examination and Proctoring .................................................................. 9

3.3.2 Form of Examination ........................................................................................................... 9

3.3.3 Subjects Covered on CBA Written Examination ...................................................................... 9

3.3.4 Passing Grade ...................................................................................................................... 10

3.3.5 Notification of Examination Results ................................................................................... 10

3.3.6 Explanation of Written Examination Results ...................................................................... 10

3.3.7 Appeal of Failing Examination Grades ............................................................................... 10

3.3.8 Assignment of a Mentor ...................................................................................................... 10

3.4 Reading List ................................................................................................................................ 10

3.5 Review of Demonstration Reports .............................................................................................. 11

3.5.1 Nomenclature ...................................................................................................................... 11

3.5.2 Sample Reports ................................................................................................................... 11

3.5.3 Course on Report-writing Available ................................................................................... 12


3.5.4 Number of Reports Required and Form .............................................................................. 12

3.5.5 Reports Must be Solely the Work of Applicant. ................................................................. 13

3.5.6 Time for Review ................................................................................................................. 13

3.5.7 Reviewer’s Report to Applicant .......................................................................................... 13

3.5.8 Re-Submittal of Revised Demonstration Reports ............................................................. 14

3.5.9 Appeal of Unsatisfactory Demonstration Reports ............................................................ 14

3.6 Demonstration Reports - Content ............................................................................................... 14

3.6.1 Demonstration Reports vs. Other Reports .......................................................................... 14

3.6.3 Use of Plain Language ........................................................................................................ 15

3.6.4 Emphasis on Analytical Skills ............................................................................................. 15

3.6.5 Use of Appraisal Software in Demonstration Reports ...................................................... 15

3.6.6 Conformance to IBA Standards .......................................................................................... 16

3.6.7 Demonstration of Business Valuation Methodology ........................................................ 16

3.6.8 Analysis of Subject Industry............................................................................................... 17

3.6.9 Analysis of Economic Conditions ..................................................................................... 17

3.6.10 Support of Subjective Factors............................................................................................. 17

4 Accreditation as Business Valuator Accredited for Litigation (BVAL) ............................................. 18

5 Accreditation as Accredited in Business Appraisal Review (ABAR) ................................................ 19

6 Reaccreditation and Continuing Education Requirements ................................................................. 20

6.1 Application .................................................................................................................................. 20

6.2 Continuing Education Requirements .......................................................................................... 20

6.3 Acceptable Professional Development Activities ....................................................................... 20

6.4 Acceptable Continuing Education .............................................................................................. 20

6.5 Procedure for Submitting Evidence of Education or Professional Development ....................... 20

7 Appendix A ......................................................................................................................................... 21



1 INTRODUCTION

1.1 Purpose and Goals

The purpose of this guide is to assist the appraiser in applying for the designation of Master Certified Business Appraiser (MCBA), Certified Business Appraiser (CBA), Business Valuator Accredited for Litigation (BVAL), or Accredited in Business Appraisal Review (ABAR). Its goal is to provide background information based on the experience of the Institute of Business Appraisers Qualifications Review Committee in assisting Applicants. This guide is intended to offer a comprehensive description of the requirements for each credential. The guidance contained herein is thought to be sufficient instruction to the Applicants to satisfactorily complete the requirements for the accreditation they are seeking.

1.2 Accreditations Offered

Listed below are the accreditations offered both currently and previously by the Institute of Business Appraisers:

Master Certified Business Appraiser (MCBA) — the designation reserved for only the most experienced and highly qualified business appraisers. The achievement of this designation is open only to those CBAs whose accumulated business valuation education, experience, and high degree of skill have demonstrated excellence in their work and have been recognized by their peers.

Certified Business Appraiser (CBA) — a senior appraisal designation recognized by IBA. It is the original journeyman-level designation created by IBA shortly after IBA was founded in 1978. Accreditation as a Certified Business Appraiser suggests to the public that the holder is a fully qualified business appraiser. Generally, as prerequisite to accreditation, IBA requires both a written examination and peer review of demonstration business appraisal reports. The written examination is designed to thoroughly test the knowledge of the Applicant on all aspects of business valuation. The review of Applicant’s Demonstration Reports is neither perfunctory nor casual. Each Reviewer is aware of the high degree of credibility afforded Certified Business Appraisers, and is sworn to ensure that only competent appraisers are awarded accreditation.

Accredited by IBA (AIBA) — established in 1997, in response to the need for an intermediate-level designation that could serve as a stepping-stone to the CBA level of competence. It is no longer being offered to members and present AIBA holders are being encouraged to earn accreditation as CBAs.

Business Valuator Accredited for Litigation (BVAL) — the designation developed by IBA to recognize experienced business appraisers who demonstrate their ability to competently present expert testimony which supports their objective conclusion of value.

Accredited in Business Appraisal Review (ABAR) — a designation developed by IBA for accredited appraisers that have completed education, specific training requirements in Appraisal review, passed a written examination, and demonstrated their skills in a demonstration review report. These accredited appraisers are prepared to opine to the quality, credibility, and relevance of the work of other appraisers in specific matters.


1.3 Effective Date

The requirements set forth here are effective as of the date of issuance, April 1, 2011. All applications after May 1, 2011 must conform to the requirements herein. Applications received prior to May 1, 2011 should take note of any changes in this edition of the Applicant’s Handbook as they may affect an Applicant’s subsequent submission. In the event of a dispute the earlier edition will be applied to those applications received prior to May 1, 2011.

1.4 Requirements Subject to Change

The requirements for MCBA, CBA, BVAL, and ABAR are subject to change from time to time in order to meet the increasing sophistication of the business valuation profession and the expanding body of knowledge it entails. Applicants are advised to check with IBA Headquarters to ensure that they have the current requirements before submitting applications for professional designations.


2 ACCREDITATION AS MASTER CERTIFIED BUSINESS APPRAISER (MCBA)

The Master Certified Business Appraiser (MCBA) is the highest professional designation awarded in the business valuation profession, and recognizes the extraordinary competence of a few highly skilled and experienced individuals whose work has been widely accepted by clients and acknowledged by their most senior professional colleagues. It is a designation available only to the most qualified professional business appraisers, and is intended to indicate to users of appraisal services that the holder has achieved a high distinction of competence in the Applicant’s profession.

2.1 Requirements for Accreditation as a Master Certified Business Appraiser

Education: Applicant must possess a four-year college degree and a two-year post-graduate degree or equivalent, and provide proof of this to IBA in the form specified by the Executive Director.

Appraisal Experience and Tenure: Applicant must have a current Certified Business Appraiser designation that has been held for not less than ten years and must have fifteen years of full-time experience as a business appraiser. Applicant's experience must include valuation of a variety of business types and appraisals for a variety of purposes. Proof in support of an Applicant's appraisal experience and tenure shall be provided in the form specified by the Executive Director.

Recognition by Other Professional Societies: Applicant must hold a journeyman level professional designation awarded by one or more compeer professional business appraisal societies. Acceptable professional designations include those issued by the American Society of Appraisers (Accredited Senior Appraiser, Business Valuation [ASA]), the National Association of Certified Valuation Analysts (Certified Valuation Analyst [CVA] or Accredited Valuation Analyst [AVA]), and the American Institute of Certified Public Accountants (Accredited in Business Valuation [ABV]).

References: Applicant must provide satisfactory references from three individuals who have known the Applicant for not less than ten years, who hold the professional designation Master Certified Business Appraiser, and who, based on their extensive personal knowledge and comprehensive review of the Applicant's work-product, will vouch for 1) the excellence of the Applicant’s analytical skills and appraisal work-product, 2) the Applicant’s professional and ethical character, and 3) the Applicant’s contribution to the betterment of the profession of business valuation.

Membership in IBA: Applicant must be a member-in-good-standing of the Institute of Business Appraisers.

2.2 Application for Accreditation

2.2.1 Application Form

Application for Accreditation shall be made to IBA by Petition for Award of Master Certified Business Appraiser designation. Such petition must fully set forth and document the manner in which the Applicant believes that the requirements as to education, references, and appraisal experience and tenure have been met.

2.2.2 Review of Petitions for Award of Designation

Petitions for Award of Master Certified Business Appraiser Designation will be reviewed by the Executive Director or his/her designee(s), and either approved or disapproved at his/her sole discretion, based on the information provided by the Applicant.

2.2.3 Payment of Fees

Petition for Accreditation shall be accompanied by payment of a fee of $595.


3 ACCREDITATION AS CERTIFIED BUSINESS APPRAISER (CBA)

3.1 Requirements for Accreditation as a Certified Business Appraiser

3.1.1 Requirements for all Applicants:

1. Application: Applicant must submit an official application including fee.

2. Education: Applicant must possess a four-year college degree or equivalent and provide proof of this to IBA in the form provided by the Institute.

3. Membership in IBA: Applicant must be a member-in-good-standing of the Institute of Business Appraisers.

4. References: Applicant must provide four satisfactory references, two references as to Applicant’s personal character; and two references as to Applicant’s professional competence as a business appraiser.

5. Demonstration Reports: Applicant must submit two Demonstration Reports for peer review1.

3.1.2 Additional Requirements for Designated Applicants

1. Applicants currently holding one or more of these designations in good standing:

a. Accredited in Business Valuation (ABV) by the American Institute of Certified Public Accountants;

b. Accredited Senior Appraiser in Business Valuation (ASA) by the American Society of Appraisers;

c. Accredited Valuation Analyst (AVA) by the National Association of Certified Valuation Analysts;

d. Charted Business Valuator (CBV) Canadian Institute of Charted Business Valuators;

e. Certified Valuation Analyst (CVA) by the National Association of Certified Valuation Analysts;

f. Accredited by Institute of Business Appraisers, AIBA

are exempt from the requirements of a written examination and mandatory education. However, Applicants are encouraged to complete Comprehensive Certified Business Appraiser Workshop (formerly known as IBA Course 8004) and Advanced Report Writing Workshop (formerly known as IBA Course 1010).

3.1.3 Additional Requirements for Non-designated Applicants:

1. Successfully complete Business Valuation Certification and Training Center (BVTC) (formerly known as IBA Course 8003);

2. Successfully complete Comprehensive Certified Business Appraiser Workshop (formerly known as IBA Course 8004);

3. Successfully complete five-hour proctored written examination.

It is recommended that Applicants take Preparation for the CBA Examination Workshop

1 AIBA designation holders are required to submit only one additional report and should contact IBA Staff for assistance.


(formerly known IBA Course 1006) and Advanced Report Writing Workshop (formerly known IBA Course 1010).

3.2 Application for Accreditation

3.2.1 Application Form

Application for Accreditation shall be made to IBA on a form supplied by the Institute. An application form may be obtained from IBA Headquarters by calling 800-299-4130.

3.2.2 Payment of Fees

Application for Accreditation shall be accompanied by payment of a fee of $595. Information on the current application fee may be obtained by contacting IBA Headquarters at 800-299-4130 or [email protected].

3.3 Written Examination

3.3.1 Time and Place for Examination and Proctoring

The written examination shall be administered at the conclusion of Business Valuation Certification and Training Center (BVTC). To the extent practical, convenient to the Institute, and for an additional fee, Headquarters staff may arrange for written examinations to be proctored for Applicants for whom regularly scheduled examinations are not convenient. Applicants wishing to obtain information on the time and place of the CBA written examination or wishing to schedule a proctored examination may contact Headquarters for further information at 800-299-4130 or [email protected].

3.3.2 Form of Examination

The five-hour proctored exam consists of multiple-choice questions. It tests the Applicant on IBA’s Body of Knowledge.

3.3.3 Subjects Covered on CBA Written Examination

The examination will test the Applicant's knowledge of all current business valuation theory and practice, and cover, but not be limited to, the following general topics:

IBA Business Appraisal Standards

Standards of value

Premises of value

Purposes and uses for business appraisals

Financial theory

Present Value

Use of publicly traded stocks as guideline companies

Use of the Direct Market Data Method (DMDM)

Basic statistical techniques

Use of liquidation value

Appraiser certification

Forecasting future benefit streams

Development of discount rates and capitalization rates


Use of excess earnings method to value intangibles

Valuation of fixed assets

Adjustment of financial statements

Application of adjustments for control and marketability

Application of three basic appraisal approaches

Economic and industry research and analysis

3.3.4 Passing Grade

A passing grade on the written examination shall be 75%.

3.3.5 Notification of Examination Results

Applicant will be notified whether he/she passed or failed the examination by mail or e-mail approximately two weeks following the date of the examination. Applicant is requested not to contact IBA Headquarters to inquire about their examination before four weeks have elapsed.

3.3.6 Explanation of Written Examination Results

At the discretion of the Institute, Applicants may be provided with a description of the general topical areas of the examination where incorrect answers were given. However, no detailed analysis of incorrect answers will be provided.

3.3.7 Appeal of Failing Examination Grades

The decision of the graders shall be final. Applicant may retake the written examination within one year without payment of an additional fee, or after one year upon additional payment of the regular examination fee. The form of a second written examination may be different from the initial examination.

3.3.8 Assignment of a Mentor

On satisfactory completion of the written examination, Applicant will be offered the assistance of a Mentor. Mentors have been found to be helpful to Applicants in providing guidance on preparation of suitable reports for the Demonstration Report requirement.

3.4 Reading List

The following reading list is provided to Applicant as a guideline. Much of the body of knowledge of business valuation is covered in these texts. Applicant may be tested on any information contained in any of the sources and Reviewers may reasonably expect a CBA to understand and be able to apply most of the concepts explained according to the principles presented. Simply reading this material may give Applicant a general understanding of business valuation theory and practice, but no assurance is offered that merely reading books will qualify an Applicant as a competent business appraiser.

Books and Other Publications. All publications are available from the Institute of Business Appraisers.

Texts:

Miles, Raymond C., Basic Business Appraisal, (New York: John Wiley & Sons, 1984).

Pratt, Shannon P., Niculita, Alina V., Valuing a Business The Analysis and Appraisal of Closely Held Companies, 5th Edition, (New York: McGraw-Hill, 2008).


Pratt, Shannon P., Fishman, Jay, and others, PPC’s Guide to Business Valuations, 20th Edition, (Ft. Worth: Practitioners Publishing Company, 2010).

Pratt, Shannon P., Grabowski, Roger J., Cost of Capital Applications and Examples, 4th Edition, (New York: John Wiley & Sons, 2010).

Trugman, Gary R., Understanding Business Valuation: A. Practical Guide to Valuing Small to Medium Size Businesses, 3rd Edition, (New York: American Society of Certified Public Accountants, 2008).

Hitchner, James R., Financial Valuation Applications and Models, 2nd Edition, (New York: John Wiley & Sons, 2006).

Pratt, Shannon P., Business Valuation Discounts and Premiums, 2nd Edition, (New York: John Wiley & Sons, 2009).

Periodicals:

Business Appraisal Practice, business appraisal technical journal of the Institute of Business Appraisers.

Business Valuation Review, Grabowski, Roger J., Editor, a technical journal of the American Society of Appraisers, Washington, DC.

Business Valuation Update, Davis, Jan, Editor, publication of Business Valuation Resources, 1000 SW Broadway, Suite 1200, Portland, OR.

The Valuation Examiner, Kirchner, Doug, Editor, a publication of the National Association of Certified Valuation Analysts (NACVA), Salt Lake City, UT.

3.5 Review of Demonstration Reports

After being notified by IBA Headquarters that the Applicant has passed the written examination, the Applicant will submit two demonstration appraisal reports. An Applicant that is exempt from the examination should contact IBA Staff for any specific instructions on submission of Demonstration Reports.

In order to become accredited as a Certified Business Appraiser, Applicants must submit Demonstration Reports, which fully demonstrate the high degree of knowledge, skill, and judgment required for accreditation as a Certified Business Appraiser.

3.5.1 Nomenclature

These reports are called Demonstration Reports. Demonstration Reports will be reviewed by a competent Reviewer member of the Qualifications Review Committee (QRC) and forwarded to the Chair of the QRC for further review and concurrence. Applicant will receive a written Reviewer's Report to Applicant. Upon approval of two Demonstration Reports, Applicant will be recommended by the QRC for accreditation.

3.5.2 Sample Reports

Because most BV reports are considered confidential and are not available to the public, the question of what constitutes a “good” report is not easily demonstrated by example. Further, work that may have been totally acceptable at one point in time may in fact be unacceptable at a later date. The specific facts and circumstances in a particular valuation assignment should be accurately reflected in the report. Small and subtle differences can often cause the conclusions not to be fully applicable to a different set of facts and circumstances. Therefore, the use of Sample Reports as a definitive guideline on how to write a report is not accepted in Demonstration Reports.


3.5.3 Course on Report-writing Available

IBA makes available a special course on the preparation of written business valuation appraisal reports entitled Advanced Report Writing Workshop (formerly known as IBA Course number 1010). The Applicant is strongly encouraged to take advantage of the course when offered because it may be helpful in developing the skill level necessary to complete satisfactory Demonstration Reports.

3.5.4 Number of Reports Required and Form

1. Number of Reports.2 Each Applicant must submit two Demonstration Reports, as required to fully demonstrate all aspects of business valuation, as described below. The reason for requiring Applicant to submit two Demonstration Reports is because it is impossible to demonstrate the full range of comprehensive appraisal skills necessary to become accredited as a Certified Business Appraiser in a single report. For example, it would be difficult to demonstrate the valuation of a controlling interest, and a non-controlling interest in the same report. Applicant must make the two Demonstration Reports complementary rather than duplicative. Reports found to be duplicative will generally be returned to the Applicant without detailed comment.

2. Form. Reports must be in the form of Detailed Reports as defined in IBA Business Appraisal Standard V.C.1. Reports written to Standard V.C.2., or to any other Standard, will not be considered sufficient in detail.

3. Format. Reports should be submitted in an electronic digital format that can be read using either of the two latest retail versions of Adobe Reader or Microsoft Word. The reports may be transmitted by e-mail to IBA or in a recorded digital format which IBA can accept at the date of submission. Check with IBA staff to confirm currently accepted formats.

Reports may be submitted in printed form on at least 20 lb. white bond paper, unbound, and fastened only by a binder-clamp. Special paper, card-stock covers, or bindings may not be included and do not affect the review. The name of the Applicant, name (pseudonym) of the Subject Company, and date of valuation shall be clearly printed on the cover of each report. The use of color printing is encouraged for charts, graphs, or other illustrative materials, though the actual text of the report must be printed in black type on white paper.

4. Confidentiality. Applicant must use "search and replace" features of word processors to alter the names of parties, the subject company, and other information which might reveal the actual names, in order to protect the confidentiality of the information contained in the Demonstration Reports. Marking out of names or other information with a black marker is not permitted. Applicant should replace actual names with pseudonyms, e.g., "Joe Jones," "Bob Smith," "John Doe," etc. rather than replace names with "XXXXXXXXX," or “*********” to preserve the context and readability of the Demonstration Report for the Reviewer. The name of the company may be similarly disguised by changing it to "ABC Corp.," "XYX Co.," "ACME Sales," National Manufacturing," or something similar. Disguising the general location of the business is discouraged. The economic conditions of the location of the business in the report are important factors to be considered by the reader; fictitious municipalities and states make verification of research by a reader impossible.

Reports will not be returned to Applicant.

2 Ibid.


3.5.5 Reports Must be Solely the Work of Applicant.

Demonstration Reports must be the sole and exclusive work of the Applicant. No other individual may contribute significantly to the preparation of Demonstration Reports. In particular, supervisors may not submit the work of subordinates as their own work, even though they have directed or supervised the work of the subordinates. Applicant may not copy the work of others; Applicant is expected to perform the analysis and write the narrative sections of the reports in his/her own words without the assistance of others. Any Applicant found to have submitted the work of others will be referred to the IBA Ethics and Disciplinary Committee for action. Demonstration Reports from Applicant found to have copied substantial text from any copyright protected sources will be rejected.

3.5.6 Time for Review

In most cases, reviews will be completed and Applicant notified of the results of the review within 60 days of receipt at IBA Headquarters. Applicant may call IBA Headquarters after 60 days to check on the progress of the review, but not before. An Applicant who contacts IBA Headquarters before 60 days have elapsed will be instructed to call back after the allotted time.

Once Demonstration Reports are received at IBA Headquarters, they are subjected to a preliminary review to ensure that all requirements have been met with respect to form and format, and given a cursory review to ensure that they contain material purporting to comprise all three basic approaches to valuation, valuation of both controlling and non-controlling interests, etc. When this cursory review has been completed, the Demonstration Reports are sent to a Reviewer member of the Qualifications Review Committee for formal review and comment.

In order to keep Applicant advised of the progress of the Demonstration Reports, IBA Headquarters will send an e-mail to the Applicant on the day that the Demonstration Reports are received at IBA Headquarters, on the day that the Applicant's Demonstration Reports are mailed to the Reviewer, and again on the day that they are received by the Chair.

3.5.7 Reviewer’s Report to Applicant

Upon completion of the examination by a Reviewer, each Applicant will be sent a letter advising whether the Demonstration Reports were accepted. In most cases, this letter will be accompanied by a Reviewer’s Report to Applicant, which will identify relevant areas requiring further explanation or additional work. In the event that the Demonstration Reports are found to require correction, clarification, or other additional work, and to the extent practical, the Reviewer’s Report to Applicant will offer suggestions to the Applicant on how to improve the reports consistent with the current Body of Knowledge and acceptable professional standards for business appraisal reports. Though QRC Reviewers perform a comprehensive examination of Demonstration Reports, and often prepare lengthy Reviewer’s Reports, the Reviewer’s Report is not intended to identify every defect in the Demonstration Reports, and in every case the Applicant is responsible for submitting satisfactory Demonstration Reports. Consequently, unmentioned errors may be noted for the first time by the Reviewer in resubmitted reports. The correction or change of one section of a report can change the acceptability of another section; the Applicant needs to have all parts of each report internally consistent. IBA will make every effort (although it is not always possible) to have resubmitted reports reviewed by the same Reviewer of the original reports.


3.5.8 Re-Submittal of Revised Demonstration Reports

Demonstration Reports found by the QRC to require rework by the Applicant may be revised and resubmitted. If, after a second submission, a Demonstration Report is still unacceptable, the Applicant may be required by the QRC to submit a new report rather than continue with revisions. If in the opinion of the QRC, it is appropriate for an Applicant to resubmit only a portion of a report, the Reviewer may so instruct the Applicant.

3.5.9 Appeal of Unsatisfactory Demonstration Reports

An Applicant may appeal an unsatisfactory finding by the QRC to the Executive Director by submitting a written Notice of Appeal and Request for Reconsideration, stating the reasons why reconsideration should be granted. Such Notice of Appeal and Request for Reconsideration must be received by Headquarters within 30 days of the date notification was sent to the Applicant. The decision of the Executive Director is final.

3.6 Demonstration Reports - Content

3.6.1 Demonstration Reports vs. Other Reports

Demonstration Reports are intended to demonstrate that the Applicant possesses the required high degree of skill, knowledge, and judgment required for certification. Demonstration Reports must be comprehensive in order to demonstrate the full range of appraisal skills required of a Certified Business Appraiser.

Reports prepared for clients often fall short of demonstrating the full range of appraisal skills and knowledge, instead focusing on the range of skill and knowledge appropriate for the particular assignment. If necessary, reports prepared for other purposes can be expanded to include whatever is necessary to serve as Demonstration Reports.

Applicant may modify actual client reports to include such approaches or methods as needed to demonstrate the full range of appraisal skills described below. An Applicant may include and develop a value indication from an alternative method, and in the reconciliation of values section accord it no weight or influence, explaining in the report that it was included for demonstration purposes only.

Appraisal reports that consist of little more than an analysis of the discounts applicable to the value of the underlying assets, such as an appraisal of a non-controlling interest in a limited partnership owning real estate (sometimes known as FLP Appraisals), are not suitable as Demonstration Reports for purposes of this section.

3.6.1.1 Demonstration Report Checklist

Each Demonstration Report must be accompanied by CBA Report Checklist. See Section 7 for a copy of the CBA Report Checklist. This List provides the Applicant with a number of frequently expected details that should be verified by the Applicant before submission. Applicant is required to proofread the submitted reports, indicate on the Checklist which requirements have been included in the report, and, if the requirement is specific to a page in the report, the page on which the required material begins must be indicated. Some items on the Checklist might not be included or appropriate in a specific report and should be marked “N/A.”

3.6.2 Production Values Count

The appearance of an appraisal report is an important contributor to the credibility of the appraisal result. Accordingly, Applicant must demonstrate skill in preparing appraisal reports with high production values.


Reports must have numbered pages, correct grammar, and professional appearance. Reports submitted without page numbers on every single page, except the cover page, will be rejected. (Every single page includes all exhibits, appendices, and other attachments). A suitable table of contents is required. A proportional serifed typeface, such as Times Roman or Garamond, is preferred because it is easier to read than fixed pitch typefaces such as Courier. Exhibits must be identified by an exhibit number and clearly linked to the narrative of the report.

The effective use of charts and graphs is important and encouraged. Demonstration Reports should include the Applicant’s ability to make effective graphical presentations. Report sections must be delineated. The narrative of the report must fully explain the relevance of all charts, tables, exhibits, and other presentations. If the role of these presentations in the appraisal process cannot be identified, they are extraneous and should be omitted.

Embedding tables and charts at the point of reference is preferable to attaching them as appendices. Material that is not referred to in the report should not be included. Background material and lengthy tables may be appended if necessary. All included materials must support the analysis and conclusions of the appraiser or be otherwise explained.

Sources must be identified in all cases, and footnotes are preferable to endnotes. Footnotes and bibliographic or other references must conform to the form given in A Manual of Style3 or other standard reference.

Reports must be competently proofread. Material spelling errors, math errors, non-sequiturs, and punctuation errors are disqualifying.

3.6.3 Use of Plain Language

Reports must be written in language appropriate to the business appraisal profession. Consistent use of the International Glossary of Business Valuation Terms is expected. Sentences must be complete. Short sentences are better than long sentences. Active voice is more effective than passive. Use of correct business valuation vocabulary and terminology is required. Brief, concise paragraphs are more effective than long discourses. Names given to appraisal approaches and methods must be consistent with forms found in the literature sources cited above.

3.6.4 Emphasis on Analytical Skills

Certified Business Appraisers must possess strong analytical skills. The review of Demonstration Reports places great emphasis on demonstration of competency in research, data collection, analysis of data, development of supportable conclusions, logical thinking and clear and concise reporting of results. A demonstration of a high degree of knowledge and skill in these areas is mandatory.

3.6.5 Use of Appraisal Software in Demonstration Reports

Skill in the operation of appraisal software is not required for accreditation. In general, the use of appraisal software programs is discouraged for Demonstration Reports, and inclusion of direct printouts from such software in Demonstration Reports is normally unacceptable. The Demonstration Reports must be the sole work of the Applicant, and not the work of software developers or authors. The report narrative must be written in the Applicant's own words, and not copied from other sources.

3 A Manual of Style, 15th Edition, Revised, (Chicago: The University of Chicago Press, 2003).


Even the best software programs have limitations, and in actual appraisal practice, there are few instances that require any kind of software beyond a modern word processor and spreadsheet. Further, Reviewers look to the ability of the Applicant to perform the necessary computations and prepare the necessary narrative, not the software.

3.6.6 Conformance to IBA Standards

Demonstration Reports must conform entirely to the IBA Business Appraisal Standards.

3.6.7 Demonstration of Business Valuation Methodology

Applicant must demonstrate a comprehensive knowledge of current business valuation methodology, and must demonstrate competence in the application of each of the three basic approaches to value. The two Demonstration Reports must include a demonstration of the Applicant’s knowledge of all of the following items at least once within the two reports to be deemed qualifying:

1. Proper application of the Direct Market Data Method (DMDM) for the stated facts about the Subject Interest.

2. Proper application of a Guideline Transaction Method other than the DMDM for the stated facts about the Subject Interest.

3. Proper application of a multi-year Discount Method with cash flow calculations for sufficient years to forecast stable and uniform growth of cash flows including the proper application in the development of a multi-year forecast of Balance Sheets, Profit and Loss, and Net Cash Flows to Equity.

4. Proper application of a Weighted Average Cost of Capital to the Net Cash Flow(s) to Invested Capital.

5. Proper application of an Accumulated Net Asset Method that includes adjustments to both assets and liabilities.

6. Conversion of a “As if Freely Traded” value to obtain a non-controlling non-marketable value that includes both tangible and intangible assets.

7. Conversion of the value of a “As if Freely Traded C Corporation” to a “Tax Pass-through minority interest.”

8. Proper development of two different methods to estimate the cost of equity consistent with the stated facts about the Subject Interest.

9. Performance of operational and financial analysis of the Subject relative to its industry peers that includes a conclusion that is reflected in the value opined.

In addition, the Applicant should include a proper analysis and demonstration, where reasonable, of at least three of any of the following:

1. Guideline Public Company Method if applicable to the Subject Interest.

2. Excess Earnings Calculation used to allocate value to intangible assets.

3. Surplus or non-operating asset treatment and related expense adjustment.

4. Consideration of the benefit of a Net Operating Loss Carry-Forward

5. Valuation of non-voting stock

6. Valuation of a 50% interest with two 50% partners.

7. Valuation of a “Put” on the value of the Subject Interest.


8. Liquidation value in excess of going concern value.

9. Recent sales of similar interests at exceptional prices.

10. Significant intangible asset that has a quantifiable value.

11. Acquisition of a controlling interest when the Subject Interest is a minority.

3.6.8 Analysis of Subject Industry

Applicant must demonstrate competence in the research and analysis of the subject industry, and in the analysis of findings on the value of the subject firm.

3.6.9 Analysis of Economic Conditions

Applicant must demonstrate competence in the analysis of economic factors that affect the value of the subject and in describing how economic factors affect the value of the subject company.

3.6.10 Support of Subjective Factors

Applicant must demonstrate competence and judgment in the development of subjective factors, such as discount and capitalization rates, adjustments for (lack of) control and marketability, weighting of value indications, selection of growth rates, etc.

Support of subjective factors must include discussion of applicable empirical information, description of the range of probable values, discussion of why the value for the subject falls where Applicant believes it does, listing of all factors taken into consideration by the Applicant, and comparison to appraisal literature. Absent an appropriate level of support, statements such as "In the opinion of the appraiser, a capitalization rate (discount rate, minority discount, specific risk premium, etc) of X is appropriate for the subject," will be disqualifying.

Examples of inadequate (disqualifying) support for subjective factors:

1. "After considering all relevant factors, we have concluded that a subjective risk factor of 11.2% is appropriate for the subject."

2. "In the opinion of the appraiser, a capitalization rate of 25% will be suitable for the subject."

3. “When compared to the other approaches, the income approach should be given the greatest weight."

4. “In view of the growth potential for the subject, an average annual growth rate of 6% is appropriate."

5. "The average control premium observed in the Mergerstat Studies was 35%, so this is what we will use for the subject."

6. "Numerous authorities suggest a range of discount rates from 20% to 35%, so for this subject we will use the average of these, or 27.5%."

7. "Average annual growth rate for the last five years is 8.9%, so we will project future income at this rate."

3.6.11 Reconciliation of Indicated Values

Applicant must demonstrate competence in the reconciliation of the various indications of value and provide detailed explanations of the analysis thereof.


4 ACCREDITATION AS BUSINESS VALUATOR ACCREDITED FOR LITIGATION (BVAL)

Reserved for future


5 ACCREDITATION AS ACCREDITED IN BUSINESS APPRAISAL REVIEW (ABAR)

Reserved for future


6 REACCREDITATION AND CONTINUING EDUCATION REQUIREMENTS

6.1 Application

The Reaccreditation and Continuing Education Requirements of the Institute of Business Appraisers apply to all holders of the Master Certified Business Appraiser (MCBA), Certified Business Appraiser (CBA), Business Valuator Accredited in Litigation (BVAL), Accredited in Business Appraisal Review (ABAR) and Accredited by the Institute of Business Appraisers (AIBA) designations.

6.2 Continuing Education Requirements

All holders of the designations set forth in Section 6.1 above must complete 24 hours of Continuing Professional Education (CPE) in business appraisal, or other acceptable professional development, each 24 months. The number of hours does not increase for holders of more than one designation. However there must be a minimum of six hours in the general area of each Accreditation held. For example, an individual with CBA, BVAL, ABAR would need on 24 hours with at least six in each of general business appraisal, litigation support, and appraisal review.

6.3 Acceptable Professional Development Activities

Volunteer activities on behalf of the Institute of Business Appraisers or other compeer professional organizations are recognized by IBA. Such activities include but are not limited to mentoring Applicant appraisers and service on technical committees. Credit will be given on an hour-for-hour basis.

Teaching or lecturing on business appraisal or a related subject in a formal classroom setting in a class sponsored by IBA or other compeer professional organizations are recognized by IBA. Ten hours of credit are given for each hour of teaching or presentation.

Presenting technical material to a plenary session of a national conference on business valuation sponsored by IBA or other compeer professional organizations is recognized by IBA. Ten hours of credit are given for each hour of teaching or presentation.

Writing technical articles on business appraisal for publication in Business Appraisal Practice, the technical journal of IBA or other compeer professional organizations is recognized by IBA. Sixteen hours of credit are given for each article published.

6.4 Acceptable Continuing Education

Acceptable continuing education includes attendance at formal classroom courses offered by IBA or other compeer professional organizations recognized by IBA, or attendance at the national business valuation conference of IBA or other compeer professional organizations recognized by IBA. Credit is awarded on an hour-for-hour basis.

6.5 Procedure for Submitting Evidence of Education or Professional Development

Satisfactory evidence of completion of the continuing education or professional development requirement shall be documented on the form provided by IBA. An administrative processing fee may apply.


7 APPENDIX A

Each Demonstration Report must be accompanied by CBA Report Checklist. This Checklist provides the Applicant with a number of frequently expected details that should be verified by the Applicant before submission. Applicant is required to proofread the submitted reports, indicate on the Checklist which requirements have been included in the report, and, if the requirement is specific to a page in the report, the page on which the required material begins must be indicated. Some items on the Checklist might not be included or appropriate in a specific report and should be marked “N/A.”

# Attribute Page 1 Name of company and any DBA's 2 Where registered? 3 Form of organization 4 Tax filing status (C Corp, S Corp, Partnership, etc.) 5 Various types of ownership that exist 6 Ownership being appraised — percentage or number of shares 7 Degree of control 8 Premise of value 9 Degree to which Subject Interest is marketable

10 Name and standing of client engaging the appraiser 11 Effective valuation date 12 Date Demonstration Report prepared 13 Purpose of the report and how it is expected to be used including any

specific limitation on use

14 Standard of Value, its reference source, and why selected 15 Certification supplied 16 Letter of Transmittal 17 Are all pages numbered? 18 History of Subject Company 19 Description of products and services 20 Description of markets, types of customers, end users 21 Description of geographical distribution and industries as it applies to

customers and suppliers

22 Description of competitive situation 23 Description of management depth, capabilities, and succession 24 Capital structure including relationship to lenders 25 Past transactions in ownership of company 26 How does international economy affect Subject Interest? 27 How does national economy affect Subject Interest? 28 How does local/regional economy affect Subject Interest? 29 What is the industry outlook? 30 How do the economic and industry factors affect the Subject?


# Attribute Page 31 Are footnotes written to a consistent, recognized standard? 32 Have you given proper attribution to all materials and information

collected from other sources?

33 Describe nature of site visit 34 Describe nature of management interview(s) 35 What specific sources of financial information were reviewed? 36 What is the quality of financial statements? Audited, reviewed, etc. 37 What specific sources of financial information are used in report? 38 Have you discussed changes in financial statements from one period to

the next? Are all unusual changes in specific years explained?

39 Have you given reader sufficient information about the assets employed by the company to verify your conclusions about the forecasts?

40 What comparative measurements of the company's operating and financial performance have been made?

41 What is the source of the guideline or industry data used? 42 Did you identify any possible bias in the industry data, and was it on the

same basis as the company?

43 What conclusions did you make about the company's performance? Does the company perform generally above, at, or below the industry?

44 Are there any surplus or non-operating assets? How treated? Why? 45 What adjustments were made to the financial statements and why? 46 How do these adjustments affect the level of value? Why? 47 How are the magnitudes of the adjustments supported? 48 What sources did you use for the cost of equity? 49 What alternatives were not considered? Why? 50 Did you establish the cost of debt?

51 What debt and equity assumptions did you apply? Why? 52 If report applied a debt free income approach, then it must adequately

justify the debt /equity weighting for the WACC calculation.

53 If an industry norm or company optimal debt/equity weighting is used how was it determined?

54 What short-term and long-term growth assumptions were made?

55 How did you reconcile the growth assumptions with economy, industry, and company statements?

56 If applying a single period capitalization model, how do you reconcile the growth assumptions?

57 Source of earnings used in forecasts 58 How was depreciation determined for the forecast period? 59 How was amortization determined for the forecast period? 60 How were capital expenditures determined for the forecast period? 61 What tax rate assumptions did you use? How justified?


# Attribute Page 62 Is the capitalized economic benefit stream earned uniformly throughout

the year? If not, how treated?

63 Specify sources of transaction data for Market Approach. 64 What market data was excluded or ignored? Why? 65 Are the characteristics of the market data used consistent with the

Standard of Value? If not, how adjusted?

66 If applying Asset Approach, where did you identify source and assumptions for adjustments?

67 Does the business have intellectual property that qualifies as an intangible asset?

68 Are all off-balance sheet assets and liabilities, actual and contingent, considered and are any tax adjustments needed?

69 What value indications are “As-If-Freely-Traded?” Do they need to be adjusted to a non-marketable level of value? If so, how?

70 If a DLOC is applied, how was it determined? 71 If a DLOM is applied, how was it determined? 72 How did you reconcile the facts about the Subject Interest with the

reported interests reflected in your discount data sources?

73 Is the level of value of all valuation methods consistent with the Subject Interest?

74 Is the reconciliation of different indications of value supported?

75 Are the appraiser's qualifications included? 76 Is the certification signed? 77 Does certificate comply with the requirements of the professional

standards necessary based on the appraiser's qualifications?

78 Is the Statement of Assumptions and Limiting Conditions appropriate to the engagement?

79

Is the bibliographic and source information complete and consistent with the valuation date?

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