ASA updates rules to include guidance on valuing partial interests

The American Society of Appraisers has just updated its Business Valuation Standards (ASABVS) to include a new Procedural Guideline: PG-2 Valuation of Partial Ownership Interests. After nearly six years in development—including two exposure drafts and consideration of all comments, the ASA BV Committee approved the PG-2 guidelines during its most recent annual meeting in Boston. “PG-2” is now part of the non-binding portion of ASABVS, say Chris Mercer, Chair of the BV Standards Committee, and member Eric Nath, who announced the new release in the most recent ASA E-Letter (Dec. 30, 2009).

PG-2 Valuation of Partial Ownership Interests provides a mechanism to respond to USPAP’s SR 9-4(d) in terms of analyzing ‘the effect on value, if any, of the extent to which the interest appraised contains elements of ownership control and is marketable and/or liquid.’ It further expands on the (binding) comments in SR 9-4(d) calling for appraisers to consider factors ‘such as holding period, interim benefits, and the difficulty and cost of marketing the subject interest.’

By recognizing that the valuation of an ownership interest may differ significantly from the valuation of the underlying entity or asset, PG-2 outlines factors to consider in valuing partial interests, from the purpose of the BV engagement to contractual and legal restrictions. It further addresses the “approaches, methods, and procedures” for valuing these interests.

“PG-2 is an important addition to our BV Standards,” say Mercer and Nath, adding the gentle suggestion that “it would be an excellent idea” for all ASA members, candidates, and other appraisers to read the new guidelines in the context of their standard report templates and normal valuation procedures.