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A Reviewer's Handbook to Business Valuation: Practical Guidance to the Use and Abuse of a Business Appraisal by Timothy R. Lee, L. Paul Hood Jr.

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Chapter 2

Defining the Engagement

Having discussed the elemental concepts of value in Chapter 1, the purpose of this chapter is to move through the other elements necessary to define and frame the typical valuation engagement. In addition to these defining elements and considerations, valuation engagement agreements and work products should provide a clear definition of the standard of value, level of value and premise of value employed in the valuation. Portions of the material in this chapter are sometimes overlooked and even dismissed as tedious or overly complicating of the appraisal processes. Nonetheless, the technicalities of a valuation engagement are often critical when examining the process and the results down the road.

The Importance of Defining the Engagement

There is nothing more challenging than the review and comprehension of a legal or financial document. All stakeholders to such documents must have a firm grasp of the purpose and scope of the process and the work product, whether it is the genesis of the appraisal process, reviewing the report in draft form, or relying on the final document for its designated purpose. Business valuations use all manner of form and substance. These can be among the most incomprehensible documents for stakeholders to attempt to use and review. Sadly, few valuations provide the stakeholder with a clear, concise definition of what the report proposes to do and what its conclusion represents. What are the parameters of the report? ...

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