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Financial Valuation: Applications and Models, + Website, 3rd Edition by James R. Hitchner

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Chapter 11

Business Valuation Standards

HISTORY OF VALUATION STANDARDS

The history of valuation standards has both a long-term and a short-term focus. The concept of establishing value is a fundamental premise of commerce. It is the basis upon which goods and services are exchanged. Estimates of value have formed the basis for transactions in commerce since ancient times. Yet it is only since the early 1980s that the business valuation/appraisal profession as we know it has evolved.

In the early years of the business valuation profession, Mr. Ray Miles of the Institute of Business Appraisers and Dr. Shannon Pratt of Willamette Management Associates were among the first to compile the body of business valuation knowledge into a coherent form. Miles’s book, Basic Business Appraisal, was one of the earliest texts on the subject. Pratt’s book, Valuing a Business, was first published in 1981, when business appraising as we know it was still in its infancy. Since the publication of these two seminal texts, a host of articles, newsletters, and books have been published on a variety of valuation topics that have added to the body of knowledge about valuation theory. The evolution of business valuation theory has led to an evolution in the standards that govern the profession.

Ironically, the event which triggered the creation of national business valuation standards, was not related to business valuation but was a real estate appraisal scandal. During the savings and loan (S&L) crisis ...

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