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10 Steps to Critiquing an Expert Company Valuation Report – Part I

10 Steps to Critiquing an Expert Company Valuation Report – Part I

Chartered Business Valuators (CBVs) are frequently retained as independent experts in commercial, shareholder or matrimonial disputes to prepare an independent, expert damages or valuation report; as well as review an opposing expert’s report.  This independent and objective assistance is intended to help facilitate a settlement and/or assist a trier of fact render a decision in court.  As a business owner or lawyer representing a client in the middle of such proceedings, it’s important to have an effective method for reviewing an expert damages or business valuation report you are served with, allowing you to build and strengthen your case.

Here are ten quick steps for reviewing an expert report on damages or business value:

Review of Author’s Credentials and Qualifications

Since CBVs are tasked to provide an independent and objective report and expert testimony within their area of expertise, it is in your interest to conduct a thorough review of their said expertise.

To start, it helps to obtain and review the author’s curriculum vitae (CV), often attached to the report as an exhibit. This will help you assess his/her relevant experience and qualifications to act as an expert in this area.  

Identify Scope Limitations & Qualifications on Conclusions

The expert’s scope of review may have been restricted in some fashion (i.e. no access to certain information or people to interview), which can significantly impact the reliability of the findings.  As a result, it’s important to review the report for major scope limitations. Doing so will help ascertain whether or not sufficient work was done to support the conclusions or findings.

Identify & Assess Assumptions Underlying Conclusions

Since an expert report is founded on key assumptions, it’s essential to review these by identifying and assessing their reasonableness with respect to the conclusions presented. If, based on your review, the underlying assumptions made in the expert report are not reasonable, nor properly supported, this can significantly impact the reliability of their findings, and in effect, the case.

Consider the Nature of the Expert’s Opinion

After reviewing the expert’s qualifications, as well as the scope limitations and the key assumptions underlying the conclusions, it’s important to then assess the nature of their expert opinion.

This involves assessing the conclusions presented to ascertain whether these reflect an independent expert opinion; or whether they are merely calculations based on representations provided by their client. This is because the more their work relied on inputs from management to identify key assumptions, the less credible the resulting report is, and the extent to which it can be relied upon as expert evidence.

Identify and Assess the Damages Approach

The quantification of economic damages is based on the premise that an award of damages should place the plaintiff in the same financial position had the alleged breach or wrongdoing not occurred.  To achieve this, the independent expert should develop an economic model that can soundly project what would have happened, had the defendant not committed the alleged breach or wrongdoing, and compare it with what has happened or can be expected to occur as a result of the alleged acts.

Approaches to quantifying economic damages in a commercial dispute include assessing lost royalties and lost profits; accounting for profits; identifying increased operating and/or out-of-pocket costs; and assessing lost value of business.

When critiquing the expert report, be sure to consider the supposed damages had the entire business been destroyed, and if the entire business value is lower than the expert’s calculation of lost profits, this could indicate an overstatement of damages.

Have you been served with an opposing counsel’s expert company valuation report over the course of legal proceedings arising from commercial disputes? Consult our Chartered Business Valuators to critique this expert report and build a better case. Call us at 905-305-VSPL (8775) today.