Business valuators are often asked by counsel to review another expert's business valuation or damage quantification report. The review and related comments are usually contained in a written critique.

A critique generally sets out the reviewer's comments regarding specific aspects of the other expert's report. It will describe areas of strength and weakness regarding valuation approach, techniques and assumptions and may provide the reviewer's own conclusion as to value. It may be prepared in an advisory capacity for use in any one of several situations: for counsel's use in assessing probability of success or tactics; for use in cross-examination; for use in an examination for discovery; as a rebuttal document; or it may be provided to the court as an independent expert report.

The Canadian Institute of Chartered Business Valuators (CICBV) has issued valuation standards and recommendations to be followed by Chartered Business Valuators (CBVs) when they prepare reports concerning the value of a business interest or the quantification of damages. The standards apply to file documentation, scope of work and reporting. The valuation standards have been developed to ensure that reports prepared by CBVs meet professional standards of quality and objectivity.

CICBV standards refer to reports containing conclusions about the value of shares or assets as valuation reports, while reports relating to damages or the quantum of financial gain/loss are termed expert reports. Here, we refer to both types as simply "reports." By adhering to these standards, reports will have some measure of consistency. Report users will better understand not only the nature and extent of the valuation issues, but also the scope of review undertaken and the assumptions and logic adopted by the valuator in determining the valuation conclusion.

Any report that contains a written conclusion as to the valuation of shares, assets, an interest in a business or the quantum of damages or financial gain/loss must adhere to these standards, whether that report is prepared in an advisory capacity or as part of an independent expert report. A critique report that provides the reviewer's conclusion on value or damages must therefore adhere to the valuation standards since, by the CICBV's definition, such a critique is a valuation or expert report.

Critiques do not always contain conclusions as to value or damages. Many have a narrower objective: to provide limited critique comments on the valuator's report being reviewed. Since a limited critique is neither a second opinion nor an alternative value conclusion to the other expert's report, it does not need to comply with the CICBV report standards. However, because the ultimate purpose of most critiques is to support or refute another expert's conclusion on value, even a limited critique may inadvertently lead a reader to a conclusion on value. If so, it may be held to the higher standard.

Regardless of the type of report that is being given, CBVs are bound by a code of professional ethics that promotes and preserves the public's trust in their practices. The first exhibit above summarizes the standards that apply in each specific case.

The road map to selecting the type of critique best suited to the matter (see second exhibit) requires that the following decisions be made:

· Is a conclusion as to value or damages to be put forward by the reviewer?

· Will the reviewer act as an independent expert or as an adviser who is not independent?

· In light of the critique's purpose, what is the degree of assurance and scope of work required?

We propose standards for limited critiques that merge certain of the Canadian standards applicable to valuation and expert reports and those contained in the Uniform Standards of Professional Appraisal Practice (USPAP). USPAP, which has been endorsed by the major appraisal organizations in the United States and Canada, contains requirements for ethical behaviour and competent performance by appraisers. USPAP appraisal practice standard No. 3 contains the various appraisal standards and rules of professional conduct applicable to a critique assignment regarding real-estate appraisals.

Reporting standards
We recommend that a limited critique be set out in a written report or memorandum signed by the preparer or with the author otherwise noted. It must state the purpose and valuation date of the report being reviewed, describe the subject of the review assignment, state the effective date of review and whether the reviewer is independent. It must also identify the reviewer's client, the intended users of the report, and the purpose for which it has been prepared. Furthermore, the critique must describe the damage claim, business interest or other property being reviewed so that the comments may be placed in context.

The limited critique should also specify that it does not contain a revised or new valuation conclusion, nor does it contain the adjustments (if any) that the reviewer may have found necessary to arrive at a conclusion, on value. It should also caution the reader that the comments in this critique, which do not lead to a conclusion on value, are to be used only for the purposes described. Selecting portions of the analysis without considering all factors and analysis together could create a misleading view of the methodologies and approaches underlying a conclusion on value. The preparation of a conclusion on value is a very complex process and components of value cannot be viewed in isolation.

Finally, the limited critique should state whether any assumptions were made by the reviewer that are different from the original report.

Scope of work standards
The critique must set out the steps and procedures undertaken by the reviewer in preparing the critique. A reviewer is not required to replicate the steps completed by the original valuator. It may take into consideration information not considered by the original valuator.

Where the matter pertains to value as at a date prior to the date of the reviewer's report, information that is available to the reviewer that could not have been used in the original valuation (hindsight information) can be used by the reviewer only to test assumptions made in the original report. Information that is available to the reviewer, that could have been used but was not available to the original preparer, can generally be used in the critique - in other words, the information would not just be restricted to testing assumptions.

Where the matter pertains to a damages calculation as of the trial date, all the information available to the reviewer that could have been used in preparing a full report can be used in the critique.

Although it is not mandatory, the reviewer should consider including the following in a limited critique, depending on the intended use of the critique and the user's expectations. When needed, there should be a conclusion as to the appropriateness of the methods and techniques used in the original report, with reasons and preferable alternatives. There could also be a conclusion as to whether the opinion and analysis in the original report are suitable, with reasons and preferable alternatives. The critique might contain a statement about the strengths and weaknesses of the differing positions on subjective matters, comparing and contrasting where appropriate. There could also be a statement about the directional impact (or dollar impact value, if possible) of differing calculations or assumptions on the original report's conclusion on value.

Critique reports are a powerful and cost-effective tool in all forums of dispute resolution. Critiques containing valuation conclusions are held to the same standard as other valuation reports, but limited critiques are not. In this article, we have provided some suggested standards applicable to limited critiques and hope further discussion on the reporting and scope standards will benefit valuators and users alike.