The world of valuation has at times been plagued by divergence in practice, which creates a level of confusion among those who are considered the audience for valuation opinions. This lack of consistency in valuation practice has garnered increased attention in the financial reporting world because of the increasing importance of fair value measurement (versus traditional historical cost) and the number of audit deficiencies noted each year by the Public Company Accounting Oversight Board (PCAOB).
In response to outside stakeholder concerns, the valuation community has collaborated in a variety of ways, collectively referred to as the Fair Value Quality Initiative (FVQI). Two resulting outcomes of the FVQI are a professional credential known as the Certified in Entity and Intangible Valuations (CEIV) and a set of performance requirements known as the Mandatory Performance Framework (MPF).
The MPF is intended to establish minimum thresholds for valuation professionals working within the financial reporting realm. The framework is intended to complement (not replace) existing professional and technical standards governing the valuation profession. The key question the MPF is designed to answer is, “How much work should be performed in order to prepare a professional work product.”
While the framework was designed for use in all financial reporting-related valuations, adoption and use of the framework is only mandatory for those holding the CEIV credential and performing valuations for SEC filers or private entities following GAAP. To date, a relatively small number of CEIV credentials have been issued, despite many more professionals having gone through the training for the credential.
The MPF is gaining wider acceptance as best practice within the financial reporting community. Comments made at recent fair value measurement conferences indicate that many organizations have adopted the MPF as standard procedure for outgoing work product, or plan to move this direction in the near future. Audit practices at some firms plan to follow suit and require MPF compliance for incoming work that clients put forth as supporting audit evidence.
We recommend that companies with fair value measurement requirements become familiar with the MPF, whether they use third-party valuation specialists or they perform the fair value measurements in-house. Auditors are likely to ask whether or not the MPF is being followed, as it will inform the audit team’s planning and procedures.
 Mandatory Performance Framework for the Certified in Entity and Intangible Valuations Credential, issued January 2017, pg. iv.
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