Valuation Guidelines

All valuations performed by Equity Valuation Associates are in accordance to the standards, guidelines, methods, and procedures outlined in the IRS Revenue Ruling 59-60 and/or the Financial Accounting Standards Board (FAS) 157.

IRS Revenue Ruling 59-60

The purpose of this Revenue Ruling is to outline and review in general the approach, methods and factors to be considered in valuing shares of the capital stock of closely held corporations for estate tax and gift tax purposes.

IRS Revenue Ruling 59-60 determines the basis of fair market value and states that fair market value is, "The amount at which the property would change hands between a willing buyer and willing seller, when the former is not under any compulsion to buy, and the latter is not under any compulsion to sell, both parties having reasonable knowledge of relevant facts."

To learn more about IRS Revenue Ruling 59-60, please click here.

Financial Accounting Standards Board (FAS) 157

FAS 157 is a Financial Accounting Standards Board (FASB) Statement that requires all publicly-traded companies in the U.S. to classify their assets based on the certainty with which fair values can be calculated. This statement created three asset categories:  Level 1, Level 2 and Level 3. Level 1 assets are the easiest to value accurately based on standard market-based prices and Level 3 are the most difficult.

FAS 157 was passed to help investors and regulators understand how accurate a given company's asset estimates truly were. Many firms (including some of the largest in terms of assets) had to write down billions of dollars in hard-to-value Level 3 assets following the subprime meltdown and related credit crisis, which began in late 2006. By making companies report to investors the breakdown of assets, they allow investors to potentially see what percentage of the balance sheet could be open to revaluation or susceptible to sudden write-downs.  

Fore more information on FAS 157, please click here.