“Standard of Value” is defined in the Glossary of the ASA Business Valuation Standards as:

Standard of Value. The identification of the type of value being used in a specific engagement; e.g. fair market value, fair value, investment value.

Defining the appropriate standard of value is a critical first step in every business valuation engagement.  As Rand Curtiss, a business appraiser and fellow blogger (the IBA Blog), tells us, it is also important to understand the appropriate standard of value in business damages cases.

In a recent post, he describes the process of investigation necessary in a matter to define and understand the appropriate standard of value in a business damages matter.   His post is titled: The Case of the Unclear Standard of Value.

He makes an important point for all business appraisers and attorneys to keep in mind:

United States bankruptcy courts are the one example of federal courts [that] operate as courts of equity. Some common law jurisdictions–such as the U.S. states of Delaware, Mississippi, New Jersey, South Carolina, and Tennessee–preserve the distinctions between law and equity and between courts of law and courts of equity.  The point of this seeming diversion to talk about fair market value, equity, and courts of equity is to illustrate that there is potential tension between objective valuation standards and the standard of fair value as it might be interpreted based on equitable considerations by a court.

Rand is an engaging writer.  You will enjoy the post and learn from it.  Interestingly, he quotes from my post, Statutory Fair Value #1 An Introduction.  With that post I began what has become a lengthy series of articles investigating the issues involved in discussing and defining statutory fair value.  Peruse the series here.

What I can relay from years of experience in business valuation and business damages matters is that it is critical to have clarity on the required standard of value.  Differences in standards of value between appraisers (yes, it happens), or differences in interpretation of what a particular standard of value means, can create enormous and seemingly irreconcilable differences in conclusions.  Differences in the theory of damages (which may also involve the selection of a valuation standard of value) create the same divergences in business damages matters.

So be clear regarding the standard of value employed in every business appraisal or in every business damages matter.