Evaluate your BV skills provides a checklist geared for CPAs determining whether they should accept a valuation engagement. The checklist is a great tool for all business owners and ESOP companies and provides a checklist of items to consider when determining whether you should rely on the valuation services of an existing trusted advisor or if you should engage an outside independent third party appraiser:
Do you have professional competence?
Are you independent?
If you accept this engagement, will there be client considerations that could impair your objectivity in appearance or fact?
Have you discussed the cost/benefit with the client so he or she understands the fees to be charged?
What is the reputation of the client or referral source?
Have you reviewed any regulations that might affect the valuation?
Whether you have an existing ESOP or you are contemplating Selling to an ESOP for the first time, it is important to make sure that your valuation expert has relevant and significant ESOP experience to help you navigate through the ESOP-specific valuation issues.
It is also important to make sure that your appraiser is independent, both in fact and appearance, in order to satisfy the independent appraiser requirements of IRC Section 401(a)(28)(C) - Qualified pension, profit-sharing, and stock bonus plans - Requirements for qualification - Additional requirements relating to employee stock ownership plans. If your appraiser is also providing any other significant services, including TPA recordkeeping services, plan document or other legal services, fiduciary services, or financial, tax, or assurance services, then you should revisit your arrangement to make sure you are still complying with the independent appraiser requirements:
(28) Additional requirements relating to employee stock ownership plans.—
(C) Use of independent appraiser.— A plan meets the requirements of this subparagraph if all valuations of employer securities which are not readily tradable on an established securities market with respect to activities carried on by the plan are by an independent appraiser. For purposes of the preceding sentence, the term "independent appraiser" means any appraiser meeting requirements similar to the requirements of the regulations prescribed under section 170 (a)(1).
Remember that it is a fiduciary responsibility of the ESOP trustee to act solely in the interest of the plan's participants and beneficiaries. Since the ESOP trustee is responsible for determining the Valuation of Company Stock each year, it is important to take the decision of who to engage as the independent ESOP appraiser very seriously.