United States: The New Valuation Credential - How Will It Impact The Alternative Asset Industry?


With the advent of the 1940 Investment Company Act, Fair Value has been required for Alternative Investment Fund Managers reporting under US GAAP. The industry has evolved over time, most specifically over the past few decades with the advent of the US PEIGG Valuation Guidelines in 2003, the International Private Equity and Venture Capital Valuation Guidelines in 2005, and the issuance of FASB Statement 157 (now ASC Topic 820) Fair Value Measurements in 2006. In recent years, as a response to investor concerns, audit pressure and expanded regulation, most investment managers have improved the rigor and robustness of their fair value measurement and reporting process.

The 2008/2009 financial crisis exacerbated the focus on fair value estimates. While many Alternative Investment Managers had strong fair value estimation processes, they were caught up in the frenzy surrounding the judgment required to value illiquid investments. Over the past decade the Public Company Accounting Oversight Board (PCAOB) has consistently found exceptions in their examinations with respect to auditing fair value estimates. In addition, the U.S Securities and Exchange Commission (SEC) has questioned the qualifications and professionalism of valuation specialists. The questioning of these regulatory bodies has resulted in new and expected rules with respect to estimating fair value.

Proposed PCAOB Standards

In 2014 and 2015 the PCAOB issued consultation papers for public comment on the topics of:

  • The Auditor's Use of the Work of Specialists
  • Auditing Accounting Estimates and Fair Value Measurement

After considering public comments on the consultation papers, the PCAOB has combined the topics and soon expects to release proposed new audit standards which focus on auditing fair value measurements.

New Framework for Valuation Professionals

In a prepared speech at the 2011 AICPA National Conference on Current SEC and PCAOB Developments, December 5, 2011, Paul A. Beswick, as Deputy Chief Accountant of the U.S. Securities and Exchange Commission, stated the following:

Risks created by the differences in valuation credentials that exist today range from the seemingly innocuous concerns of market confusion and an identity void for the profession to the more overt concerns of objectivity of the valuator and analytical inconsistency.

The fragmented nature of the[valuation] profession creates an environment where expectation gaps can exist between valuators, management, and auditors, as well as standard setters and regulators. ...

I think one potential solution to consider is whether there should be, similar to other professions, a single set of qualifications with respect to education level and work experience, a continuing education curriculum, standards of practice and ethics, and a code of conduct. One could also contemplate whether a comprehensive inspection program and a fair disciplinary mechanism should be established to encourage proper behavior and enforce the rules of the profession in the public interest. (http://www.sec.gov/news/speedh/2011/spch120511pab.htm)

In response to the SEC's concerns, over the past three years a new valuation credential has been established through the efforts of the American Society of Appraisers (ASA), the American Institute of Certified Public Accountants (AICPA) and the Royal Institution of Chartered Surveyors (RICS), major accounting firms, and others.

The Certified in Entity and Intangible Valuations credential shortened to CEIV (CEIV or the Credential) is the result of these efforts. Further information is available at https://ceiv-credential.org/.

The Mandatory Performance Framework

In addition to the CEIV credential, a Mandatory Performance Framework (MPF) for valuations and Application guidance for the MPF (Application) were created to provide a consistent framework for determining how much valuation work to do and how to document the work done in estimating fair value (https://ceiv-credential.org/mandatory-performance-framework-and-application/). The MPF and Application are required to be applied by CEIV credential holders and expected to be followed by non-CEIV valuation professionals, as best practice.

Overall the MPF and Application require that the valuation professional provide within the work file sufficient documentation to support a conclusion of value such that an experienced professional not involved in the valuation engagement could review and understand the significant inputs, analyses, and outputs and how they support the final conclusion of value.

Application to Alternative Investment Funds and Fund Managers

Over time, it is anticipated that compliance with the MPF and Application will be expected by Investors, Auditors and Regulators. "The framework and the application of the MPF were designed to be used by all valuation professionals who provide valuation services for financial reporting purposes."

"An overview of the scope of adoption and adherence by valuation professionals follows:

  • Valuation professionals with the CEIV credential. It is mandatory for valuation professionals who have earned the CEIV credential to adhere to the framework and the Application of the MPF (collectively referred to as 'MPF documents') when engaged by (a) an entity required to submit registration statements or filings to the SEC or (b) a privately held entity that prepares and issues financial statements in accordance with US GAAP, to perform a valuation of a business, business interest, intangible asset, certain liabilities, and inventory used to support management's assertions made in financial statements issued for financial reporting purposes.
  • Valuation professionals without the CEIV credential. As noted previously, the framework and the Application of the MPF were designed for use by all valuation professionals. Although only those valuation professionals who have the CEIV credential are required to adhere to the MPF documents, the Performance Requirements Work Stream believes that adhering to the MPF documents should be considered best practice by valuation professionals who do not have the CEIV credential and who perform valuation of a business, business interest, intangible asset, certain liabilities, and inventory used to support management assertions made in financial statements issued for financial reporting purposes." (MPF page vi)

As the MPF and Application become standard practice, it is possible that it will be expected for a CEIV credentialed valuation professional to be involved in all valuation estimates prepared for financial reporting. The CEIV may be an employee of the Fund Manager and/or may be an independent valuation expert with the credential.


The PCAOB's anticipated proposed auditing standards will also impact a Fund's approach to estimating and documenting fair value. Fund Managers may wish to comment on the proposal when issued to ensure that the voice of the Alternative Asset Industry is heard.

The CEIV credential, the MPF and the Application of the MPF, are in their infancy in adoption and understanding. The new credential and framework were designed for all fair value financial reporting by all US GAAP reporters, not specifically for the Alternative Asset Industry. The framework is therefore expected to be applied to the Alternative Asset Industry. As implementation of the MPF, Application and CEIV credential unfolds there will likely be inconsistencies in expectations, interpretation and application.

Overtime, compliance with the MPF should enhance consistency and transparency in the performance of Fair Value measurements for the benefit of public interest. Alternative Investment Fund Managers have a vested interest in meeting the expectations of investors, regulators and the public in general. Understanding and adopting the new valuation framework should assist in expanding public trust.

David Larsen, CPA/CGMA is a Managing Director with Duff & Phelps and serves as Vice Chair of the IPEV Board, a member of the AICPA PE/VC Valuation guide taskforce, and former member of FASB's Valuation Resource Group.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions