Certified Valuation Analyst (CVA) Practice Exam

Engagement letters typically state that valuations are valid only for which of the following?

1. The valuation report format

2. The uses stated in the engagement letter

3. The geographical location of the business

4. The period of engagement

The correct answer is: The uses stated in the engagement letter

Valuation engagement letters serve a crucial function by outlining the scope and limitations of the valuation work being conducted. The statement that valuations are valid only for the uses stated in the engagement letter is key because it sets clear boundaries regarding how the resulting valuation can be utilized. This not only protects the valuator from liability associated with unintended uses of the valuation but also ensures that clients are aware of the specific context and objectives for which the valuation is prepared. For example, if a valuation is prepared for a specific transaction such as a sale or an acquisition, using that valuation for other purposes, such as legal disputes or tax assessments, may not be appropriate unless explicitly stated and agreed upon in the letter. The other options, while important in their own right, do not encompass the primary focus of engagement letters as it relates to the validity of the valuation itself. The report format, geographical location, and duration of the engagement may be relevant to the process and deliverables, but they do not specifically delineate the intended and acceptable uses of the valuation, which is the crux of why its validity is constrained to those stated in the engagement letter.