ESOPs, allowed by the Internal Revenue Code, are retirement plans to which the company contributes its stock for the benefit of the company’s employees. It is estimated that approximately 11,500 ESOPs exist in the United States according to 2008 statistics published by the ESOP Association,2 and they must be valued at least annually. As with other areas of BV, a valuation expert hired to conduct this kind of engagement must be knowledgeable in various subdisciplines to competently complete his or her work. These areas include valuation theory, legal and regulatory rulings related to ESOPs, qualified plan administration, general finance, and fiduciary concerns. In addition to fulfilling the annual requirement, ESOP valuations are performed for other reasons, including shareholder liquidity, estate planning, management succession planning, employee motivation, privatization, and acquisitions.
Referral sources in this field are commonly obtained through other CPAs and their firms, largely because the valuation of an ESOP must be done independently of the accounting firm that performs its audit. It is important to recognize that when performing a valuation for ESOP formation or administration purposes, the valuation professional works for the ESOP trustee, not the selling shareholder. In this regard, networking with peers is an excellent way to market your capabilities. Also, another valuation specialist might refer work to a peer if he or she does not feel comfortable with this type of engagement. Becoming an active member of the ESOP Association is another great way to network within this segment.
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