Valuation is a technical field, and in the context of financial reporting, it’s one that rarely stands alone. Whether it’s the fair value of an intangible asset, the allocation of a purchase price, or impairment testing, financial statements often depend on estimates that require deep valuation expertise.

This is where the valuation expert comes in.

In the audit ecosystem, two valuation experts may operate simultaneously—one appointed by management, the other by the auditor. While both work toward the shared goal of producing fair, supportable valuations, they serve different functions, have distinct reporting obligations, and often apply different lenses to the same data.

A recent joint publication by the Canadian Public Accountability Board (CPAB) and the Chartered Business Valuators Institute (CBV Institute) sheds light on these roles, their differences, and the good practices that support audit-ready valuations. Drawing on the scenarios and observations outlined in the report, as well as broader industry insights, this article examines what strong valuation governance entails in real-world financial reporting.

Two Experts, Two Perspectives

In practice, the distinction is not just administrative. It shapes how valuations are approached and assessed.

Insights from Scenarios—What the Real World Reveals

The CPAB-CBV publication outlines scenarios that show where valuations in financial reporting can go wrong. But the learnings go beyond those examples. Here are five insights that stand out—both from those cases and broader professional practice.

1. Forecasts Must Be Challenged, Not Just Documented

Cash flow forecasts are often prepared by management with strategic optimism. When valuation experts adopt these without stress-testing against market data or comparable company trends, the risk of overstatement rises.

Auditors and their experts must go a step further—asking not just what was projected, but why and based on what external support. This is especially critical in business combinations, where deal logic can bias underlying assumptions.

2. Valuation Dates Aren’t the End of the Story

A valuation reflects information known or knowable at a specific date. But financial reporting extends to the audit report date. Material subsequent events—such as asset sales or market declines—can challenge valuation assumptions.

If ignored, this can lead to outdated numbers baked into the financials. Effective valuation mandates include flexibility to revisit assumptions when warranted by events post-valuation.

3. Limited Scope = Limited Assurance

Auditors sometimes engage valuation experts for narrow purposes—say, validating a discount rate in a DCF model. But such inputs are never isolated. A discount rate reflects the risk of the underlying cash flows. Reviewing one without understanding the other is incomplete.

Where valuation is a key area of audit risk, the scope should be holistic. Experts should push back when partial analysis risks misinterpretation.

4. Independence Is More Than a Line on an Org Chart

When management fails to develop its own valuation and simply adopts the estimate from the auditor’s expert, it creates a self-review threat. The auditor ends up assessing the product of their own hired specialist.

This subtle erosion of independence can be avoided by reinforcing management’s responsibility: either they must support their estimates through internal rigor or appoint their valuation expert to do so.

5. Estimation Uncertainty Shouldn’t Be Treated as Noise

Many valuations involve subjectivity, such as projected attrition rates, royalty assumptions, and terminal growth rates. This is expected. What matters is how uncertainty is addressed.

Robust valuations identify key areas of sensitivity, perform range analyses, and link assumptions to observable data. A good valuation report doesn’t just say “this is the number.” It says, “This is how we got there, and here’s how confident we are in it.”

KNAV Comments: Valuation Is a Process, Not Just a Report

Valuation is not a plug-in component of financial reporting. It is an iterative process—one that thrives when management, experts, and auditors engage early, communicate openly, and challenge assumptions respectfully.

Whether the expert is management-appointed or auditor-appointed, their work forms the foundation for numbers that must hold up under public scrutiny. Getting there requires more than technical accuracy. It calls for professional judgment, clarity of purpose, and a shared commitment to financial reporting quality.

In the end, a reasonable valuation doesn’t just stand up to an audit. It earns trust.