Business Valuations: Credibility in an Era of Increased Scrutiny

Businesses, lenders, legal advisors, tax authorities, and investors rely on valuation conclusions to support transactions, disputes, financial reporting, tax planning, and succession strategies.

As these conclusions play an increasingly important role in decision-making, valuation reports are facing greater scrutiny. Users expect not only a well-supported conclusion, but also a clear explanation of how that conclusion was reached. Recent changes to Canadian valuation standards reflect this shift towards greater transparency, documentation, and professional judgment.

A shift towards greater transparency

For independent valuation engagements beginning on or after January 1, 2026, the CBV Institute revised its Valuation Practice Standards, placing greater emphasis on the appropriateness of the work performed, the reasonableness of assumptions, and transparency throughout the valuation process.

The revised standards go beyond a compliance exercise by focusing on whether a valuation conclusion is fit for purpose, credible, and properly supported.

A key theme underlying the revisions is that the value conclusion itself is only part of the analysis. Users of valuation reports want to understand the rationale behind management forecasts, the selection of valuation methodologies, and the assumptions that drive the final conclusion. Courts, regulators, lenders, and transaction participants are also paying closer attention to whether valuation conclusions can be independently understood and defended.

The evolution of valuation standards

The updated CBV standards introduced a new principles-based framework through Practice Standard 100 and enhanced disclosure, scope-of-work, and documentation requirements under Practice Standards 110 through 130.

The standards emphasize that valuation quality is not determined by the report label alone. It also depends on the appropriateness of the work performed, the support and corroboration of significant information, and the application of informed professional judgment.

Importantly, significant inputs and assumptions must be supported regardless of the level of valuation conclusion, including in lower-scope engagements. The focus is not simply on delivering a report, but on ensuring that the valuation conclusion is credible, properly supported, and capable of withstanding scrutiny.

This evolution is consistent with broader principles reflected in the International Valuation Standards (IVS), which promote consistency, transparency, and confidence in valuations.

This benefits all stakeholders. Business owners can gain a clearer understanding of the factors driving value, while lenders, investors, and legal advisors are better positioned to assess the reliability of a valuation conclusion.

The end of the “black box” valuation

Historically, valuation reports could sometimes be perceived as highly technical documents that relied heavily on specialist knowledge and complex calculations. Today, users increasingly expect greater transparency around the assumptions, professional judgments, methodologies, and data supporting a valuation conclusion.

Questions frequently raised by stakeholders include:

• Why was a particular valuation approach selected?
• Are management forecasts reasonable?
• How was the discount rate determined?
• What supports the long-term growth assumption?
• Were industry and economic conditions appropriately considered?
• How were company-specific risks evaluated?

Well-supported answers to these questions can be critical to establishing confidence in a valuation conclusion.

Greater disclosure expectations

A notable development in valuation practice is the growing expectation for clear disclosure. Users increasingly expect explanations of:

• Historical and projected financial performance
• Management forecasts and underlying assumptions
• The selection of discount and capitalization rates
• Long-term growth rate assumptions
• Relevant industry and economic considerations
• Company-specific risk factors
• The rationale supporting valuation adjustments

Transparent disclosure does not necessarily mean longer reports. Rather, it means ensuring that significant assumptions and professional judgments are clearly explained and supported by evidence.

A valuation conclusion is generally more credible when a knowledgeable reader can understand how key assumptions influence value and the basis for those assumptions.

Transparency in assumptions builds confidence

Many valuation disputes ultimately stem from disagreements over key assumptions rather than the valuation methodology itself.

Forecast growth rates, profitability expectations, discount rates, market multiples, and long-term growth assumptions can all materially affect value. Stakeholders therefore increasingly expect these assumptions to be clearly disclosed, properly supported, and corroborated against available evidence.

Professional skepticism is also a core principle of the revised valuation standards. Valuators are expected to critically assess management representations, evaluate their consistency with historical performance, and consider relevant industry and economic conditions before relying on management-provided forecasts.

Greater transparency not only supports the reliability of a valuation conclusion, but also helps users better understand the key factors affecting a business’s value.

Defending valuation conclusions under scrutiny

Valuations are often used in circumstances where conclusions may be challenged. Transactions, shareholder disputes, litigation matters, tax examinations, financial reporting reviews, and lending decisions can all require valuation conclusions that withstand independent examination.

In these situations, the quality of the supporting analysis can be as important as the conclusion itself. Clearly documenting assumptions, information sources, methodology selection, and professional reasoning makes a valuation conclusion easier to understand and defend.

The revised CBV standards reflect this by strengthening documentation requirements and reinforcing the importance of appropriately supporting and corroborating significant information used in the valuation process.

How we apply these principles

At DMCL, our valuation professionals recognize that clients need more than a conclusion of value. They need a valuation process that is transparent, supportable, and tailored to the objectives of the engagement.

Our approach emphasizes professional judgment, robust analysis, clear communication, and fit-for-purpose reporting. Our valuation team provides independent valuation services for:

• Tax planning and reorganizations
• Estate and succession planning
• Mergers and acquisitions
• Financial reporting
• Shareholder disputes
• Matrimonial matters
• Litigation support

In every engagement, our goal is to help stakeholders understand not only the value conclusion, but also the assumptions, risks, and value drivers underlying it. This provides greater context for the conclusion and helps support informed decision-making.

Looking ahead

As valuation standards continue to evolve and stakeholder expectations rise, transparency and credibility will remain central to professional valuation practice. Businesses, investors, lenders, and legal advisors increasingly expect valuation conclusions that are evidence-based, clearly documented, and capable of withstanding rigorous review. The profession’s renewed focus on transparency and defensibility should ultimately strengthen confidence in valuation conclusions and support better-informed decisions.

If you’re considering a business valuation or have questions about how evolving standards may affect your valuation needs, contact your DMCL advisor to discuss your circumstances.