This article is taken from our quarterly overview of Canadian news, a newsletter published by the Canadian member firms of
Moore North America
. It is part of our mission to be the partner of choice for your success by keeping you informed of the latest news..
When to call in an EEE
Business owners and legal advisors often don’t know when and to what extent they should retain the services of an EEE. Depending on the situation, an EEE may be hired to act as an independent expert, or in an advisory role with no expectation of independence. EEE services are often retained to work in conjunction with other professionals, such as lawyers, accountants and tax specialists.
Here are some examples of situations in which an EEE may be involved:
Aspect related to a dispute
- Breach of contract
- Loss of profits
- Operating loss
- Personal injury
- Expropriation
- Shareholder disputes
- Matrimonial disputes
Aspect not related to litigation
- Tax issue
- Succession planning and corporate reorganization
- Mergers, acquisitions and disposals
- Management buyout
- Financial reporting (IFRA and ASPE)
- Unanimous shareholder agreements (U.S.)
- Employee shareholding plan
Range of EEE interventions
As a trusted expert, the EEE presents an expert report containing an independent professional opinion. In doing so, the EEE exercises a great deal of professional judgment, drawing on its experience and independent research capabilities. Objectively written independent opinion reports include the following:
- Expert reports on quantifying losses in the context of litigation;
- Limited critical reports in which one EEA provides comments on the opinion of another EEA, usually in a litigation context;
- And valuation reports (e.g. calculation, estimation or exhaustive types), which are defined as follows:
- Valuation report on value calculations – Contains a conclusion as to the value of shares, property or an interest in a business that is based on minimal review and analysis and little or no corroboration of relevant information; information is usually presented in a brief valuation report
- Appraisal report on an estimate of value – Contains a conclusion as to the value of shares, property or an interest in a business that is based on limited review and analysis and limited corroboration of relevant information; the information is usually presented in a detailed appraisal report
- Comprehensive valuation report – Contains a conclusion as to the value of shares, property or an interest in a business that is based on a comprehensive review and analysis of the business, its industry and all other relevant factors as well as adequate corroboration; the information is usually presented in a comprehensive valuation report
EEEs can play an advisory role without any requirement for objectivity or independence, including:
- Review draft agreements and summarize financial information;
- Analyze the overall assessment and formulate observations and recommendations:
- Submit calculations using methods, techniques, assumptions and data: and
- Provide interpretation in the form of verbal discussions and appendices that summarize calculations, which would not qualify as expert opinion.
How to hire an EEE – the engagement letter
The engagement letter designates the parties to the engagement and specifies the name of the person who has retained the services of the EEE (e.g. the client, the legal advisor or both). In addition, this letter provides a written record of the agreed terms and conditions, helping to avoid potential misunderstandings and discrepancies in expectations, set fees and outline the mission, including the customer’s expectations of cooperation and responsibilities. The letter also states the following:
-
- The nature of the services and the type of report to be provided;
- Type and scope of report to be provided;
- Valuation date and indemnity period (if applicable) ;
- The subject assessed or quantified and the purpose of the report ;
- A reference to the standards of the Canadian Institute of Chartered Business Valuators (“CICBV”);
- Declaration of employment of the EEA as an independent expert or consultant ;
- Mission restrictions or limitations ;
- One particular hypothesis we are asked to formulate;
- Definitions of the terms we use to form our opinion (for example, “fair market value” vs. “fair value”).
Look for professional recognition and experience
The EEE designation is a professional recognition granted by the ICEEE that includes the completion of a broad program of studies and the fulfillment of experience requirements. EEEs are recognized nationally and internationally as financial experts in the valuation of businesses and cash flow components (i.e. losses, financial assets and intangible assets). Experience in a given sector could be an asset in certain appraisals and provide reassurance, but this in itself is no substitute for the knowledge of a qualified appraisal professional and solid experience in the sector. EEEs are recognized by the courts and the business community as reliable experts.
Finally, it may be tempting to use an appraisal report that was produced at an earlier date or for a different purpose. However, such an approach may not be appropriate, since the valuation report may be inappropriate at the current date, given the different purpose or the time elapsed – valuations can have a short lifespan. Business owners and legal advisors need to know when to use an EEE to ensure proper management of a risk-related valuation or litigation by qualified valuation experts, whether as an independent expert or in an advisory role.
Whatever the reason for hiring an EEE, involve the EEE in the process as early as possible.
Cabinet contact
1. Demers Beaulne (Montreal): Michel Hamelin
2. Mowbrey Gil (Edmonton): Michael Frost
3. Marcil Lavallée (Ottawa) : Keith Chabot
Written by Michael Frost, CPA, CA, CVA of Mowbrey Gil. This text was written as part of our quarterly overview of Canadian news, a newsletter published by the Canadian member firms of Moore North America.
