The Consultant - 2017 - 36


VALUATION AND DUE DILIGENCE: PROTECT YOUR CLIENTS

One question you must resolve at the
outset is what level of credibility the auditor or client is looking for you to affirm
in your appraisal report. They may tell
us they want us to state something like
the following: "We have audited the forest
inventory and conclude that it fairly represents forest conditions existing on the effective valuation date,or something to that
effect. The problem with a statement like
this is that it is misleading and means different things to different people. And, in
many cases, the investor does not understand enough about the limitations of the
forest inventory process to put a statement like this into proper context. The
fact is, the data you are auditing may be
based on a recent, credible inventory. But
we know that a second, equally credible
cruise could (will) produce a different
result. Simply put, we may have a precise
inventory, but rarely know for certain
how correct it is.
Regardless of whether you are dealing
with a recent, credible inventory or an
older inventory that has been updated over
several years and may be somewhat more
suspect, the appraiser involved in routine valuation work usually does not have

36

the time frame and budget to conduct an
independent verification inventory. So the
audit will have to be relatively superficial.
Carefully explain the scope of your work
so all stakeholders understand its design,
scope and limitations. If it produces no
material red flags, then you might conclude with the following statement: "Our
audit produced no evidence refuting the credibility of the inventory data provided."
Words matter, especially in the worlds
of auditing and legal disputes. This is
basically a layman's version of the null
hypothesis1. To protect yourself and
accurately convey the real takeaway from
a low-budget audit, all you can truthfully
state is that you found nothing to suggest
that the inventory should be set aside as
unreliable. The most important thing to
note about that statement is what you are
not stating, i.e., that the inventory provided by the client is reliable and correct.
In other words, be very wary of misleading the reader by stating that your work
affirms that the client's inventory is reliable or correct. The scope of your work
will usually be insufficient to lead you
to such a conclusion. The statement says
simply that the audit raised no red flags.

So, what happens if your audit does raise
red flags? It depends. It may raise issues
that need to be resolved with the client
or land manager. If they can be resolved,
great. If not, then you have a duty as the
appraiser to disclose this in the report.
Do not let the client bully you into omitting such disclosure from your report. The
client agreed to the scope of work and
got what he paid for. And, your audit, as
perfunctory as it is, may signal that a real
problem exists. But it also does not mean
you must warn the reader that the inventory provided is incorrect or unreliable. Just
as you cannot assert that a positive audit
confirms the inventory, a negative audit
may provide no real foundation for assuming that the inventory lacks credibility.
Here are some of the things one might
be able to state after conducting a low-level
audit, depending on the scope of work:
* The inventory design and cruise specifications meet industry standards.
* We ran the field data through our
inventory system and got similar results
(e.g., suggesting no processing errors,
similar volume equations).
* We check cruised 50 field plots and
found them to pass industry standards
for measurement errors.
* We reviewed check cruising records
and found the results to be satisfactory.
* We field checked 40 stands during our
ground/aerial inspection, comparing
GIS/map data and stand records to
observed field conditions, and found
no material discrepancies.
* We used remote imagery to conduct
automated change detection and
compared this to harvest and planting records, confirming that reported
removals are reasonable.
* We sampled 30 stands and found
reported volumes to lie within 10 percent of our volume estimates, with no
clear bias in any one direction.
Again, none of these statements asserts
that the reported inventory is correct. They
merely state what you did and report the
results. If you have some negative results
to report, then do so. In the final analysis,
the client needs you to assert whether,
in balance, you find sufficient reason to
doubt the credibility of the inventory.
THE CONSULTANT

2017



Table of Contents for the Digital Edition of The Consultant - 2017

From the Executive Director How to Be the Best Consultant EVER
From the President Moving Forward: Changes, Challenges and Opportunities
Raising the Profile Jerry Tugwell looks forward to a challenge as he takes the helm of ACF.
California Resource Professionals: W. M. Beaty & Associates
Bourbon – Kentucky’s Aged Spirit
Gender and Generations
Understanding the New Overtime Rule
Avoiding Trespass and Boundary Problems
Valuation and Due Diligence: Protect Your Clients
People Problems Prevented
Ethics and ACF Membership
Timber for the Comstock: A Short Version
Products & Services Buyers’ Guide
Index of Advertisers
The Final Word is ‘Good’
The Consultant - 2017 - cover1
The Consultant - 2017 - cover2
The Consultant - 2017 - 3
The Consultant - 2017 - 4
The Consultant - 2017 - 5
The Consultant - 2017 - From the Executive Director How to Be the Best Consultant EVER
The Consultant - 2017 - 7
The Consultant - 2017 - From the President Moving Forward: Changes, Challenges and Opportunities
The Consultant - 2017 - 9
The Consultant - 2017 - Raising the Profile Jerry Tugwell looks forward to a challenge as he takes the helm of ACF.
The Consultant - 2017 - 11
The Consultant - 2017 - 12
The Consultant - 2017 - 13
The Consultant - 2017 - California Resource Professionals: W. M. Beaty & Associates
The Consultant - 2017 - 15
The Consultant - 2017 - 16
The Consultant - 2017 - 17
The Consultant - 2017 - Bourbon – Kentucky’s Aged Spirit
The Consultant - 2017 - 19
The Consultant - 2017 - 20
The Consultant - 2017 - 21
The Consultant - 2017 - 22
The Consultant - 2017 - 23
The Consultant - 2017 - Gender and Generations
The Consultant - 2017 - 25
The Consultant - 2017 - 26
The Consultant - 2017 - 27
The Consultant - 2017 - Understanding the New Overtime Rule
The Consultant - 2017 - 29
The Consultant - 2017 - Avoiding Trespass and Boundary Problems
The Consultant - 2017 - 31
The Consultant - 2017 - 32
The Consultant - 2017 - 33
The Consultant - 2017 - Valuation and Due Diligence: Protect Your Clients
The Consultant - 2017 - 35
The Consultant - 2017 - 36
The Consultant - 2017 - 37
The Consultant - 2017 - People Problems Prevented
The Consultant - 2017 - 39
The Consultant - 2017 - Ethics and ACF Membership
The Consultant - 2017 - 41
The Consultant - 2017 - 42
The Consultant - 2017 - 43
The Consultant - 2017 - Timber for the Comstock: A Short Version
The Consultant - 2017 - 45
The Consultant - 2017 - 46
The Consultant - 2017 - 47
The Consultant - 2017 - 48
The Consultant - 2017 - 49
The Consultant - 2017 - Products & Services Buyers’ Guide
The Consultant - 2017 - 51
The Consultant - 2017 - Index of Advertisers
The Consultant - 2017 - 53
The Consultant - 2017 - The Final Word is ‘Good’
The Consultant - 2017 - cover3
The Consultant - 2017 - cover4
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