Certified Valuation Analyst (CVA) Practice Exam

Which factor should not be included in a valuation engagement letter?

1. Scope of work

2. Timing of the valuation

3. Conclusion and reconciliation

4. Payment terms

The correct answer is: Conclusion and reconciliation

In a valuation engagement letter, the focus is on establishing clear expectations between the client and the analyst regarding the work to be performed. It is essential to outline various components such as the scope of work, timing of the valuation, and payment terms to ensure both parties have a mutual understanding of the engagement. Including the scope of work is critical as it defines what will and will not be covered in the valuation, helping to prevent misunderstandings. Similarly, specifying the timing of the valuation provides a timeline for deliverables, ensuring that the work is completed within an agreed period. Payment terms are also fundamental, as they articulate how and when the analyst will be compensated for their services, which helps in managing cash flow and expectations about financial transactions. The conclusion and reconciliation, while important aspects of the valuation itself, do not belong in the engagement letter. This is because such conclusions are derived from the analysis and findings produced during the valuation process, rather than being a predetermined factor of the engagement. Including this factor in the letter may suggest that a certain outcome is guaranteed, which could mislead the client about the nature of valuation work and its inherent uncertainties. Hence, it is appropriate to establish the groundwork for the engagement through the other terms, while conclusions are drawn from the