Certified Valuation Analyst (CVA) Practice Exam

What is encouraged to be included in an engagement letter?

1. A and B

2. C and D

3. References from financial databases

4. Client's historical performance

The correct answer is: A and B

The inclusion of both references from financial databases and the client's historical performance in an engagement letter is essential for establishing the groundwork of the valuation process. References from financial databases provide credibility and a strong foundation for the valuation analysis. They demonstrate the use of reliable data sources, ensuring that the valuation is grounded in objective market information rather than subjective opinion. This is crucial for maintaining transparency and justifying the conclusions reached during the valuation process. Incorporating the client's historical performance is equally important as it offers context about the company's past financial results and operational capabilities. This historical data helps the analyst assess trends, evaluate risks, and establish benchmarks for future performance. It also plays a key role in understanding how external market forces may have influenced the client's business. Overall, combining these two components fosters clear communication between the analyst and the client, sets realistic expectations, and helps ensure that both parties are aligned on the scope of the engagement. Together, these elements enhance the overall quality and reliability of the valuation process.