Academic journal article Journal of Accountancy

Tackling a Common Appraisal Problem

Academic journal article Journal of Accountancy

Tackling a Common Appraisal Problem

Article excerpt

CPAs can help quantify the loss when an owner is involuntarily deprived of property.

Businesses of all sizes often are faced with deprivations of their assets through eminent domain condemnations, property damage or infringements and other reasons. Employers or clients turn to CPAs to assemble and interpret data to perform an analysis or to help select independent valuation and economic advisers who specialize in deprivation appraisal. Practitioners work with legal counsel and perhaps with independent experts--to ensure the aggrieved party receives full and proper compensation.

This article describes what CPAs should know about deprivation appraisals to best serve employers and clients. It discusses the valuation aspects of deprivation appraisals, particularly their theoretical concepts and practical applications and how they are affected by an appraisal's purpose and objective. It also describes where CPAs can receive training in this field and how to launch a new practice area.


In a deprivation, the owner of an asset, property or business interest involuntarily loses ownership or other legal or economic rights and typically is eligible for compensation for the economic loss suffered, which usually is determined through an appraisal. Appraisals may involve valuation and economic analysis of a variety of properties, such as business entities and securities, intangible assets and intellectual properties, real estate and real property interests, tangible personal property, etc.

Of course, the definitions of value used, the valuation procedures performed and numerous other factors are directly influenced by applicable laws and regulations. The valuation fundamentals also are affected by the type of deprivation and by the asset, property or business interest involved. Nonetheless, certain valuation principles are universal in deprivation appraisals.


A deprivation appraisal's ultimate objective is to quantify the amount of fair and just compensation due the owner because of the loss. Most often, the amount chosen is designed to restore the property owner to the economic position enjoyed just before the deprivation.

In all appraisals, the term "property" refers to real estate (such as owned land, land improvements and buildings) and real property (legal interests in real estate, such as leases, development rights, mineral and natural resource exploitation rights, etc.). In deprivation appraisals, the term is broadly defined to include things such as tangible personal property, intangible assets and intellectual properties, business entities and interests and direct and derivative security interests.


There are numerous types of property deprivations. The appraisals and analyses vary in every case, but all deprivations may be grouped into one of five categories:

* Eminent domain. In this type of case, a state, municipality or individual asserts dominion over private property in the interests of the public good. The seizure may be accomplished through a municipal condemnation, nationalization of property and industry or an expropriation.

* Property damage. This can be tangible or intangible. Tangible damages are fire, such as arson of a commercial building, theft and other actual or constructive larceny (including any deliberate destruction of or damage to businesses' plants and equipment). Intangible damages include,slander, libel and other damage to a party s name, reputation and goodwill. For example, an individual, professional practice or business may be the victim of defamation.

* Infringement. This covers patent, trademark, copyright and other intellectual property infringements. Before the infringement, the intellectual property owner enjoyed special legal rights and protections-and the associated economic benefits-but was deprived of them through an unauthorized use or other encroachment. …

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