ASA BV Challenge Exam common mistakes
ASA BV Challenge Exam · Understand the traps and how to avoid them.
Applying a discount for lack of marketability and a discount for lack of control to the same interest without stating whether the starting value is a controlling or minority, marketable or non-marketable base, so the discounts are stacked on an inconsistent base.
Candidates memorize discount ranges by name instead of tracking the valuation base each discount presupposes; the levels-of-value hierarchy is skipped under time pressure.
What to do instead
Before selecting any adjustment, write the base value and the target level of value explicitly (e.g., 'controlling, marketable → minority, non-marketable'), then list only the transitions still needed and justify each with evidence.
Selecting guideline public companies or transaction comparables on surface similarity (industry label, rough size) without documenting screening criteria or reconciling differences in size, growth, margins, and leverage.
Candidates treat comparables as a search-and-pick exercise rather than a defensible screening and adjustment process.
What to do instead
Define inclusion/exclusion criteria before searching, document why each candidate was included or rejected, and show a qualitative or quantitative adjustment for each material difference between the subject and the selected multiples.
Normalizing financial statements by adjusting revenue or expenses without showing the tax effect, the recurring vs. nonrecurring classification, or the supporting source for each adjustment.
Candidates list plausible adjustments but do not carry them through to after-tax normalized earnings or tie them to documentation.
What to do instead
Build a normalization schedule with columns for the reported figure, the adjustment, the tax effect, the normalized figure, and the evidence source; carry the normalized result into the income approach and confirm it ties.
Building a discounted cash flow model whose terminal value growth exceeds long-run nominal GDP growth, or whose discount rate is not matched to the cash flow definition (nominal vs. real, pre-tax vs. after-tax, debt-inclusive vs. equity-only).
Candidates apply standard templates mechanically without checking internal consistency between the projection, the terminal assumption, and the discount rate.
What to do instead
State the cash flow definition and rate basis on the model face, cap terminal growth at a defensible long-run rate with a cited rationale, and perform a sanity check that implied terminal multiples are reasonable.
Using a capitalized earnings or DCF method without reconciling the discount rate build-up to the subject company's actual risk profile, or without explaining why the selected rate differs from the guideline-company-derived rate.
Candidates lift a rate from a textbook or a prior engagement and skip the company-specific risk premium analysis.
What to do instead
Document each component of the build-up (risk-free rate with source and date, equity risk premium source, size premium, industry premium, company-specific premium) and justify any deviation from market evidence.
Treating the asset-based approach as automatically appropriate for an operating company, or omitting off-balance-sheet and intangible assets from the adjusted net asset value.
Candidates equate the asset-based approach with 'sum the balance sheet' and forget that the standard of value and the nature of the entity determine applicability.
What to do instead
State why the asset-based approach is or is not appropriate given the entity's operating characteristics and standard of value; if used, include identified intangibles, contingent liabilities, and off-balance-sheet items in the reconciliation.
Writing an engagement letter or scope section that omits the standard of value, the premise of value, the interest being valued, the effective date, the intended use, and the intended users.
Candidates treat engagement acceptance as a formality and copy a generic template without tailoring it to the assignment.
What to do instead
Use a checklist covering standard of value, premise of value, subject interest, valuation date, purpose and intended use, intended users, scope and limitations, and assumptions; confirm each item is populated and consistent with the report.
Performing industry and economic analysis that only describes the industry (size, growth, trends) without linking it to the subject's projections, margins, or risk premium.
Candidates treat the section as background prose rather than as evidence supporting specific valuation inputs.
What to do instead
For each economic or industry finding, state the specific input it supports (revenue growth, margin assumption, discount rate component, or market multiple) and cite the source and date of the data.
Issuing a conclusion that is a single point estimate with no reconciliation of the approaches, no statement of why weightings were chosen, and no discussion of the range of value.
Candidates believe a single number appears more authoritative and skip the synthesis step.
What to do instead
Present the indicated value from each approach, explain the weighting with reference to the quality and reliability of the evidence, reconcile to a concluded value or range, and confirm the conclusion is consistent with the standard of value and purpose.
Producing a report that omits required disclosures such as the appraiser's qualifications and independence, assumptions and limiting conditions, sources of information, and the statement of compliance with applicable professional standards.
Candidates focus on the analysis and treat reporting as boilerplate, or rely on a template that does not match the applicable standard.
What to do instead
Before finalizing, run a reporting checklist against the applicable professional standards covering scope, procedures, data sources, assumptions, limiting conditions, appraiser qualifications, and the compliance statement; verify every required element is present and specific to the engagement.