Part 2: Why Are So Many Documents Requested?

One of the most common frustrations with disclosure is the feeling that too much is being asked for. While requests should remain proportionate to the issues in dispute, the nature of financial analysis often requires a broader set of documents than parties may initially expect.

Income Determination

When a CBV is asked to calculate a party's income, we are typically (but not always) asked to review income over a span of three years. This timeframe is suggested by the Federal Child Support Guidelines as an indicator of a pattern of income to be applied prospectively. When retroactive support is being considered, we are typically asked to review all years from the Date of Separation to the current year.

The calculation of income starts with Total Income (Line 15000) from the personal income tax return. For this reason, personal income tax returns and Notices of (Re)Assessment are required at a minimum. Where a party has an ownership interest in a private business, additional information is typically needed, including corporate financial statements, corporate tax returns (T2s), and corporate Notices of Assessment. Where additional insight into the financial records is required (for example, personal expenses), further supporting documents may be requested such as credit card statements and accounting ledgers.

Business Valuation

Where the engagement includes a business valuation, the scope of disclosure expands as well.

In the case where a business valuation is being conducted, the "three-year rule" does not apply. Unlike an income determination, a business valuation may require an understanding of how a business has performed over time.

Depending on the nature of the business, such as for a real estate or investment holding company, a shorter period may sometimes be sufficient. In other cases, particularly where the business’s value is driven by its operations rather than its underlying assets (that is, it is considered a saleable going concern), a longer period than three years of financial information may be required to better understand trends, fluctuations, and sustainability of earnings.

Follow-up or clarifying questions are a normal part of the review process once financial records have been reviewed, as this process helps ensure the information is fully understood.

Levels of Assurance

Beyond the nature of the financial issues, the volume of disclosure is also influenced by the level of valuation report being prepared, which determines the scope of work required.

Ultimately, a CBV must obtain sufficient information to understand the business and support the conclusions being reached. The scope of that work varies depending on the nature of the engagement (that is, the level of report). There are three levels of valuation reports that may be prepared: Calculation, Estimate, and Comprehensive.

Valuation report levels are governed by the CBV Institute, which sets out professional practice standards that CBVs must follow. Those standards provide guidance on the depth of work required, including the extent of review, analysis, and independent corroboration of information.

The lowest level, a Calculation Report, involves a more limited scope of work, while the highest level, a Comprehensive Report, requires a deeper level of analysis and independent corroboration. As the level of reporting increases, so too does the amount of information a CBV must request and review in order to support their conclusions. That said, the scope of disclosure is not necessarily unlimited, and professional judgment is applied to focus requests on information that is relevant to the issues being assessed.

In other words, the volume of disclosure is not arbitrary and is usually driven by the nature of the engagement and the support required for the opinion being provided.

In Part 3, we will look at practical strategies for managing the disclosure process and making it feel less overwhelming.