How to Read a 409A Valuation Report

What a 409A Valuation Report Contains

A 409A valuation report contains a concluded per-share common stock value plus every input that supports it, organized into about a dozen standard sections. Learning how to read a 409A valuation report means working through those sections in the order that tests the number, not the order they’re printed in.

Ask what is in a 409A valuation report and the answer comes from the valuation profession more than from the tax code. Treasury Regulation 1.409A-1(b)(5)(iv)(B)(2)(iii), the illiquid start-up stock route, is the only subdivision in 26 CFR 1.409A-1 asking for a valuation “evidenced by a written report that takes into account the relevant factors.” It prescribes no sections and no length. The independent appraisal route at 1.409A-1(b)(5)(iv)(B)(2)(i) says less still, because it imports an appraiser-qualification test from IRC Section 401(a)(28)(C) rather than a format. Our explainer on the 409A safe harbor walks all three routes.

Two professional reporting standards shape the document instead.

• AICPA SSVS, VS Section 100. A valuation engagement produces a conclusion of value, delivered as a detailed or summary report. A calculation engagement produces only a calculated value. The engagement type, not the thickness, tells you what you bought.
• USPAP Standard 10. Standards Rule 10-2 sets required content for two formats, an Appraisal Report and a Restricted Appraisal Report. The restricted format is allowed only when the client is the sole intended user. Your auditor is another user.

A Restricted Appraisal Report is the wrong vehicle.

Look at any published 409A report example and the spine is recognizable. Front matter and scope, executive summary with the concluded number, company and industry background, capital structure, financial analysis, approach selection, allocation across share classes, discounts, conclusion of value, limiting conditions, the analyst’s representation, then exhibits. Eqvista publishes a 15-section version of that outline and puts its own reports at 30 to 80 pages, observed in October 2026. No authority sets a page count. Our essential guide to 409A valuations maps the rest of the cluster.

The representation page names who signed, and the designation is worth verifying. ASA comes from the American Society of Appraisers and takes a minimum of 5 years of full-time equivalent appraisal experience plus examinations and peer-reviewed reports. ABV is granted only by the AICPA and requires an active CPA license. CVA comes from NACVA. The regulation itself asks for “at least five years of relevant experience” and requires none of the three. Credentials carry the report past your auditor. The five years carries it past the IRS.

The Concluded Fair Market Value and What It Prices

The concluded fair market value in a 409A report is a per-share common stock value on a non-marketable, minority-interest basis. It’s the only number in the document that sets a strike price. Everything above it exists to justify it. Everything below it limits it.

Four things to pull out of the executive summary and the conclusion of value.

• Per-share common, not enterprise value. The report shows a total equity value, then an allocation, then a per-share common conclusion. Your last round’s preferred price is an input, not the answer. Common sits at the bottom of the waterfall and carries the discount, as our guide to common stock explains.
• The denominator. A per-share conclusion is a quotient, and fully diluted, outstanding, and as-converted give three different answers off the same equity value. Find which one the math used.
• The basis of value statement. USPAP Standards Rule 10-2 asks for the standard and premise of value, any marketability limitation, and both the appraisal date and the reporting date where they differ, per the American Society of Appraisers guidance on USPAP.
• The factors actually considered. Revenue Ruling 59-60 is still the IRS baseline for closely held stock, and its eight factors run from the nature and history of the business through earning capacity, dividend-paying capacity, goodwill, and comparable company prices. The IRS works from it in its own valuation job aid. A section with no company-specific content recited a factor rather than considering it.

The 12-month clock runs from the valuation date

Your report prints two dates, and most readers watch the wrong one. The valuation date is the date fair market value is determined as of. The report date is when the appraiser signed it. The staleness sentence inside 1.409A-1(b)(5)(iv)(B)(1) says a previously calculated value isn’t reasonable as of a later date if “the value was calculated with respect to a date that is more than 12 months earlier than the date for which the valuation is being used.” With respect to.

So a report delivered three weeks after its valuation date has already spent three weeks of its window. The independent appraisal route anchors the same way, asking for an appraisal “as of a date that is no more than 12 months before the relevant transaction.” Nothing requires the document to print its own expiry, so compute it and put it on the grant calendar. New information that may materially affect value closes the window earlier, which is the subject of our guide to 409A refresh triggers.

The Cap Table and Share Class Section

The cap table section is where a 409A report most often goes wrong, because the appraiser can only model the capital structure you gave them. A defensible report reproduces the full capitalization as of the valuation date. Every preferred series with its own terms, common, warrants, the option pool, and every convertible instrument.

Tie it line by line.

• Share counts, as of the valuation date. Not as of today, not as of the kickoff call. Grants, exercises, cancellations, and repurchases dated after the valuation date belong to the next report. Reconcile class by class against the equity ledger, which our startup cap table guide covers.
• Each preferred series, separately. Original issue price, liquidation preference multiple, participating or non-participating, participation cap, stacking, conversion ratio, accrued dividends. Allocation math runs off breakpoints in the waterfall, and one mis-entered preference moves every breakpoint above it. Our guide to preferred shares explains the terms.
• The option pool, issued versus reserved. Unissued reserved shares change the per-share common conclusion when they sit in the denominator. Confirm which treatment was used, then confirm how vested and unvested options were handled against your plan terms.
• SAFEs and convertible notes, with their mechanics. Valuation cap, discount, most-favored-nation terms, pre-money versus post-money, interest accrual, conversion trigger. A post-money SAFE converts on a different denominator than a pre-money one and produces a different common value.
• Secondary transactions. If employees or early holders sold, the appraiser needs the price, the date, the volume, the buyer type, and whether the sale was orderly and arm’s length. The AICPA has working drafts out on calibrating share valuations to secondary market prices, so expect more scrutiny here, not less.

One more thing this section tells you. The safe harbor attaches to a written report, not to a software platform, so the document is portable. It supports grants recorded in Carta, Pulley, Shareworks, or a spreadsheet, and it stays good when you change equity administrators. Indinero works inside the stack you already use for the same reason, so no part of your 409A file ends up locked in one vendor’s format.

The Financial Analysis the Appraiser Relied On

The financial analysis section separates the numbers the appraiser treated as facts from the numbers they treated as management’s forecast. Historical statements are facts. Projections are your representations, and if they’re wrong the conclusion inherits the error. Expect three years of statements or everything since inception, a forecast of revenue, margin, operating expense, headcount, and cash, then a bridge between the two.

Check the forecast against the board-approved plan. Same revenue build, same hiring plan, same runway. A stale budget, a fundraising deck case, and an aspirational upside case each produce a different equity value and therefore a different strike price. Management has to support its own judgments about the fair value of its securities, and contemporaneous documentation is more persuasive than a defense assembled later, a point EY has made repeatedly in its cheap-stock guidance.

Read the guideline company table like a skeptic. The market approach rests on a peer set of public comparables shown against you on revenue multiples, growth rates, and margins. Ask whether each peer resembles your company on growth rate, gross margin, scale, and business model, not merely on industry label. Generic benchmarking in place of company-specific analysis is the red flag practitioners name first.

Trace volatility and expected term into the model. Volatility in a private-company allocation normally comes from that same peer set, measured over a lookback matched to expected time to liquidity, and runway assumptions feed that timing. Under ASC 718, a nonpublic entity that can’t practicably estimate its own expected volatility may use a calculated value based on an appropriate industry sector index, disclosing why estimation wasn’t practicable and which index was chosen. Those inputs also drive the stock compensation expense in our ASC 718 explainer. If the volatility peer set differs from the market-approach peer set, ask why in writing.

What you hand the appraiser before any of this begins is a separate subject, covered in our guide to the information a 409A provider asks for up front.

The Methodology and Allocation Section

The methodology section does two separate jobs, and reading it well means keeping them apart. First it selects an approach to total equity value. Then it selects an allocation that splits that value across share classes down to common. How each method works is covered in our 409A valuation methodology guide. What matters here is whether the disclosure holds up.

What the approach-selection subsection owes you. USPAP Standards Rule 10-2 asks the report to summarize the scope of work including sources of information, describe the approaches and methods used, explain how the value conclusion was reached, and disclose any unusual circumstances. So approaches considered and rejected should be named with a reason, the reconciliation of value should show the weighting applied to each approach, and every weighting should carry a sentence of justification rather than a bare percentage.

What the allocation subsection owes you. The method named, why it was selected, the breakpoints in the liquidation waterfall, and the model inputs. For an option pricing allocation, verify total equity value, the breakpoints derived from the cap table, expected time to liquidity, volatility, and the risk-free rate. For a scenario-based allocation, verify the scenario set, the probability on each scenario, the exit value in each, and the discount rate. A backsolve calibrated to a recent priced round should state the round, the price, the date, and the instrument. Subdivision 1.409A-1(b)(5)(iv)(B)(3) allows a different valuation method for each separate action for which a valuation is relevant, so a method change between consecutive reports isn’t a defect by itself. An unexplained method change is.

DLOM is the line that gets asserted instead of supported

After allocation, a discount for lack of marketability comes off the common. No percentage is prescribed anywhere. Not in the Treasury regulations, not in ASC 718, not in the AICPA’s valuation guide. Defensibility lives entirely in the derivation, so read for four things: the model name, the holding-period assumption, the volatility assumption, and the resulting percentage. Four named inputs is support. A percentage plus a sentence about illiquidity is an assertion.

The model families run from benchmark restricted-stock and pre-IPO studies through option-pricing models including Chaffe, Longstaff, Finnerty, and Ghaidarov. Stout’s 2017 survey of illiquidity-discount approaches describes the revised Finnerty model as producing no discount in excess of 32.3%, and recommends it for financial reporting. So if your report names Finnerty and the stated discount sits above 32.3%, you have a question with a real answer behind it. Many reports also close with a sensitivity grid flexing equity value, time to liquidity, volatility, or the discount against the per-share conclusion. Read it as a map of your own exposure.

What to Question Before You Accept the Report

Reviewing a 409A valuation is an inputs exercise, and the time to run it is at draft stage. The concluded value is the appraiser’s professional opinion and isn’t negotiable. The inputs are facts and management representations, and those you can correct.

The ten checks, in the order they should run

1. Both dates printed and the gap understood. Compute the 12-month expiry from the valuation date, then confirm no grant was approved earlier in reliance on this report.
2. Cap table as of the valuation date, with share counts tied to the equity ledger class by class.
3. Option pool, vested versus unvested options, SAFEs and notes treated consistently with your plan documents.
4. Projections match the board-approved plan. If they don’t, say so before the report is finalized.
5. The peer set is defensible on fundamentals, not on sector label.
6. Volatility and expected term disclosed, sourced, and consistent with the peer set and the runway assumptions.
7. DLOM supported rather than asserted. Named model, holding period, volatility input, resulting percentage.
8. An Appraisal Report, not a Restricted Appraisal Report, so your auditor is a permitted intended user.
9. Limiting conditions don’t restrict the uses you need. SSVS and USPAP Standard 10 both require them disclosed clearly, and the ones that bite are no independent verification of management representations, excluded contingencies, and restrictions on third-party use.
10. The safe harbor being claimed is identified, independent appraisal or illiquid start-up stock.

Then put a few questions in writing. Who signs the valuation and what is their designation. What changed in the comparable set. What drove the change in the concluded value, input by input. Which three assumptions would move fair market value the most.

Your auditor reads the same pages you do. Under PCAOB AS 1210, an auditor relying on a specialist’s work must evaluate the data, the significant assumptions, and the methods used, including models. Where your own specialist developed those assumptions, the auditor tests their reasonableness as if you had developed them. A report that can’t survive your read won’t survive theirs, which is why 409A review belongs with the rest of your audit preparation.

The IRS can still look. The presumption of reasonableness at 1.409A-1(b)(5)(iv)(B)(2) is rebuttable, and the Commissioner can overcome it by showing the method or its application was “grossly unreasonable.” You keep that presumption by getting the inputs right before grants go out, not by holding a thick PDF. The published red-flag lists converge: missing assumptions behind projections or discount rates, absent supporting schedules, unclear preferred versus common treatment, overlooked option pools, a concluded value that ignores your latest financing, and an unnamed signer. One worth adding. A report that arrived with no questions asked during fieldwork is a template, not an analysis. For where the draft sits in the wider process, see our 409A engagement timeline.

How Indinero Reviews a 409A Report With You

Reading a 409A report well is an accounting exercise before it’s a valuation exercise. Eight of the ten checks above are reconciliations between the report and your own books, and a reconciliation needs someone holding the other side of it.

That’s the work. A CPA team that already closes your books knows what the equity ledger said on the valuation date, which grants were approved and when, what the board-approved plan forecast, and which instruments converted. Those are the four facts the appraiser could only take on representation. Indinero’s team runs that reconciliation against your ledger instead of against a template, the same discipline that keeps the books audit-ready when those numbers come back around at audit time.

You’re not just checking a strike price. You’re checking the input to next year’s stock compensation expense. The concluded per-share common value sets strike prices under IRC Section 409A, and it becomes the current-price input to grant-date fair value under ASC 718 through the practical expedient FASB added at ASC 718-10-30-20C in ASU 2021-07. Review it for tax defensibility alone and you find that out at audit time.

With indinero, it’s bookkeeping, accounting, tax, and fractional CFO bundled under one monthly engagement. Continuous operations since 2009, 500+ regular customers. So the person reconciling your cap table to the appraiser’s exhibit, the person booking the ASC 718 expense, and the person preparing the return sit inside the same engagement. The report gets read once, by a team that already holds all three contexts.

If the PDF is open and you’re not sure whether to sign off, that’s a conversation worth having before the next grant cycle. Start on our 409A valuation services page, or reach out for a free consultation. We’d love to learn about your business and where the report leaves you exposed.

Frequently asked questions

Three questions come up almost every time a founder opens one of these documents for the first time. They’re about length, about a concluded number that doesn’t look right, and about whether a short certificate of value will do instead. Here’s where we land on each.

How long should a 409A valuation report be?

No authority sets a page count for a 409A valuation report, so length tells you nothing about whether the conclusion is defensible. One valuation provider publishes its own reports at 30 to 80 pages, which is a house format rather than a requirement. Read instead for named inputs behind the cap table, the projections, the peer set, and the marketability discount, which indinero reconciles against the ledger we already close for you.

What should I do if the concluded fair market value looks wrong?

If the concluded fair market value in a 409A report looks wrong, challenge the specific inputs with the appraiser before you accept it. Name the problem precisely: the cap table as of the valuation date, share counts tying to the equity ledger, projections matching the board-approved plan, the peer set, or a marketability discount that’s asserted rather than supported. Subdivision 1.409A-1(b)(5)(iv)(B)(3) rules out re-pricing a grant after the fact, so indinero raises these against your ledger while the report is still a draft.

Do I need the full report, or is a summary certificate of value enough?

You need the full written 409A report, because a summary certificate of value won’t satisfy an auditor who is an intended user. Under USPAP Standard 10, the Restricted Appraisal Report format is permitted only when the client is the sole intended user, and the AICPA’s valuation engagement produces a conclusion of value while a calculation engagement does not. The written report is also what travels, since the safe harbor attaches to the document rather than to Carta, Pulley, or any one equity platform.