According to Microsoft, the potential cost of cyber crime to the global community is a mind-boggling $500 billion, and a data breach will cost the average company about $3.8 million. A business’s cyber security health, or lack thereof, is a potential sinkhole that valuation firms may fall into at any time. If a firm has no knowledge or incorrect information about the cyber condition of a business that they are evaluating, it is a pitfall that could open them up to litigation down the road.
As a leader in business valuation, you would never consider entering into an engagement with a client without including certain disclaimers in their engagement letter. For instance, a critical disclaimer to include is that the firm is not responsible for the validity and accuracy of the financial information provided to them. If this disclaimer was not included, it would imply that the firm is in agreement with the accuracy of the information and would therefore be responsible for any resulting errors created in their final valuation calculations.
The cyber sinkhole is a business that is wide open for a cyber attack that may be mistakenly valued as a healthy company. For this reason, it is imperative to include a disclaimer in your engagement letter regarding the cyber condition of the business you are evaluating. Otherwise, the cyber sinkhole is a hidden trap waiting for you to fall into and may cause severe repercussions to your firm.