IVSC releases report by critical/consultant group  

As part of its “historic” restructuring this year, the International Valuation Standards Committee (IVSC) has reviewed its Standards Board output.  “The Board believed [it] was time to pause and consider the fundamentals of what…the IVSC is trying to achieve,” says Joseph Vella, in the latest IVSC E-News, “and how best to do it without being constrained by a perceived need to work within the structure and confines of the current [standards].”

The current International Valuation Standards (IVS) arose from various institutes around the world, primarily as their established guidance related to real property valuations.  Now, “the demands of the global capital and financial markets are driving the development of the IVS,” Vella says. “They must be seen as…standards in their own right and in particular support the measurement requirements of other global reporting standards.”

To ensure this level of quality and consistent application, the IVSC commissioned a Critical Review Group, composed of preparers and users of valuation reports familiar with standard-setting procedures.  The Group just turned over its report to the IVSC, which published a copy on its website and invites comments by October 31, 2007.  The Committee will review all input and publish a final report as part of its restructuring, including the creation of a new Standards Board.

Failing to apply DLOM could be breach of ESOP valuation

A recent decision by the Seventh Circuit Court of Appeals (Judge Posner) questions whether an ESOP trustee, by accepting an annual valuation without a discount for lack of marketability (DLOM), committed a breach of fiduciary duty.  Although enjoying wide discretion, an ESOP trustee’s judgment “cannot be upheld when discretion has not been exercised,” including under some circumstances the need to apply a DLOM to a redemption price.  A summary of Armstrong v. LaSalle National Ass’n (2006) originally appeared in the April 2007 Business Valuation Update™. For a copy of the case abstract, click here. 

And for more on the critical issues faced by ESOP analysts and administrators, be sure to join panelists Robert Schweihs, Mike Hartman, Stephen Smith, and Judith Kornfield in BVR’s next teleconference, “ESOP Valuations and Repurchase Liability,” on July 10, 2007.  The experts will discuss the importance of various valuation methods, plan designs, and the effect of increasing conversion of ESOP companies to S corporations.  To register, click here.  As a bonus, registrants will receive 20% off the purchase price of the newly updated Guide to ESOP Valuation and Financial Advisory Services, by Schweihs and Robert Reilly (Willamette Management Assoc., 2007).  Pre-conference materials will also include the invaluable “ESOP Due Diligence Checklist,” excerpted from the Guide.

Majority now believe company-specific risk is quantifiable

At the beginning of their presentation at the recent IBA 2007 Symposium in Denver, Keith Pinkerton and Pete Butler asked how many attendees thought they could quantify company-specific risk of guideline publicly traded stock—and only a few hands went up.  But by the end of the four-hour session, after a “heated” but satisfying debate, when the presenters asked the same question a significant portion—more than half—of participants raised their hand.  “I also believe that, at a minimum, we reached general consensus (although not complete agreement) that starting at 0% is a non-starter,” reports Butler, ”and that using a negative company-specific risk is a big no-no.” 

Both presenters were exhausted after the session (“it was like we were on the witness stand for four hours”), but feel even better prepared for their upcoming session with Roger Grabowski at the October ASA BV conference in San Diego (see BVWire™ # 57-2).  As a reminder, you can download the series of three articles on the Pinkerton/Butler technique at BVResources.com. 

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Is business valuation a profession or an industry?

“Over the past few years, I’ve noticed that several commercial publications marketed to real property appraisers have been characterizing our (appraisers’) business as an ‘industry,’” writes W. David Snook, FASA, in an opinion piece for the most recent issue of the ASA Professional (Spring 2007).  “I do not agree….Industries produce things; professions provide services.  It is as simple as that.”

Is it?  We’ve extended Snook’s question to business valuation, which may be suffering from a similar identity crisis as its impact is felt in ever-increasing circles of financial analysis, oversight, business ownership, and government regulation.  Please take a few moments to answer our latest online survey, which includes an option to comment.

IASB publishes June Update

The International Accounting Standards Board has just released its latest monthly (June 2007) Update.  Highlights include the IASB’s discussion of four issues relating to IFRS 3 Business Combinations, and transition planning for IAS 27 Consolidated and Separate Financial Statements.  A summary of the Board’s recent re-deliberations of its conceptual framework project also appear, including its decision to extend coverage from financial statements to financial reporting as a whole.  (Note that any decisions reported in the Update are tentative and subject to review by the Board.)  Finally, a list of upcoming IASB meetings, including those with the FASB, concludes the issue.  To review the June edition (and archives), click here.

Maintain a healthy skepticism re: BV-related ‘Societies’

In response to our recent exposure of BV “scam” sites, a subscriber asked about the “Forensic CPA Society,” which recently sent a spate of emails regarding self-study courses, texts, and certification.  The Society was formed just two years ago, in July 2005, and now offers a FCPA (Forensic Certified Public Accountant) certification.  “Use of this designation will tell the public and the business community that the holder has met certain testing and experience guidelines,” the email explains, “and is not only a CPA, but has been certified as a forensic accountant.”

We’re not saying the site (www.fcpas.org) isn’t legitimate.  But whenever double negatives creep into syntax, it’s best to keep a healthy skepticism.  Forensic accounting is now one of the hottest growth areas for CPAs and analysts—and so-called “societies” may be cropping up fast to take advantage.  Some may be nothing more than resellers of others people’s resources—including study books and guides, for which they charge an extra membership fee before permitting purchase.  In our opinion—better to spend limited training budgets on the offerings from well-established professional organizations, such as the fraud and litigation courses at NACVA and the extensive resources from the AICPA’s BV/FLS section, than to buy-into a certification from a society that may not be around in another couple of years.

New SEC committee tackles transparency of financial reports

Last week SEC chairman Christopher Cox announced the formation of a blue-ribbon panel that will seek to simplify the accounting rules in the U.S.  The new Advisory Committee on Improvements to Financial Reporting will study the “causes of complexity” and recommend how to make financial reports clearer to investors, reduce costs for preparers, and better utilize technology to enhance all aspects of financial reporting. Robert C. Pozen (MFS Investment Management, Boston) has been appointed to chair the committee, to be joined by thirteen to seventeen additional members with varied backgrounds, who will be named in the coming weeks.   To find out more, click here.