Last month, at the RICS Business Valuation Symposium in New York City, it was evident that, in the realm of fair value for financial reporting, extraordinary progress has been made in the efforts to enhance the public trust in valuations. Interestingly, many of the speakers and attendees were personally responsible for a large part of the progress over the years. Collaboration is one important element of this success, and the event highlighted the teamwork that has gone on in the past and that will be key to moving forward on this matter.
Welcoming the attendees was Neil Shah, regional managing director for the Americas for RICS, who was joined by Mary Jane Andrews, president and CEO of the CBV Institute (formerly the CICBV, the Canadian VPO), and Johnnie White, newly named CEO and executive vice president of the American Society of Appraisers (ASA). These groups are working together to move the profession forward in the area of fair value for financial reporting.
Speakers reviewed where the business valuation profession has been, what’s going on now, and what’s in store for the future. Some highlights:
- The rise of financial reporting in the late 1990s, early 2000s triggered a diversity of practice and “black boxes”;
- Regulators became very concerned and questioned what they perceive as the fractured nature of the profession and its lack of unified qualifications, standards, and enforcement in this area of valuation;
- The Appraisal Foundation began issuing a series of financial reporting valuation advisories as best practices on such issues as customer relationships, control premia, and contingent consideration;
- In 2016, a landmark coalition was formed between the ASA, AICPA, and RICS in a major effort to launch the Certified in Entity and Intangibles Valuation (CEIV) credential and its Mandatory Performance Framework (MPF), which focuses on the level of documentation required to support a valuation expert’s work;
- The enforcement aspect of the CEIV is still in the works; the Big Four have trained their staff in the CEIV but have stopped short of getting their people credentialed until the quality monitoring process is ironed out;
- The IVSC has started to develop standards for financial instruments, which is of particular interest to global regulators;
- The PCAOB has come out with consolidated rules that focus on audits and the use of specialists; about half of the audit deficiencies the PCAOB has found relate to fair value measurements; and
- A “regulatory sea change” is coming with ISQM1 (2020) from the IAASB, which will closely examine internal controls in the auditing process—and will trickle down to valuation experts globally.
Doing better? After all of the time and effort spent in this area, the question is: Are we in a better position in terms of public trust and transparency? The consensus from the conference speakers and audience members is “yes.” For example, the nature of PCAOB inspections with regard to fair value measurements in the U.S. bears this out. Regulators in the UK and elsewhere appear to be pleased with the progress that has been made, although they have made no definitive public statements to this effect.
Some of the attendees at the BV leadership symposium noted that the users of business valuation reports are largely unaware of what’s happening behind the curtain, so they may still have a problem understanding higher fees due to the increased costs of increased regulatory requirements.
There will be more coverage of the RICS conference in the August issue of Business Valuation Update.
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