AICPA valuation conference draws a huge crowd

BVWireIssue #158-3
November 18, 2015

Over 1,100 attendees at the AICPA Forensic and Valuation Services Conference 2015 in Las Vegas heard some outstanding speakers and topics. BVWire was excited to be at the event, which included an update on AICPA matters related to the valuation profession.

Front-burner issues: The chair of the FVS executive committee, Carol Carden (PYA PC), updated attendees on several key issues the AICPA is monitoring. One is the forthcoming proposed regulations from the IRS that will put the kibosh on discounts for family limited partnerships (FLPs). This will have a “definite impact” on valuation, so a special AICPA panel will analyze the proposed rules when they are released. The AICPA is also submitting comments to The Appraisal Foundation (TAF) on the control premium (MPAP) exposure draft by the due date (November 30).

New college program: The chair of the BV committee, Randie Dial (CliftonLarsonAllen), mentioned the four valuation and forensic practice aids the AICPA issued during the past year (a “phenomenal accomplishment”): economic damages, estate/gift tax, fraud, and one for expert witnesses and consultants. He also spoke about a new college program being rolled out where students can take a valuation course that prepares them for the ABV exam, which they would take in two three-hour class sessions. If they pass, the students would have the ABV “on hold” until they get their CPA, at which point the ABV would kick in.

New FV credential: AICPA senior technical manager Eva Simpson gave an update of the new credentials to be issued for fair value. The new credential for fair value related to business and intangibles will roll out in spring 2016, and the new credential for financial instruments will launch in fall 2016. A draft of the mandatory performance framework will be issued for exposure in early 2016. The AICPA, ASA, and RICS will issue this new credential under a common framework, but the individual will be bound by the issuing group’s professional and ethics standards. It is unclear whether the new credential will be a new set of letters or some special mark added to a person’s existing BV credential, such as an asterisk or other symbol.

Here are some takeaways from a few of the other sessions:

The “D” in DCF is important, but most mistakes occur in forecasting the “CF,” says Professor Aswath Damodaran (New York University Stern School of Business), one of the keynote speakers. He feels that too much time is spent on figuring out a discount rate and too little time is spent on developing cash flows.

There was lots of interest over personal injury damages calculations. When doing them, ask for tax return transcripts from the IRS when determining lost earnings base—don’t simply rely on return copies you’re given, advises Holly Sharp (LaPorte CPAs & Business Advisors).

Statistics, particularly regression analysis on key business drivers, can be used to do the “but for” forecast for calculating lost profits, say Michael Crain (Financial Valuation Group) and G. William Kennedy (Berkeley Research Group LLC).

Over a third (39%) of experts would not accept a marijuana business for a valuation engagement, per a poll taken at a session on valuation issues in this industry conducted by Hilary Bricken (Harris Moure PLLC) and James Marty (Bridge West CPAs and Consultants LLC).

In the oil and gas area, mineral ownership is complex, so the definition of rights is key to the valuation, according to Edwin Moritz (Gustavson Associates).

At a session on ESOP valuations, Steven York (Stern Brothers Valuation Advisors) advised valuators to stay clean and have no secrets from the ESOP trustee.

Experts agree that if you don't fret the night before testimony you don't have a pulse, say panel members at a session moderated by Jason Flemmons (FTI Consulting).

During a session on cost of equity capital, the implied private company pricing line (IPCPL) was discussed. This is a newly developed tool that uses data from Pratt’s Stats and is designed to better estimate the cost of capital for a small private company. It’s not ready for court, but “get it, read it, and try it out—it may have some merit” says Ted Israel (Israel Frey Group LLP). For now, try using it as a sanity check alongside other methods.  

There were a number of other sessions on cost of capital, which was interesting in light of Damodaran’s comments about too much time being spent on the discount rate. Of course, this has become a complex topic with a great deal of related research and data. One well-known valuation expert said: “It took me seven years to understand it.” At the end of the conference, one attendee told this editor: “I’m all cost of capital-ed out.”

Many more details on these topics are coming in the January 2016 issue of Business Valuation Update. 

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