Private companies continue to question the relevance of fair value for financial reporting, said Mark Zyla (Acuitas), during last week’s NACVA CTI 2012 Congress on Fair Value in Seattle. The pushback is the cost, “but that pushback is a one-way street,” he said, and “valuation practitioners can help educate private companies on why fair value measurements are important and relevant.”
“I take a diametrically opposite position,” said fellow presenter Alfred King (Marshall & Stevens). “I am not persuaded personally that the availability of fair value information is necessarily helpful to a company or its creditors or shareholders.” Take the example of publicly traded, closed-end mutual funds, which disclose their last trading price and net asset value (NAV) every day. King says:
The NAV of a closed-end mutual fund is the fair value of all the specific assets which that fund owns. Historically, most closed-end mutual funds sell at a discount to fair value, which is significantly above the closing price—but nothing happens. Why would shareholders be willing to hold onto stock at a discount when the actual assets are [ostensibly] worth more? As an individual shareholder you do not have access to that value. The bottom line from my perspective is that the availability of fair value information on assets that are not going to be sold is purely theoretical.
Look for highlight from the FV conference in future issues of Business Valuation Update.
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