Our last issue covered some highlights of the year 2019 in business valuation, so now let’s look ahead to 2020. Here are some major issues and developments to watch for this year.

Guidance: Several sets of valuation guidance are in the works, including:

• The AICPA’s “Business Combinations Accounting and Valuation Guide” (a working draft of the guide’s inventory valuation section has already been issued);
• Estimating company-specific risk is the subject of new voluntary guidance being developed by The Appraisal Foundation; the group has already issued four advisories on other topics; and
• A set of international valuation practice standards for financial instruments from the International Valuation Standards Council (IVSC), which is evaluating feedback on the project.

Probably the most important guidance issue for 2020 is the possible change to goodwill impairment. The FASB is considering moving back to amortization or a hybrid approach, and valuation experts have serious concerns about this. To its credit, the FASB is carefully gathering and analyzing the views of various stakeholders in order to understand what information is relevant before it proceeds further.

Tax affecting: In the wake of two major 2019 court decisions that support tax affecting pass-through entities (PTEs), several more are expected on this matter, including the Cecil case and the estate of pop star Michael Jackson. The IRS has long resisted tax affecting the income stream of PTEs to account for the difference between public market data used to derive cost of capital and the subject PTE to which it is applied.

Fair value: Watch for the Certified in Entity and Intangible Valuations (CEIV) credential to be bestowed on more professionals because the Quality Monitoring (QM) program has been finalized. The credential (offered by the AICPA, ASA, and RICS) is designed for professionals who perform fair value measurements for corporate entities and intangible assets. The Mandatory Performance Framework for the credential may also undergo a revision this year.

Court cases: In addition to the cases mentioned above, intellectual property damages experts are keeping their eyes peeled for the outcome of the Romag Fasteners case, which is now in the hands of the U.S. Supreme Court. This is a trademark infringement case that will hopefully resolve the split between appellate courts over whether willfulness has to be shown before an infringer’s profits can be awarded.

Globalization: Under new leadership, the IVSC will continue its push for global standards. The group’s International Valuation Standards (IVS) have been translated into 10 languages and are now in use by more than 100 countries. In terms of the impact of global crises, such as Brexit, on business valuation, experts advise that, whatever your assumptions are, it’s important to maintain internal consistency between the three basic elements of valuation (cash flow, growth rate, and discount rate). Now more than ever, matching the cash flows to your expectations and the consistency of those expectations with the economic environment are critical elements in a valuation.

Other topics to watch in 2020 include valuations for divorce (such as goodwill and active/passive appreciation), ESOPs (the DOL will continue its tough stance on valuations), statutory appraisals (Delaware has been looking to market evidence to establish fair value), private equity/venture capital valuations (in the wake of recent guidance), inputs to the cost of capital (always an interesting debate), BV practice management (amid increasing market pressure), and other matters that will surely pop up during the year, so stay tuned!