Coronavirus fallout impacts the valuation community

BVWireIssue #210-2
March 11, 2020

valuation methods & approaches
economic forecast, fair value, market forces, coronavirus, COVID-19

The unpredictable coronavirus is disrupting work plans of valuation and accounting firms and impacting the global market. Firms are limiting travel, encouraging virtual meetings, and promoting other ways to help prevent the spread of the disease. Here are some recent developments and issues to consider.

Deloitte confirmed a case of coronavirus in its London office, so the firm closed the floor on which the individual worked, did a “deep clean,” and gave the building’s remaining staff the option to work at home. The ICAEW has issued guidance to help firms navigate the audit challenges the coronavirus presents.

Risk-free rates are in uncharted territory as the entire yield curve for U.S. bonds fell below 1% for the first time in history. This past Monday, the 10-year T-bond yield was 0.49% and the 30-year rate was 0.89%. “This is a good time to revisit the implied ERP rather than the historical ERP,” advises Dr. Michael A. Crain (Florida Atlantic University). “The implied ERP reacts to changes in the risk-free rate but the long-term historical average ERP changes very little.” Ron Seigneur (Seigneur Gustafson LLP) offers this word of caution: “Much like the manufactured rate drop during the great recession to help the economy, using a build-up model with these low ‘risk-free’ rates, keeping all else equal, creates an illusion of value that does not exist,” he says. “Overall market risk is increasing in most sectors, as is volatility risk, so the analyst needs to make up the delta elsewhere.”

Just 7% of business executives said their companies had made a minor downward adjustment to their profit and revenue forecasts due to virus concerns, while 51% said they had made no change but were closely monitoring the situation, according to a recent AICPA survey. But this survey was taken just as the crisis was unfolding, and, while 42% said they didn’t expect to have to make any coronavirus-related adjustments, responses late in the survey cycle showed much less confidence.

The SEC and PCAOB issued a warning on the coronavirus impact on financial reporting and will possibly grant relief from filing deadlines. The PCAOB says it is now restricted from examining firms based in China.

As the disruption lingers, there is more potential for asset impairments, such as for financial instruments, goodwill related to operations in coronavirus-affected areas, and inventory where supply chains have been impacted.

Professor Aswath Damodaran (New York University Stern School of Business) gives his take on the coronavirus and the recent market meltdown in this post in his blog on valuation and corporate finance. He lends a calm voice to the current crisis by suggesting that “rather than listen to the experts on either side of this debate tell you what to do, you should make your own best judgments, recognizing that they can and will change as more facts emerge, and act accordingly.”

What is your firm and its clients doing in response to the coronavirus? Let us know, and we’ll share it with readers. Send your comments to

Please let us know if you have any comments about this article or enhancements you would like to see.