“The majority of all valuation tools, including the DCF, income approach method, require ‘sufficient relevant data to afford a reasonable basis for conclusions or recommendations in relation to any professional services performed,’” says Paul French (Lain Faulkner & Co.), with emphasis, citing the AICPA Rules of Professional Conduct. The rules also require applying the relevant tool in a way that comports with generally accepted valuation methods and “unbiased” professional judgment, he says, adding to the ongoing discussion of BV in bankruptcy and other federal court decisions.
Failure to do so—on the record—is “the fault of the valuation analyst,” French believes, or the attorney who “fails to introduce the necessary evidence, ask the necessary questions during the valuation analyst’s direct testimony and/or the opposing expert’s cross examination.” If the record does not provide such comprehensive testimony by the valuation expert—including the financial projections, calculations, and conclusions, supported by unbiased testimony—and a thoroughly documented challenge of the opposing expert’s testimony along the same lines, the appellate court might not have any choice but to rely on the nonexpert evidence underlying the initial decision.
The valuation tools “are not at fault,” French says, another good reminder that preparation and professional standards are among the best “tools” available to a BV expert.
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