The following letter concerns the proposed changes to the International Glossary of Business Valuation Terms (see last week’s coverage for details):
I think many certified as ABVs and CPAs who perform valuation services will be interested in the effective change to AICPA’s professional standard for valuation services, VS Section 100, if the proposed revised “international glossary” is adopted and replaces the original international glossary currently at VS 100.81. The proposed revised glossary has about twice as many terms as the current version. The current version of the international glossary in the standard has 123 valuation terms. The December 14, 2020 proposed revised international glossary has 239 valuation terms. Some of the new terms include valuation methods including Backsolve Method, Cost Savings Method, Current Value Method, Distributor Method, Greenfield Method, Hybrid Method, Investment Method, Premium Profits Method, Summation Method, and With and Without Method. In addition to new methods, the proposed revised glossary adds technical terms including All Risks Yield, Calibration, En Bloc Value, Evidential Skepticism (that differs from Professional Skepticism in the document), Notional Market Valuation, Ratable Value, Self-Skepticism, and Sustainability (that relates to climate change, corporate responsibility, and other factors). I see two issues for the AICPA’s comment period: first, should the proposed revised glossary be included in AICPA’s professional valuation standard VS 100 or separated as an obvious non-authoritative document similar to a practice aid or practitioner handbook; and, second, whether the valuation terms are reasonable or acceptable. From the perspective of ABVs and CPAs who perform valuation services, I think the first area to consider is whether the proposed glossary document belongs in the VS 100 professional standard. It could, for instance, increase risk for practitioners. Also, I think AICPA providing a mark-up (redline) version of the proposed revisions would be a large benefit to those reviewing the proposal for possibly providing comments to AICPA.
Dr. Michael A. Crain, CPA/ABV, CFA, CFE
Editor’s note: Dr. Crain was the chair of the AICPA’s Business Valuation Committee in 2007 when the AICPA issued its business valuation standard, Statement on Standards for Valuation Services (SSVS), now commonly known as VS Section 100. He is currently the director of Florida Atlantic University’s Center for forensic accounting and continues to practice on a part-time basis.
Comments on the proposed changes are due January 31. Click here for our coverage from last week that has links to the document and how to submit comments.