There was a healthy turnout of forensics and valuation experts in Las Vegas for the 2019 AICPA Forensic and Valuation Services Conference. Conference chairs Nathan DiNatale (CliftonLarsenAllen) on the valuation side and Michael Fahlman (Berkeley Research Group LLC) on the forensics side greeted the attendees at the event, which had the theme “Primed for Transformation.”

The keynote speaker, economist Todd Buchholz (Sproglit), talked about the possibility of a coming recession, but he noted that the U.S. economy keeps humming along nicely. A “supply-side shock” is keeping inflation down—a huge supply is being dumped onto the market from the likes of Uber, Airbnb, and others. More importantly, what he calls the “scariest secret in economics today” is that the U.S. is benefitting from the global slump, which is keeping interest rates low. “What ever happened to the tightly integrated world economy?” he asked.

After the keynote—which was packed with attendees—it was on to the breakout sessions:

• Picking up on the notion of supply-side shock from the keynote address, a session on forecasting stressed the importance of considering macroeconomic conditions into a company valuation. Which ones are relevant to your subject company? Consumer confidence? Unemployment? Housing starts? And don’t just think nationally—drill down to the regional and local economy (think about how locale affects real estate values).
• Reviewers of valuation reports say that experts are not taking into account all of the impacts of the Tax Cuts and Jobs Act into their valuations, especially the impacts on cost of capital. No one in the audience has yet to adjust the WACC for the interest deduction issue, but “keep an eye on it.”
• We now have three choices for empirical cost of capital data: (1) D&P’s Cost of Capital Navigator; (2) BVR’s Cost of Capital Professional; and (3) Professor Aswath Damodaran (New York University Stern School of Business).
• When using restricted stock studies to estimate DLOM, make the underlying companies compare closely with your subject company.
• Don’t lose sight of the basic fundamental that a company’s value is a function of three factors: (1) cash flow; (2) risk; and (3) growth. This is also a great way to explain valuation to laypeople.
• Don’t treat the income and market approaches in silos—they interrelate with each other.
• Many more firms will be coming on the market—the owners’ children just don’t want the family business.
• The most prevalent M&A damages claims stem from: (1) AR and the allowance for doubtful accounts; (2) inventories (the thorniest issue); and (3) warranty reserves.

Also, there was a good deal of emphasis on fair value for financial reporting. There were sessions that covered regulatory updates from the SEC, PCAOB, and FASB; valuation implications of new accounting standards (e.g., revenue recognition, leasing); inventory valuation (from the upcoming business combination guidance); the new AICPA guide to private equity/venture capital; valuations of financial instruments; and recent developments with the CEIV credential. In addition, The Appraisal Foundation’s Appraisal Issues Task Force (AITF) had its meeting during the conference. The AITF is a voluntary group of valuation professionals who specialize in the field of valuation for financial reporting and seek to improve practice in that area. The group works with the FASB and the SEC to evaluate proposals and recommend methodology, assumptions, and approaches.

We’ll have more details in future BVWire issues, and more extensive coverage will be in the January 2020 issue of Business Valuation Update.

Next year’s FVS conference will in Aurora, Colo., Nov. 9-11, 2020, at the Gaylord Rockies Resort & Convention Center.