“Valuation professionals stand apart from other significant contributors to the financial reporting process for . . . their lack of a unified identity,” said Paul Beswick, deputy chief accountant for the SEC, in his opening remarks at last week’s 2011 AICPA National Conference on Current SEC and PCAOB Developments in Washington, D.C.:
At last count, valuation professionals in the U.S. can choose among five business valuation credentials available from four different organizations, each with its own set of criteria for attainment, yet none of which is actually required to count oneself amongst the ranks of the profession. . . . While the multiplicity of credentials in the profession is not a problem in and of itself, risks may exist. Risks created by the differences in valuation credentials that exist today range from the seemingly innocuous concerns of market confusion and an identity void for the profession to the more overt concerns of objectivity of the valuator and analytical inconsistency.
The fragmented nature of the profession creates an environment where expectation gaps can exist between valuators, management, and auditors, as well as standard setters and regulators. While much of this may be addressed during a particular engagement, this case-by-case approach has the potential to be an inefficient and costly solution to establish a baseline level of understanding of the analyses. Sometimes, expectation gaps can have broader consequences than just within an engagement, as we have seen in the use of third-party pricing sources to measure the fair value of certain financial instruments.
As regulators, the SEC continues to see valuation analyses that “do not measure up,” Beswick added, citing methodologies that lack conceptual merit and support. To rebuild public trust in the valuation profession, he suggests a single set of qualifications and a unified standard of practice and ethical conduct. “One could also contemplate whether a comprehensive inspection program and a fair disciplinary mechanism should be established to encourage proper behavior and enforce the rules of the profession in the public interest,” said Beswick, who also spoke on the more predictable topic of IFRS convergence. For a complete copy of his remarks, click here.
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