What to know from the ASA Fair Value Conference

BVWireIssue #260-1
May 1, 2024

fair value for financial reporting
ASA, business valuation profession, fair value, fair value measurements, risk analysis, practice management, information technology, Environmental, social, and governance (ESG)

It was another great turnout for the ASA Fair Value Conference in New York City last week. In-person attendance was sold out, and, with the virtual audience, the total attendance was about 200. The conference was sponsored by Empire Valuation Consultants, and EisnerAmper hosted the event at its offices. Here are some key takeaways (there will be detailed coverage in the next issue of Business Valuation Update):

  • A panel of Big Four leaders spent half their session discussing practice management issues, indicating that this is a topic of increasing importance;
  • AI will lessen the need for valuation analysts but increase the need for midlevel professionals to check the AI output;
  • Low-cost providers have invaded the fair value space, prompting more offshoring (one firm set up a staff office in India);
  • Audit trouble areas include prospective financial information, attrition, royalty rates, unsubstantiated company-specific risk, implied control premiums, and impairments;
  • The final version of the AICPA’s business combinations guide is due out this summer;
  • Take care when applying various models for determining technical obsolescence—the topic needs further development, and there is a lack of supportable data;
  • The SEC’s Private Fund Adviser Rule, which kicks in March 14, 2025, is presenting opportunities for independent third-party valuation experts interested in this space;
  • ESG impacts should be accounted for in cash flows, not the cost of capital, and upcoming disclosure rules (and there are many) will help analysts assess the effects; and
  • As with other areas of fair value, the bar is being raised on valuing equity award structures.

The outspoken Professor Aswath Damodaran (New York University Stern School of Business) gave an interesting presentation on risk, particularly catastrophic risk, which was relatively calm, but he couldn’t help dropping a few bombs (e.g., fair value is an “oxymoron,” the size effect is “fiction,” and company-specific risk is “nonsense”), which show a level of disconnect in thinking between academics and practitioners. But his point about global equity risk premiums is a good one, i.e., don’t use ERPs based on where a company is incorporated but rather on where the operations are, which could be a weighted average for operations in several different locales (his website provides data on ERPs by country). 

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