The quality of valuations for financial reporting is improving...but so is litigation

That’s the summary of comments from the panel of “Big 4” auditors at the ASA Fair Value Summit, held November 13th in the San Francisco offices of KMPG. The valuation environment is becoming more competitive and the days of “rogue/cowboy” valuations are over, says Josh Cashman (Arcstone Partners), who provided a special report on the event, highlighting the following points:

  • Fair value regulation? The panelists foresee continued self-regulation for the BV industry, driven primarily by the Big 4 firms, without any formal standards in the near future.
  • Increased litigation. Expect a wave of fair value litigation in the next two to five years, focusing in particular 141R and fair value measurements made today on the basis of contingent consideration (earn-outs, etc.) that play out differently in the future. Although the first round of lawsuits may not include valuation specialists, look for the “losers” to turn around and try to recoup damages from valuation providers.
  • International challenges. Without a single SEC-like agency to regulate business valuation on an international scale, valuation analysts should continue to track the subtle but meaningful ways in which auditors from various countries handle reviews. (A good source? The BVWire reports on international standards activities—as in our last issue.