We've heard relatively few grumblings about the business valuation profession from the various regulatory agencies for the last many months...until December 5th. That's when deputy chief accountant Paul Beswick of the SEC gave a speech in DC (the full text is here) advocating for a single BV standard and certification.
Not that it wouldn't be a great idea. Just that you'd have to ignore a bunch of issues like the USPAP link to the real estate profession, why NACVA appeared when the AICPA was dawdling during the founding days, whether the ABV stands up to scrutiny, and many more issues.
All that aside, here are some highlights of what Beswick said earlier this month, after introductory comments endorsing IFRS:Now after that light topic, let me spend a couple minutes discussing my views on the current state of the valuation profession in the U.S.
Last year, you heard Jim Kroeker speak to the importance of and the tenets to building and maintaining public trust in the accounting profession. Today, I am here to advocate for the building of public trust in a profession that is increasingly intertwined with our own; that is the valuation profession. Recent events and developments, chief among them, the broadening application of fair value and fair value-based measures in US GAAP in recent years and the 2008 financial crisis, have cast the spotlight on valuation professionals.
The financial reporting process is a collaborative process that relies on many participants with important roles and responsibilities. For valuation professionals, this means the analyses should be based on methodologies that have strong conceptual merit, supported by consistent and supportable assumptions, and are in conformity with the requirements of the relevant accounting standards. These objectives should be central to any analysis, regardless of the role of the valuator. Valuation professionals wear two primary hats within the financial reporting process. They can be management’s specialist where they assist the company in the estimation of values. Or they could be the auditor’s specialist in the evaluation of management’s models, assumptions, and/or value conclusions. As a regulator, we have reviewed analyses under both roles. In many instances, we’ve seen analyses meet the objectives I’ve described, but we’ve also seen our share of those that do not measure up.
Valuation professionals stand apart from other significant contributors in the financial reporting process for another reason, their lack of a unified identity. We accountants, for example, have a clearly defined professional identity. At last count, valuation professionals in the US can choose among five business valuation credentials available from four different organizations,i 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. There are also non-credentialing organizations that seek to advance the interests of the valuation profession.ii 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...
I think one potential solution to consider is whether there should be, similar to other professions, a single set of qualifications with respect to education level and work experience, a continuing education curriculum, standards of practice and ethics, and a code of 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.