"Jay Fishman and I approached this last and third topic with some trepidation," said Tony Aaron, kicking off the third section of today's TAF Business Valuation Roundtable. "There is education, and there are standards [the first two sections] but oversight is less formal."
Not to say that business appraisers don't find themselves continually under review--and even attack. So you can obviously get various oversight and enforcement agencies--not to mention the courts and clients--rapidly questioning whether you did wrong.
But strenuous oversight and harsh punishment are not formalized in the realm of business valuation for financial reporting. Or at least some users of valuation reports may perceive that there aren't. "If there's never been a sanction, you can only come to one conclusion; either every one's perfect, or there's no enforcement," Aaron commented.
Some would argue that the informal oversight that exists works. John Glynn points out that review by auditors at the firm level weeds out bad performance either because it results in inefficient work or termination of weak analysts. But, in reality, "no one is being thrown out of the profession for bad work," as one attendee said.
How does the CFA Institute handle member discipline? Questions were asked about this parallel professional association, as a possible model for business valuation. Wendy Pirie, Director of Curriculum Programs for the CFA Institute, speaking as an advocate for users of audited reports that include valuation analyses, naively assumed that appraisers were being punished for bad or unethical work. Pirie proudly claims the CFA Institute does this (well, they at least have a disciplinary review committee that "causes a member or two a year to lose their charter"). She said that their major disciplinary issue is people cheating on the entrance tests for the CFA--hardly a professional judgement issue. So, clearly, the CFA Institute is not regularly disciplining their many many charter holders--even though there has clearly been some very bad investment advice offered by their members over the last years. That should offer some comfort to FVS members of the AICPA, NACVA, IBA, or the ASA.
But, most in attendance recognize that, while appraisal reports are nearly always scrutinized extraordinarily carefully by customers as well as opposing parties, enforcing a very high standard of care, at the professional association level, NACVA, IBA, ASA, and AICPA rarely throw members out or punish them directly for business valuation projects. Another attendee said "most business users of audit statements would know to complain to the AICPA. But who do you complain to if you think there are non-professional practices apparent from a business appraiser?"
Standards aren't the only answer. There's also the peer review process that's common to CPA firms, but not BV, a perspective offered by one of the potential oversight groups, Paul Beswick of the SEC (as always, these thoughts reflect Paul's thinking, and not necessarily that of the Commission). This is particularly true because "valuation firms that do work for audit firms outside of the top six or seven have no oversight," according to Carla Glass, "since those CPA firms are unlikely to have any one in-house that understands valuation."
"I don't think there are a bunch of unethical people running around," summarized Don Charles (Ernst & Young). "It's not the ethical question we're dealing with, as much as the expectations by users of what sort of work standards they can assume to be done when there are grey areas or assumptions." Discussions like this session at TAF are the places where next steps begin to be considered, Aaron agreed.