Strong growth seen in valuation services, says AICPA survey
More than half (54%) of valuation practitioners surveyed recently expect more demand for their services over the next two to five years. Most respondents anticipate a growth rate of between 10% and 50%, reveals a new survey, the 2014 AICPA Survey on International Trends in Forensic and Valuation Services. A total of 443 practitioners in forensic and valuation services (FVS) responded.
Growth driver: Forensic experts are even more optimistic, as 76% say they expect growth in demand for their services. One factor driving this expectation of growth is the belief (held by 76% of all FVS respondents) that there will be an increase in litigation and regulatory enforcement.
Over the past year, in terms of valuation services, respondents saw a rise in demand in these areas in particular: shareholder and partner disputes, contractual disputes, litigated valuations, gift and estate, and family law/marital dissolution cases.
Top issues: Electronic data analysis (so-called “big data”) is now the No. 1 issue facing FVS professionals, cited by 25% of respondents. Interestingly, this issue did not even appear on the list in 2011. Other top issues are increased complexity and scrutiny in engagements (20%), competition and fee pressure (14%), and regulatory changes (11%). Rounding out the list is attracting and retaining qualified staff (7%), which slipped from its No. 1 position in 2011 to the No. 5 position this year.
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Trouble with pretax discount rates
At the recent NACVA conference in Las Vegas, Roger Grabowski (Duff & Phelps) and Shannon Pratt (Shannon Pratt Valuations Inc.) talked about the problems they see in converting a discount rate developed from after-tax returns to a pretax equivalent discount rate.
Common error: “Notable experts got it wrong,” says Grabowski. So the authors added a chapter on the topic in the newly released fifth edition of their landmark book, Cost of Capital, Applications and Examples. “It’s a very short but very important chapter,” says Pratt.
Extra: The September issue of Business Valuation Update will include a review of the book written by Ted Israel, who is director of the Forensic and Valuation Services division of Eckhoff Accountancy Corp.
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IRS suffers one-two punch in clash over return preparers
In the wake of the IRS’s defeat in the Loving case last February, the agency has lost a similar case in its attempts to regulate return preparers. Separately, the AICPA is suing the IRS over its attempt to implement a voluntary program for tax return preparers.
First punch: A federal district court has ruled that the IRS does not have the statutory authority to regulate fee arrangements related to a CPA's preparation and filing of ordinary tax refund claims. Loving involved tax returns, but the court says returns and ordinary refund claims are effectively the same thing. Section 330 allows the IRS to regulate the “practice” of “representatives” of taxpayers. But the courts in Loving and this new case say that the mere filing of tax returns and ordinary refunds is not “practicing” before the IRS since it does not involve an adversary proceeding and the return preparers are not “representatives” of the taxpayer. However, it’s a different story when the IRS responds to the filing and the preparer submits a power-of-attorney form to the IRS. At that point, the preparer would be considered to be practicing before the IRS as a representative of the taxpayer.
In the recent case, a CPA was charging contingent fees for filing ordinary refund claims. Under Circular 230, tax practitioners cannot charge contingent fees for filing returns or refunds. The CPA sued, claiming the restrictions caused a "loss of clients and significant revenue." He asked the court for a declaratory judgment and an injunction. The court granted the CPA’s request because, as in Loving, he was not a representative of the taxpayer practicing before the IRS. He merely assisted the taxpayer and as such was not subject to the IRS's regulatory authority. Stay tuned for news about the IRS's response.
The case is Ridgely v. Lew, 2014 U.S. Dist. LEXIS 96447 (July 16, 2014). The opinions of the U.S. district court and Court of Appeals in Loving are available at BVLaw.
Second punch: The AICPA has filed a lawsuit against the IRS over the agency's voluntary program for tax return preparers. The AICPA alleges the IRS initiative is “an impermissible end run” around the Loving decision, according to an article in the Journal of Accountancy.
The program, laid out in the recent IRS Revenue Procedure 2014-42, allows unenrolled tax return preparers and others to receive an annual Record of Completion from the IRS if they complete continuing education courses from IRS-approved providers. Participants in the program, known as the Annual Filing Season program, will be listed in an IRS directory of federal tax return preparers.
The AICPA complaint says the IRS improperly sidestepped the Administrative Procedures Act’s rule about rulemaking—giving notice and allowing for public comments—when it started the program using a revenue procedure. The complaint also notes that the Loving case found that the IRS has no statutory authority to regulate tax return preparers. The AICPA says the voluntary program is nearly identical to the mandatory return preparer registration program that the courts invalidated in the Loving case.
Furthermore, the AICPA says, while the new program is purportedly voluntary, it will actually be “de facto mandatory because it creates a strong competitive incentive for unenrolled tax return preparers to comply.” If they participate, they will “stand out from the competition,” according to the IRS’s own remarks. Thus, unenrolled tax return preparers must participate in order not to lose business to those who do.
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No go for fully converged global accounting standards
Full convergence with the U.S. that would lead to one single set of global accounting standards is no longer achievable, says Hans Hoogervorst, chairman of the International Accounting Standards Board (IASB). He made his remarks at the recent Singapore Accountancy Convention (SAC), according to an article in the Business Times (Singapore).
His remarks come shortly after the IASB published its completed international financial reporting standard (IFRS) on financial instruments, IFRS 9, without the U.S. Financial Accounting Standards Board's (FASB) participation. Although the IASB and FASB worked for years on a converged financial instruments standard, they were unable to agree on a model for impairment. FASB’s standard is expected to be published late this year
"The FASB decided to stick to current American practices and leave the converged position," Hoogervorst says. "It's a pity.”
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New resource to help stop Daubert nightmares
Case law, sample motions, practice tips, and checklists are all part of a new special report designed to help survive a Daubert challenge. Daubert motions have become one of the most frequently used weapons to attack a financial expert.
In the report, Daubert Challenges: The Courts Raise the Bar, financial experts and attorneys share their unique insights into what it means to face a Daubert challenge and what it takes to survive one. The report includes:
- Almost 400 pages of valuable insight and court case digests written by financial experts and BVR’s internationally recognized expert legal editorial team;
- Fingertip guide of summary tables to quickly find a case name, type of case, type of Daubert challenge, date, court, state/jurisdiction, and more; and
- Exclusive access to BVR’s website with links to all of the full court opinions of the cases featured in the special report.
No expert hoping to excel in the litigation arena can afford to be without this unique practice tool. For details and a look at the table of contents, click here.
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Exciting agenda for the ASA/CICBV conference in Toronto
Attend a dynamic, information-packed conference in one of North America’s most beautiful cities. The American Society of Appraisers and The Canadian Institute of Chartered Business Valuators 2014 Joint Business Valuation Conference will be held October 27-29 at the Westin Harbour Castle Hotel in Toronto, Canada.
Join some of the most brilliant business valuation minds in the world—both presenters and attendees—as the profession's preeminent thought leaders share knowledge and discuss emerging trends. Here are just a few of the sessions on the packed agenda:
- DLOMs: Volatility Models & Restricted Stock Discounts: John J. Stockdale (Sole Practitioner);
- Technology Company Valuation Drivers and Trends: Dan Knappenberger (Deloitte), Duncan Stewart (Deloitte), Sid Paquette (OMERS Ventures);
- Market-Derived Patent Data: What Data Is Important and How Does It Impact Value? Michael J. Pellegrino (Pellegrino & Associates LLC);
- Resolving Valuation Disputes With Tax Authorities: Bill Stamatis (Deloitte), Phil Fortier (Ernst & Young), Michael Gregory (Michael Gregory Consulting LLC); and
- Energy—Developments With Oil & Gas Industry; Kristopher Zack, Justin Bouchard (both with Desjardins Securities Inc.).
BVWire will be there—and we hope to see you! For more details and to register, click here.
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BV movers . . .
People: John W. Haag Sr., principal at Yeo & Yeo CPAs & Business Consultants of Michigan, recently received the National Association of Certified Valuators and Analysts (NACVA) and Consultants Training Institute (CTI) inaugural "40 Under Forty" award … Erik Horstmann joins Cherry Bekaert’s Charlotte, N.C., office as managing partner.
Firms: CliftonLarsonAllen has acquired La Crosse, Wisc., firm, PKC Consulting, which specializes in accounting, consulting, and tax services … Crowe Horwath LLP will sell its subsidiary, Creative Financial Staffing, based in Boston, to its roughly 165 employees through an employee stock ownership plan … Mariner Holdings has acquired Allied Business Group of Kansas City, Kan., citing expertise in business valuation, forensic accounting, and transition planning as the key assets to balance out its wealth advisory services.
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There’s something for everyone in this varied slate of upcoming BV events.
Advanced Workshop on Determining Volatility and Market Yield: Developing Inputs for the Valuation of Options and Debt Securities (August 7), featuring David Dufendach, Oksana Westerbeke, and Jared Hannon (all Grant Thornton). Step up your game for option and debt valuation through this intensive, four-hour workshop. Dufendach, Westerbeke, and Hannon, three of the most experienced and trusted voices in financial instrument valuation, will lead attendees through how to select and apply the best methods and techniques to derive volatility and market yield.
The Cost Approach in Measuring Contributory Assets (August 12), featuring Nathan DiNatale (SC&H Group). Part 8 of BVR’s Online Symposium on Fair Value Measurement turns to identifying, separating, and determining the value of a contributory asset when using the cost approach and heeding new guidance from the Appraisal Foundation.
Valuing Sole Proprietorships (August 14), featuring Ron Seigneur and Brenda Clarke (both Seigneur Gustafson). Learn how to overcome the appraisal challenges that occur when a very small business rests heavily on a single key person.
Valuing Imaging Centers (August 19), featuring Douglas Smith (Integrated Medical Partners). The 2014 Online Symposium on Healthcare Valuation welcomes the foremost expert on imaging centers to examine recent and ongoing trends, appraisal challenges, and how to properly assess an imaging center’s value.
Price and Value: Discerning the Difference, an Advanced Workshop (September 10), featuring Aswath Damodaran (NYU Stern School of Business). Are you pricing, or are you valuing? In this special workshop, Dr. Damodaran addresses the key differences between these concepts and the consequences of their feedback and overlap. Limited seating is available to attend in person in New York with a special luncheon and extended Q&A. The event will also be webcast live.
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