MPF finalization ushers in new CEIV credential
“CPAs and financial professionals can start working now on the training requirements for the CEIV credential,” Nathan DiNatale (SC&H Group), chair of the AICPA Business Valuation Committee, tells BVWire. The mandatory performance framework (MPF) has now been finalized, clearing the way for the new credential’s launch.
Joint effort: The new valuation credential is related to fair value for financial reporting, and it has been developed under a joint effort of the AICPA, ASA, and RICS. These groups want to bring more consistency to the profession and reduce the number of questions auditors raise about the valuations. The new credential is Certified in Entity and Intangible Valuations™ (CEIV™), and it focuses on business entities and intangible assets. Credential holders will be required to comply with the MPF, which is designed to make sure that the valuation expert adequately documents his or her work and thought processes. This will help make auditors more comfortable with valuation estimates, especially for intangibles.
“Since 2005, the SEC has been speaking out as to the fragmentation of the valuation profession and that the profession would benefit from unified qualifications, standards and oversight,” says Nancy Czaplinski (Duff & Phelps). “The CEIV credential will unify valuation professionals with a common framework, standards and body of knowledge.” Mark Zyla (Acuitas Inc.) adds: “It will ensure a transparent process that provides consistently accurate results that can be relied upon with confidence by clients, companies, regulators and the public.”
More details: DiNatale answers questions about the new credential in an exclusive interview that will appear in the February issue of Business Valuation Update. Also, a special website has been set up at ceiv-credential.org that has more details on the credential and its requirements.
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Washington state court clarifies double-dip analysis
Double dip, like goodwill, is a challenging issue for valuators because different states have handled it differently, which makes it hard to keep up with the various approaches. A recent appeals court decision from the state of Washington explains the key principle at work in that jurisdiction’s double-dip analysis.
The issue arose when the husband appealed the trial court’s decision to award the wife both half of the value of a management consulting business the husband had set up and grown during the marriage and $640,000 in spousal maintenance over 44 months.
No unfair burden: Both parties’ experts used an income approach to value the company. The trial court split the difference in the value determinations and found the company “has significant goodwill and profits, has experienced significant growth and will, more likely than not, continue to enjoy significant growth in the near future.”
The husband contended the maintenance award represented double recovery. The state Court of Appeals disagreed. Under the applicable maintenance statute, the division of the community’s property is one of many factors a trial court should consider in determining maintenance. “The only limitation … is that the award be ‘just.’” Relatedly, “when maintenance and property awards are paid from the same asset in a manner that unfairly burdens the payor spouse, the maintenance award duplicates the property division of that asset.”
Unfairness comes into play where the divided asset is a diminishing asset that does not generate significant or any future income for the owner spouse with which to pay maintenance, the court explained. In the instant case, however, the business was a going concern that promised to generate considerable income for the husband into the foreseeable future. The husband, therefore, was not required to erode the company’s value to pay maintenance, the appeals court pointed out. It upheld the maintenance award.
Takeaway: According to Rob Levis (Levis Consulting), the Washington Court of Appeals got it right. The court, interpreting precedent, correctly differentiates between a business whose future cash flows represent a return of the assets already reflected in the marital estate and an ongoing business that is expected to grow and where the future cash flows are a return on the asset. Future income growth is an underlying assumption in the vast majority of income-based approaches to value applications in the business appraisal field, Levis says.
The case is In re Marriage of Cheng, 2016 Wash. App LEXIS 2854 (Nov. 22, 2016). A digest of the decision and the court’s opinion will be available soon at BVLaw.
Extra: Levis will participate in a webinar, The Double Dipping Debate, on January 25. Donald DeGrazia (Gold Gerstein Group) and Kim Willoughby will join him.
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Rogue One film points up celeb estate valuation issue
The value of the estates of famous actors could get a boost thanks to this holiday season’s “boffo pic” Rogue One. In the film, the late actor Peter Cushing was “digitally resurrected” and appears as the future Death Star commander. Some stars are now taking action, such as having themselves scanned, so they, too, can provide for their heirs when they’re in the hereafter, according to an article in Variety.
Real force: There can be a great deal of value in a celebrity’s posthumous right of publicity—a form of intellectual property that covers an individual’s likeness, name, signature, voice, and so on. True, celebrities have been re-created before in various commercial projects, but the technology has broken new ground with the latest film. Of course, there’s speculation that we will continue to see Carrie Fisher as Princess Leia in future Star Wars installments.
Determining the fair market value of a posthumous right of publicity can be difficult, and there can be wide swings in opinions of value. The estate of Michael Jackson valued his name and likeness at $2,105, but the IRS says the value is a whopping $434 million—quite a gap. This dispute is set to be resolved sometime this year. Also, whether a person’s right of publicity continues after death is a matter of state law—not all states recognize it.
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Tax changes carried over from 2016
Proposed changes to curtail estate valuations made the list of top 10 important tax changes from 2016 that will carry over into this year. The proposed regulations under Section 2704 concern the valuation of interests in corporations and partnerships for estate, gift, and generation-skipping transfer tax purposes. Other changes carried over from 2016 include likely tax cuts under the Trump administration, debt/equity reclassification, BEPS (transfer pricing), and closer scrutiny of the sharing economy. You can see the full list in a slideshow from Accounting Today.
Trump tax platform: If you’re in the New York City area on Tuesday, January 17, plan to attend a dinner presentation on the Trump tax platform and an update on the proposed 2704 regs by Charles F. Schultz, a partner at Walker Morton LLP in Chicago. He will also discuss current and future responsibilities of valuation professionals. The event (from 6 p.m. to 8 p.m.) is sponsored by the American Society of Appraisers New York City Chapter and includes dinner and two hours of open bar. You can register if you click here.
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New SEC head signals enforcement-light
The valuation community has been stung with criticism from the U.S. Securities and Exchange Commission over the profession’s fragmented nature and multiple sets of standards. Maybe this will ease up in light of President-elect Donald Trump’s selection of Sullivan & Cromwell LLP partner Jay Clayton to chair the SEC, which signals a “major shift” for the Wall Street watchdog, according to an article on Law360.com. Experts say Clayton, an M&A attorney, is likely to turn the agency’s focus from enforcement both domestically and internationally to easing the burdensome rules companies have been required to follow.
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Healthcare industry yielded most FCA recoveries in 2016
The Department of Justice obtained more than $4.7 billion in settlements and judgments from cases involving fraud against the government—the third highest annual recovery in the history of the False Claims Act (FCA). The lion’s share ($2.5 billion) of the total amount was recovered from the healthcare industry, according to a DOJ announcement.
Whistleblowers were responsible for over 60% of total FCA recoveries last year. The FCA’s whistleblower (“qui tam”) provisions are used in virtually every sector of the economy, from fighting healthcare fraud in Medicare to government procurement contracting fraud. If the government prevails in the action, the whistleblower is eligible to receive up to 30% of the monies recovered.
In the heavily regulated and litigated healthcare industry, qui tam lawsuits typically revolve around the measurement of the fair market value of physician compensation. When valuing a business arrangement or transaction between a healthcare entity and physicians, the valuation must not include a consideration of anticipated referrals. If it does, the entity making payments under the arrangement could face huge penalties for making illegal kickbacks to physicians under the Stark Law and FCA. In four big cases in 2015, Tuomey, Halifax, Citizens, and North Broward, the hospitals paid $300 million in fines to settle charges of fraud.
Extra: In addition to fraud, valuation issues such as intangible assets, personal and professional goodwill, and noncompete agreements, among others, often take center stage in court. BVR’s new Business Valuation and Healthcare Case Law Compendium features the most discussed and the most recent court cases involving business valuation disputes in the healthcare industry.
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DLOM dominates top 10 BVU downloads
Controversy and debate over the discount for lack of marketability (DLOM) is the dominant theme in the top 10 articles downloaded the most that appeared in Business Valuation Update during the past year. Recent court cases in New York sparked an article by BVU editorial board member Gilbert Matthews (Sutter Securities) that triggered follow-up articles over the state’s out-of-step position with respect to DLOM in fair value proceedings. The articles also include a call for the valuation community to speak with one, clear voice on the matter. On the federal level, DLOM figures into the controversial proposed 2704 regs designed to curb estate valuation discounts.
For 2016, here are the top 10 downloads of articles that appeared in Business Valuation Update:
- “Experts Size Up Controversial IRS Estate Valuation Regs” (BVR Editor) (September 2016);
- “Simplified MUM for Determining Personal Goodwill” (Tom Gillmore) (February 2016);
- “NY’s Unfair Application of Shareholder-Level Marketability Discounts” (Gilbert Matthews) (January 2016);
- “Some Key Takeaways From the AICPA FVS Conference” (BVR Editor) (January 2016);
- “DLOMs in N.Y. Statutory Fair Value Cases—A Follow-Up to Matthews” (William Quackenbush) (March 2016);
- “Seven Tips on Cost of Capital From the AICPA FVS Conference” (BVR Editor) (March 2016);
- “Business Valuation Year in Review 2015” (BVR Editor) (January 2016);
- “Adjustment Mapping and the Public-vs.-Private-Company Discount Debate” (Mike Smith) (August 2016);
- “10 Best Valuation Cases for 2015” (BVR Editor) (January 2016); and
- “DLOMs in N.Y. Fair Value Cases: Private Company Discounts Are Not Caused by Lack of Marketability” (Gilbert Matthews) (June 2016).
Subscribers to Business Valuation Update have complimentary access to over 20 years of articles written by the top thought leaders in the profession as well as practitioners in the trenches. BVR editors also contribute articles on what they learn from conferences, webinars, interviews, and their contacts around the world.
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TAF seeks candidates for its board of trustees
The Appraisal Foundation (TAF) is searching for candidates to serve on its board of trustees. Trustees provide oversight to the Appraisal Practices Board (APB), Appraiser Qualifications Board (AQB), and Appraisal Standards Board (ASB). Three at-large trustee seats are available, and the board meets twice a year (spring and fall). Trustees are reimbursed for travel expenses but are not compensated for their time. The individuals selected for the board of trustees will serve three-year terms beginning Jan. 1, 2018. Completed applications must be received no later than March 1. Click here for an application package.
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Global BV News
IVSC plans more flexible approach to IVS revisions
In the first in a series of videos, Michael Badham, iiBV’s executive director, interviews Adam Smith, technical director of business valuation standards at the International Valuation Standards Council (IVSC) on his role in the IVS process and what it means for the valuation profession. One of the points Smith makes is that the IVSC will move to a more flexible approach with regard to updating the international valuation standards (IVS). Instead of doing a substantial rewrite every few years, the organization’s new boards (see prior coverage here) will be able to revise the standards in a more targeted and ongoing way. A newly revised version of IVS is expected shortly, at which time the new boards will become operational. The full video is on the iiBV website.
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OIV's BV conference in Italy January 16
Valuation experts from around the world will be speaking at OIV’s international business valuation conference at Bocconi University, Milan, on January 16. OIV, the Italian valuation standard setter, says the theme for the conference is "New Techniques, New Standards, New Developments of the Business Valuation Profession." Speakers include experts from France (Gilles De Courcel), Germany (Wolfgang Ballwieser), Italy (Mauro Bini), Netherlands (Henk Oosterhout), Singapore (Eric Teo), and the USA (Jim Hitchner, Nancy Fannon, Gilbert Matthews, and Adam Smith). To register, click here.
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Learn about M&A transactions from the pros
Want an inside look at M&A deals? BVR partner Transaction Advisors will present three events this year where you’ll hear perspective and practical insights on the latest strategies for evaluating and structuring corporate transactions. The events are: Deals Forum: Private Equity & Middle Market Transaction Structuring (January 12, Chicago); Chicago M&A Conference (March 2, Chicago) and the San Francisco M&A Conference (May 11, San Francisco).
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BVR sets new Training Council for 2017
BVR is pleased to announce its first Training Council—a select group of individuals who will help shape BVR’s educational training program for valuation experts around the world. Council members will serve a one-year term, and you will see the fruits of their efforts in BVR’s webinars and publications starting this year. The members of the BVR Training Council for 2017 are (in alphabetical order): Jim Ewart (Dixon Hughes Goodman), Josette Ferrer (Clairent Advisors), Bruce Johnson (Munroe, Park & Johnson Inc.), Ray Rath (Globalview Advisors), Franz Ross (First Niagara Bank), Susan Saidens (SMS Valuation & Financial Forensics), and John Whitehead (HDH Advisors). We all look forward to some exciting training events for 2017!
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BV movers . . .
People: Investment banking firm Prairie Capital Advisors of Oakbrook Terrace, Ill., announced the hire of Mark Rutledge as vice president … Ryan Scheck has been promoted to manager at Adams, Brown, Beran & Ball’s Hutchinson, Kans., office.
Firms: San Antonio-based ATKG is adding a litigation support and forensic accounting services line … The staff of Blandford & McCubbins, of Bardstown, Ky. has joined Stiles, Carter & Associates, a firm based in Elizabethtown, Ky., and will remain in the Bardstown offices … CliftonLarsonAllen has added Mack, Roberts, & Co., a Portland, Ore.-based firm … FALCO of Scottsbluff, Neb., and Eskam and Eskam of Gering, Neb., have merged and will now operate under the name E and H Certified Public Accountants and Management Consultants … Sensiba San Filippo of Pleasanton, Calif., has acquired Kupperberg & Associates of San Francisco … MRPR CPAs & Advisors of Southfield, Mich., has added Rhoades, Doehrer & Associates, headquartered in nearby Saline, Mich. … SingerLewak is adding middle-market firm Good & Fowler, which will remain based in South San Francisco … New York City-based WeiserMazars has changed its name to Mazars USA … Wipfli has added BIK & Co. of Chicago. It’s Wipfli’s third Chicago-area acquisition in the last calendar year.
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Exciting CPE events to kick off 2017
How to Measure Anything: Keynote Quarterly (January 12), with Douglas Hubbard.
Marijuana: Value Drivers and Valuation Issues to Know in 2017 - Free Webinar (January 18), with Ed Keating (Cannabiz Media) and Jim Marty (Jim Marty and Associates, LLC)
Valuation of Small and Medium Sized Software Companies (January 19), with Hans Schroeder and Greg Carpenter.
The Double Dipping Debate (January 25), with Donald DeGrazia (Gold Gerstein Group), Robert Levis (Levis Consulting), and Kim Willoughby.
Important note to webinar attendees: To ensure that you receive your dial-in instructions to BVR’s training events, please make sure to whitelist email@example.com.
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