March 27, 2013 | Issue #126-4  

And now they are one: NACVA merges AVA
into CVA

Effective this coming Monday, April 1, the National Association of Certified Valuators and Analysts will merge its Accredited Valuation Analyst credential into the Certified Valuation Analyst credential, leaving the latter—the CVA—as the organization’s only BV designation.

NACVA has been discussing the merger of credentials “for over a decade,” says CEO Parnell Black in an announcement, which also explains the logistics of implementing the decision for accredited members. “There are many, many good reasons for merging the two credentials and not one good reason against it.”  In 2009, NACVA’s board backed the merger and circulated a memo and members’ survey in support (since updated), but when the country’s economic recession intervened, “we simply felt it was not the right time to make significant changes,” Black says.

“But this merger needs to happen, and it needs to happen now,” he adds. “All the good reasons and benefits derived from merging the AVA into the CVA that existed in 2009 still exist today, but are only accentuated due to the passage of time.”

“Both CVAs and AVAs regularly are finding the need to explain the difference between two designations, whether it be in court, while giving presentations, or explaining their credential to a client,” says Marc Bello, chair of NACVA’s Executive Advisory Board, in a separate report. “This problem is compounded in firms with both CVA and AVA designated members. This is a hurdle many members find annoying and even slightly embarrassing as it makes little sense and is hard to explain.”

Is the ASA gaining ground over other
BV credentials?

BVR’s biennial Firm Economics Survey—which is currently in its third iteration—is the ONLY study to track key economic and practice indicators of the BV profession, among them firm compensation, hiring practices, partnership additions, and (new this year) partner defections. With the publication of the 2013 survey, the BV profession will also have an exclusive track of historic trends in all categories—including, for instance, which BV credentials are most common among reporting firms. The chart below compares results from the 2008, 2010, and 2012 (preliminary) surveys, rounded to the nearest percentage:




2012 (prelim)

































Not surprisingly, the percentage of participating firms reporting CPAs among their ranks is staying level, but ASAs appear to be gaining some ground, while the ABV has slipped a few points as have the AVA/CVA credentials (which the survey has always polled in combination, along with the IBA’s two major designations). The Certified Fraud Examiner (CFE) doesn’t appear to be gaining traction among BV firms, and after enjoying a quick rise in 2010—perhaps due to the rise in fair value for financial reporting issues?—the CFA is sliding back to 2008 levels.

Last chance to add your firm’s financial indicators. Don’t miss the opportunity to make BVR's 2013 Business Valuation Firm Economics & Best Practices Survey once again the most current, comprehensive study of the profession—and save $250 off the post-publication price. Special features in this year's survey include:

  • More data on BV training for new and existing analysts;
  • New ranking of threats and opportunities for the business valuation profession;
  • More questions about sources of new engagements; and (of course)
  • Revenue per partner, compensation, realization, and other critical performance indicators.

Hundreds of your BV colleagues have already responded, and you can do the same all at once or in phases.  But hurry: the deadline for participating is April 1, 2013. Get started by clicking here now.

Trying to squeeze an opinion back in the tube: what happens when an expert goes from testifying to consulting

It’s fairly common for a BV expert to sign on to a legal case in a “consulting” capacity. Not only might this reduce costs during the preliminary phases of litigation, it shields communications between the expert and attorney—and any preliminary reports or work papers—from disclosure and discovery, absent “exceptional circumstances” (the standard under the federal rules). Should the case heat up and head for trial, the attorney can “promote” the expert to a testifying expert, subjecting his/her opinion to the applicable rules, including the recent amendments in federal court and Tax Court that now protect most draft reports and communications from discovery.

But under what circumstances may an attorney “demote” an expert from testifying to consulting?  The concern: An attorney may seek to de-designate its expert to prevent the other side from discovering a “bad” opinion (read: unfavorable to the client’s position). At least one court has held, according to a new article from the Gibbons law firm, that once an expert is designated as testifying, “he can be deposed and possibly called at trial,” particularly when that expert has already issued a report. By contrast, another cited case followed the majority approach that requires "exceptional circumstances" to depose a de-designated expert.

Landing in jail, and other ‘good cause’ for an expert’s substitution. The Gibbons article also discusses the “expert pivot” in litigation, or the circumstances under which a court will allow a party to change its experts in midstream. In one case, the expert’s incarceration amounted to the necessary “good cause,” but in another, the expert’s alleged “medical condition” was not enough to sway the court from believing “gamesmanship” was the real reason behind the switch.

BDO, Grant Thornton get failing fair value/audit marks in U.K.

This week the Financial Research Council (FRC) released its Audit Quality Inspection reports for BDO and Grant Thornton UK. In the reports, the FRC chided both firms for failing to show an appropriate “professional skepticism in key audit areas.”

  • For BDO, these areas included a failure, in one audit, to challenge the inputs to management’s impairment model and, in another, to challenge management’s value of certain assets on a fair value basis.  BDO’s audit team also failed to question management’s omission of a “key assumption” in their goodwill impairment calculations and failed to investigate sufficiently why a director’s valuation of a certain asset exceeded a third-party valuation.

  • The FRC found fault with Grant Thornton on five out of 10 audits related to its review of financial assets and intangibles, the carrying value of fixed assets, and the loss of audit work papers. Moreover, on several audits, the firm requested but did not receive third-party confirmations in relation to certain investment securities, cash and cash equivalents, and bank loans, and did not perform adequate alternative procedures.

The FRC will publish an annual report as well as individual inspections on Deloitte, Ernst & Young, KPMG, and PricewaterhouseCoopers by mid-June, according to a release (which also links to the BDO and Grant Thornton Reports). These publications will conclude its 2012/13 audit inspection cycle.

New updates to complete guide on fair value measurements

The second edition of Fair Value Measurement: Practical Guidance and Implementation, by Mark Zyla (Acuitas), is now available from BVR. This comprehensive new update discusses the entire evolution of fair value accounting, including the impact of the recent economic crisis and the status of convergence with international standards. New and/or expanded chapters discuss:

  • Updated disclosure requirements for ASC 820, Fair Value Measurements;
  • New impairment testing for goodwill, long-lived, and indefinite-lived assets, plus a case study of a “qualitative” impairment analysis;
  • Using the guideline transaction method to measure the fair value of a privately held debt security;
  • Advanced methods for measuring the fair value of intangible assets—from Monte Carlo simulations to a decision tree analysis;
  • Fair value measurement for alternative investments, featuring the AICPA’s most recent guidance and practice aid; and
  • The latest regulatory guidance (SEC, PCAOB, AICPA) on auditing fair value.

For more information and to review the detailed table of contents, click here now.

Causation in lost profits cases: to assume or not
to assume?

That is one of the most critical questions in lost profits litigation: Should the plaintiff’s expert assume causation in the damages calculations, leaving proof of the defendant’s liability to other witnesses—or should the expert specifically include information and data to support causation in the damages report? If Hamlet were a BV analyst today, he might very well answer: “It depends.” 

“There is no hard and fast rule,” according to James O’Brien, who recently presented BVR’s four-hour Advanced Workshop on Lost Profits Calculations with Robert Gray (both ParenteBeard). As a practical matter, however, it’s difficult for experts to assume causation in a vacuum, and their reports should make “some” connection between liability and damages. The more an expert has a specific skill or experience in the causation matters, the more appropriate it might be to translate this expertise directly into a report. But ultimately, the question turns on whether causation is a legal or factual issue in the case, and O’Brien advises experts to have a specific “conversation with counsel to understand what their role should be.” 

Gray agrees. “You are sort of doomed if you do and doomed if you don’t when it comes to causation.,” If you do assume causation, make sure the facts and issues are within “your sweet spot or comfort zone” or expertise, he says. If you don’t assume causation, be prepared for the opposing attorney to challenge your conclusions under the Daubert standard for lacking relevance and/or reliability.

In fact, Daubert challenges have become almost “automatic” in lost profits cases, O’Brien points out, and causation has increasingly become an area of attack. “We can't drive that home enough,” he says, how hard experts have to work to maintain their credibility and—without sufficient linkage between liability and lost profit—“how quickly it can disappear” under Daubert.

Classic best practices for calculating business losses. On April 2, join Neil Beaton (Alvarez & Marsal) and Tyler Farmer (Calfo Harrigan Leyh & Eakes) as BVR’s Online Symposium on Economic Damages continues with Lost Profits vs. Lost Business, a complete discussion of when each damages theory is appropriate (are they always mutually exclusive?) and the best methods to support each to the requisite degree of certainty.

IASB decides (tentatively) on unit of account for investment ventures

In its meeting in London last week, the International Accounting Standards Board addressed a slate of current topics, including its ongoing Conceptual Framework and updates to IFRS 13 Fair Value Measurement. In connection with the latter, the board tentatively decided that—based on two letters of inquiry—the unit of account for investments in subsidiaries, joint ventures, and associates is “the investment as a whole” rather than “the individual financial instruments that make up the investment,” according to the IASB Update (March 2013) which summarizes the entire agenda. The board made the following preliminary findings for valuing investment ventures:

  • The fair value measurement of an investment composed of quoted financial instruments should be the product of the quoted price of the financial instrument (P) multiplied by the quantity (Q) of instruments held (P × Q), in large part because the quoted prices in an active market “provide the most reliable evidence of fair value.”
  • Similarly, the fair value measurement, for impairment testing purposes, of cash-generating units (CGUs) that correspond to a quoted entity should be the product of their quoted price (P) multiplied by the quantity (Q) of instruments held (P × Q).

As a next step, the board will prepare an exposure draft of IFRS 13 Fair Value Measurement, at which time a minority of dissenting members will present any alternative views.

DE Chancery responds to growth in
shareholder cases

“Currently, over 90% of M&A deals over $100 million are challenged by shareholders,” write Vice Chancellor Donald Parsons Jr. (Delaware Court of Chancery) and attorney Jason Tyler (Sullivan & Cromwell) in a new paper. The recent growth in shareholder derivative suits and class actions has impacted Delaware procedural law in four areas, the authors say: 1) awards of attorneys’ fees to plaintiffs’ counsel; 2) certification and removal of lead plaintiffs; 3) motions to stay or dismiss because of concurrent litigation in another jurisdiction; and 4) the interaction of pleading rules, forum shopping, and statutory books and records actions.

Although the paper doesn’t discuss the particular role of business appraisals in shareholder litigation, overall it demonstrates how the country’s “premier business court” is dealing with the sheer volume of corporate and alternative business entity cases to achieve a more “measured” balance of responsiveness, cost, and consistency on a procedural as well as substantive level.



To ensure this email is delivered to your inbox, please add to your e-mail address book. We respect your online time and privacy and pledge not to abuse this medium. To unsubscribe to BVWire™ reply to this e-mail with 'REMOVE BVWire' in the subject line or use the link below. This email was sent to %%emailaddress%%

Copyright © 2013 by Business Valuation Resources, LLC
BVWire™ (ISSN 1933-9364) is published weekly by
Business Valuation Resources, LLC

Contact Editor
| Advertise in the BVWire | Reprint Requests

Share This!
Share on LinkedIn Upcoming Training Opportunities

Business Valuation Resources, LLC | 1000 SW Broadway, Suite 1200 | Portland, OR 97205-3035 | (503) 291-7963 |