October 25, 2006 | www.BVResources.com | Issue 49-4

A ‘surprise’ from the IRS: New interim guidelines on ‘qualified appraisal/appraiser’

Just last week the IRS released Notice 2006-96, its transitional guidance on the new “qualified appraisal” and “qualified appraiser” provisions of the Pension Protection Act of 2006 (see BVWire #47-4). The speed of the Service’s response surprised even its own: “I wasn’t expecting this to come out so quickly,” said Brenda Woolbert, CPA, CVA, an IRS Engineering supervisor, who spoke at the recent CICBV/ASA 2006 Conference in Toronto. “This was quite a surprise to me.”

Also a surprise: The interim guidelines specifically refer to USPAP (Uniform Standards of Professional Appraisal Practice) to define “qualified appraisal” and related terms. In the past, “the IRS has avoided blessing any particular association or standard,” Woolbert said, but “clearly, USPAP will set the benchmarks going forward.”

Not so surprising: In answer to an attendee’s question, Woolbert opined that the new penalty provisions will not apply to IRS appraisers. The Service invites your comments on the transitional notice through January 17, 2007: click here for the full text.

The final, final effective date on SFAS 141R

Another information-packed session at the CICBV/ASA conference focused on emerging issues at FASB, including an update by Richard Billovits, MBA (PricewaterhouseCoopers) on SFAS 141R. Now in its second phase of re-deliberations, the Board’s continuing objective is to create “one worldwide standard” for business combination accounting, Billovits said. Expect to see a final statement during the second half of 2007—and an effective date applying to annual periods beginning on or after January 1, 2009.

In the meantime, the Board plans to issue an FSP (FASB Staff Position) to clarify the existing guidance regarding fair value measurements in statements 141, 142 and 144. This is according to its latest Technical Plan—October 1, 2006 through March 31, 2007, available by clicking here.

Updated summary of executive compensation sources

In preparation for his session at the December AICPA National Business Valuation Conference, Ralph Ostermueller, CPA/ABV, ASA, CFE, MAE (Financial Valuation Group) has updated his summary of executive compensation data sources—which he originally presented as part of BVR’s telephone conference on “Reasonable Compensation Criteria” (June, 2006).

For a free copy of this invaluable resource, click here. The summary also comes with the CD and/or transcript of the BVR telephone conference—which in addition to Ostermueller, included panelists Michael Pascall, Rod Burkert, and Ron Seigneur. For more information, click here.

Classic roadmap on how to provide annual valuations

That’s what CICBV/ASA conference presenter Barry Sziklay, CPA, ABV (Cipolla Sziklay, LLC) called the recent case of Huber v. Commissioner (Tax Court, May 9, 2006). “It’s a great case for the appraisal profession,” he added, providing a “classic roadmap on how to do annual valuations the right way”—including the defense of a 50% discount for lack of marketability for shares of a large, closely-held, family corporation. A case abstract appeared in the July 2006 Business Valuation Update; for your free copy, click here.

SEC sees BV as an ‘alphabet soup in chaos’

When the SEC and other regulators (such as the PCAOB—Public Company Accounting Oversight Board) look at the BV landscape, they see “an alphabet soup in chaos,” according to Bruce Bingham, ASA (Trenwith Valuation, LLC), who also spoke at the rich and informative CICBV/ASA conference. These agencies have expressed “grave concerns” about the BV community’s ability to regulate itself—and unless cohesive, consistent standards emerge from the profession, he warns, “we will have a problem, and other regulatory entities will tell us how to ‘keep our house.’”

Bingham currently chairs the International Valuation Standards Committee (IVSC) team of experts who will be drafting standards and implementation guidance on fair value measurement of intangible assets. The IVSC team will coordinate its efforts with those by the Appraisal Foundation’s task force, chaired by Jay Fishman, ASA (Financial Research Associates), who is serving both committees. Bingham indicated that an outline for the new standard will be out soon for comment; in the meantime, visit IVSC for more information.

Question for management: What’s your ‘mission mantra’?

One of the best interview questions for management: ask for a recap of the company’s mission statement. If they’ve read but can’t remember it, perhaps it’s time to create a “mission mantra”: three or four words that employees can easily identify—and customers, too.

That’s the advice Guy Kawasaki (author of Art of the Start and former Apple executive) gave a packed audience at the October 19th Conference on Growth by the Association for Corporate Growth (ACG). Examples of mission mantras are Nike’s “Authentic Athletic Performance” and eBay’s “Democratic Commerce.”

Or how about “Make meaning, not money”—a mantra that more investors want to hear from businesses, relaying their focus on product and services, not just profits. It’s yet another indication that the M & A world is looking for real value beyond financial statements; and to make meaning, Kawasaki told ACG attendees, businesses need to (1) increase the quality of life, (2) right a wrong, or (3) prevent the end of something good.

To expand your networking connections to the influential ACG, go to BVR’s BV calendar, and check out upcoming chapter meetings in Chicago, Richmond, Boston, and more.

Another good question: Is your board compliant-conscious?

A new survey of 225 companies shows that nearly all (96%) of their corporate boards have documented contact with their ethics and compliance programs. Compare this to almost two decades ago, when only 21% of corporate boards were involved in companies’ risk assessment and compliance programs. A full survey report appears in the most recent issue of SmartPros.

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