FASB considers deferring SFAS 157 effective date

During today’s open meeting of the Financial Accounting Standards Board, the members will discuss factors affecting the application of FASB Statement No. 157, Fair Value Measurements and consider deferring the current effective date, which is for fiscal years beginning after November 15, 2007.  Also on the Board’s agenda: applying the proposed working definition of an asset in the context of the Conceptual Framework; accounting for leases; and interpreting SFAS 133 Hedging (fair value accounting for hedging activities).  To accommodate the many topics, the Board will meet an hour earlier than usual, at 8 a.m. EDT.  For more information, including a link to listen to the meeting “live” by telephone or afterwards, by audio webcast, click here.

Serving the many ‘masters’ of BV standards

“This is a note of appreciation for the way the BVWire™ has served as a forum for the important discussion of BV standards, almost in real time,” writes David Anderson, ASA, MBA, Ph.D. (Amper Politziner & Mattia, P.C.; Bridgewater, NJ).  “It’s hard not to agree with the position that it is too late to ask whether the issuance of the AICPA’s Statement on Standards for Valuation Services (SSVS) was ill-advised.  And it may be high-time to deal with its implementation, by examining SSVS carefully in relation to other standards, especially USPAP.”   Although SSVS does not explicitly recognize USPAP (as the ASA standards do), it effectively requires the practitioners who still want or need to observe USPAP to consider whether a report written according to one set of standards meets the requirements of the other.  “Unfortunately for these practitioners, SSVS is highly innovative in structure and terminology: All of the prior BV standards align themselves with Revenue Ruling 59-60 and USPAP, and SSVS does things its own way,” Anderson says.  As many consider USPAP more strict than SSVS, however, “the need to serve two masters may prove easier than it did for Harlequin.”  

Anderson has currently drafted an article, coauthored with Martin J. Lieberman, CPA/ABV, ASA (Weiser LLP, New York City), entitled, “Will the Real Business Valuation Standards Please Stand Up: Dealing With AICPA’s SSVS, USPAP, and Other BV Standards,” to be published soon in the CPA Journal.  (And for a refresher on Carlo Goldoni’s The Servant of Two Masters, click here.)

Have you read Daubert lately?

As many analysts are aware, the U.S. Supreme Court’s decision in Daubert v. Merrell Dow Pharmaceuticals (1993) set the current standard for admitting expert testimony pursuant to the “relevance and reliability” requirements of the Federal Rules of Evidence.  A new article in the next Business Valuation Update™ (December 2007) takes the four Daubert criteria—testing, peer review and publication, error rate, and acceptance—and applies them to both the traditional (qualitative) models for calculating company-specific risk (CSR) and the new Butler-Pinkerton Model for quantifying CSR.

The article got us to wondering: How many analysts and BV experts have read Daubert lately?  It’s not that long—just about fourteen pages, including footnotes—and it’s just one of over 2600 essential BV cases currently available to subscribers of BVLaw™.  For a copy of the full-text of the Daubert opinion, click here.

What a ‘good facts’ FLP case might look like

Last week’s item on the latest “bad facts” family limited partnership (FLP) case, Bigelow v. Comm’r (9th Cir. 2007) begs the questions: Are FLPs still a viable estate-planning tool?  What set of good facts might allow an FLP to escape the broad reach of IRC §2036, and/or fit within its exception for a “bona fide sale for full and adequate consideration”?

“This is a classic case of what not to do in any family limited partnership,” comments Mel H. Abraham, CPA, CVA, ABV, ASA, CSP.  Clearly, to strip all assets from an elderly person’s estate to fund an FLP “implies some agreement to invade the corpus of the FLP for the elder’s living expenses.”   Second, transferring property to an FLP without transferring the related debt (presumably to base any discounts on the full equity value), but then paying the debt from partnership assets is inconsistent with the intent to exclude the debt in the first place.  Lastly, disproportionate distributions directly and only to the partner who contributed the FLP’s primary asset, “certainly raises the question of the non-tax intent of the FLPs formation,” Abraham says.  “I also question whether they may have triggered an event under IRC §2701,” concerning special valuation rules in the case of transfers of certain interests in corporations and partnerships.

“You look at Bigelow as well as the recent Erickson v. Comm’r (Tax Court, 2007),” he adds, “and clearly the courts are telling taxpayers that the only way family limited partnerships are going to be feasible is if they are created timely, funded properly, operated appropriately and respected completely.”   For Abraham’s multi-media program on how to use FLPs as a wealth-preservation tool, go to Flpvaluation.com.

Auto dealerships: still driving the U.S. economy

“Auto sales account for the largest segment of our retail economy—over 22 percent—and dealerships employ more than one million people nationwide,” according to Dale Willey, chairman of the National Automobile Dealers Association (NADA), who spoke to the Automotive Press Association in Detroit last week.  “The industry as a whole is strong,” he added, referring to a projection by NADA Chief Economist Paul Taylor that new-car sales will be about 16 million at year’s end and that the past eight years have been the best in U.S. history.  Overall, America’s auto dealers post annual sales of $675.3 billion, for an average of $31.9 million per dealership, say the most current NADA statistics (based on 2006 economic activity).  An estimated 21,200 new-vehicle dealerships employ 1.2 million people nationwide.

Only fools use multiple of earnings.  But in its current edition of A Dealer Guide to Valuing an Automobile Dealership, NADA discourages using any rule of thumb, as these are rarely based on sound economic or valuation theory.  Sellers who rely on a multiple of earnings valuation should “go for it,” NADA says, “and maybe someone will be stupid enough to pay you a very high value.”

What are the current standards of practice to value this lucrative industry?  Can auto dealerships help drive your practice into a higher gear?  What practical issues and risk areas apply to this valuation niche?  Tomorrow’s BVR teleconference featuring Kevin Yeanoplos, CPA/ABV, ASA and Clayton Danielson, ASA will answer these questions and more. To register, click here.

New ‘faith-based’ compensation database

The Evangelical Council for Financial Accountability (ECFA) has just launched a new and “no cost” executive salary comparison tool.  Available at the ECFA website, the database provides compensation information for top positions in nonprofit organizations and churches, including breakdowns by position, revenue, and type of organization as well as four geographic regions.  The figures are derived from CPA-audited, annual financial statements, which make them “much more accurate than a random survey,” according to ECFA president Ken Behr.

 "We are very excited about this new technology for two reasons," Behr says. "First, the salary search is a report of actual data-comparison based on information submitted by our members and verified by our field review staff.  Second, this tool is especially timely, as the IRS continues to aggressively audit nonprofits organizations for excessive compensation."  There is no charge for the compensation data; however, you will be required to register before acquiring access.

First-ever national summit on fair value 

The American Society of Appraisers and BVResources will be co-hosting a national meeting on fair value for financial reporting, to be held February 5-6, 2008, at the Graduate Center of CUNY in New York City.  Conference chair Bill Johnston (Empire Valuation Consultants) has pulled together leaders of the BV profession as well as top FASB officials to speak on a variety of timely topics, including a keynote address from a panel of senior valuation partners from each of the Big Four accounting firms.  (This session will also be webcast by NACVA and BVR).  Other highlights include a FASB update, a CFO panel on what clients need from valuation practitioners, and the latest developments in stock option compensation, impairment testing, business combinations, and other relevant issues.  For more information, go to www.bvresources.com/fairvaluesummit.

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