Backlash revs up over ABV change; call for boycott
During a webinar, opponents of the decision by the AICPA to open up the ABV credential to non-CPAs told the organization that it “hasn’t heard the end of this” and to “watch out for unintended consequences.” After AICPA spokespersons indicated that the organization was sticking to its decision, a call went out to ABV holders to boycott the annual AICPA FVS conference in Atlanta this November.
Face-off: For the first time in a public arena, prominent CPA/ABVs were pitted against AICPA BV committee members who back the decision to allow other qualified professionals (OQPs) to be eligible for the ABV credential. The webinar included Dr. Michael Crain (Florida Atlantic University) and Harold Martin (Keiter), two of the leading CPA/ABVs who signed an Open Letter critical of the change, and Nathan DiNatale (CliftonLarsonAllen LLP) and Bethany Hearn (CliftonLarsonAllen LLP), chairs of the AICPA BV Committee and ABV Credential Committee, respectively. The moderator was Jim Hitchner (Valuation Products and Services), who declared himself “unbiased,” although he was also a signer of the Open Letter. The webinar did not include any AICPA staff members as presenters. You can listen to a recording of the webinar (which is free) and access all of the handouts if you click here.
Hearn and DiNatale explained the AICPA’s position and need for the change. They asked ABV members to look beyond the harsh criticism, which they feel has done damage to the profession, particularly with some “harmful” remarks made on social media. They urged members to pull together and support the move going forward. Crain and Martin rejected this notion and restated the concerns expressed in the Open Letter. They also dissected an “inaccurate and misleading” timeline the AICPA had published (and since updated) that traced the decision process. They want the AICPA to suspend the decision, redo the decision process properly, and have the AICPA Council (its governing body) revote on the matter. But the point was made that the AICPA is standing firm and the ABV change is a “done deal.”
Conference boycott: On August 9, the day after the webinar, Martin J. Lieberman (Lieberman LLP), a CPA/ABV, sent an email to ABV holders calling for a boycott of the AICPA FVS conference in Atlanta this November. The email notes that “growing numbers” of ABV holders are participating in the boycott and that two prominent speakers have already cancelled their scheduled conference appearances and that more will follow suit. The boycott is aimed at “current management of the AICPA as they tear down what we as ABVs have spent as much as 20 years building up,” the email says. BVWire has seen emails from some ABV holders saying they will not attend the conference in support of the boycott.
When BVWire asked the AICPA for a comment, it responded but did not address the boycott. They gave us this statement:
The AICPA’s annual Forensic and Valuation Services Conference provides valuation professionals, as well as litigation service consultants and other financial and legal professionals of all levels the educational forum for continuing their professional development and ensuring their practices stay current in this rapidly changing business and technological environment. One of the core tenets of forensic and valuation experts is to provide consistent high-quality services to their clients. The education and skills development offered at the AICPA’s Forensic and Valuation Services Conference helps ensure that the clients’ and the public interest are well served.
The IRS has issued proposed regulations explaining the new tax law’s “qualified business income” (QBI) deduction for pass-through entities (PTE). How the new tax law is implemented affects business cash flow, operations, and long-term strategy that will impact all business valuations. The proposed regs include rules designed to prevent the provision from becoming a tax loophole for wealthy Americans.
While the Tax Cuts and Jobs Act (TCJA) provided permanent tax relief to corporations, which saw their tax rate slashed from 35% to 21% and an end to U.S. taxes on much of their foreign profits, PTE owners got only temporary relief under the law’s individual tax provisions, which are due to expire after 2025. Proposed legislation is kicking around Washington, DC, to make individual tax cuts permanent, but such a measure is not expected to become law anytime soon.
IRC Code Section 199a allows a 20% write-off of QBI for sole proprietors, owners of S corporations, and members of partnerships/LLCs. Section 199a is complex—it’s 22 pages long with about 20 defined terms, dozens of cross-references within the new section and to other sections, and complicated computations. The proposed regs are 184 pages long and are intended to ensure that business owners receive the full deduction on business income up to a $315,000 threshold for married couples and $157,500 for single filers. The deduction is limited for higher income.
The regulations provide the deduction to a wide range of businesses by limiting a tax code provision that could otherwise deny the benefit to any businesses based principally on the skill or reputation of owners or employees. The rules say the limitation applies narrowly to income from product endorsements, royalties, and licensing fees. The new rules should also provide welcome flexibility for owners of multiple businesses and settle lingering uncertainties about the kinds of firms that qualify for the deduction. Specific industries including healthcare, law, accounting, and consulting do not qualify. But others, such as the real estate industry, architects, and engineers, receive the benefit.
The new regs include anti-abuse safeguards to prevent schemes that wealthy taxpayers may try, such as improperly declaring themselves as contractors or splitting off a restricted firm’s nonrestricted income into a separate entity.
ASA releases fifth in series of special topic papers
The Business Valuation Committee of the American Society of Appraisers (ASA) has released its fifth business valuation Special Topics-Technical Paper: “Consideration of Stock-Based Compensation in the Valuation Process.” This is part of a series of papers that represent the recommended approaches on special topic issues that the ASA’s Business Valuation Committee has reviewed and approved. However, the ASA points out that these approaches do not constitute a standard and are not authoritative. “Facts and circumstances could require the use of further professional judgment and a different approach,” the ASA says. The other papers in the series are:
Ad valorem tax valuations may be improperly inflated
Cash-starved localities often use ad valorem taxes on industrial and commercial properties to pump up their coffers. Sometimes, assessors improperly inflate ad valorem property tax bills by including the value of the taxpayer’s intangible assets, which are not subject to property taxes in some jurisdictions. An article in the latest issue of Insights from Willamette Management Associates talks about this and focuses on the application of the cost approach to the valuation of internally developed computer software, which may be exempt from ad valorem taxes depending on the jurisdiction. In particular, the article focuses on the replacement cost new less depreciation (RCNLD) intangible personal property valuation method, which is commonly used for this purpose.
What to do: Examine your local area to see whether the laws exempt certain intangible assets from commercial property taxes. You may have clients who have overpaid their property taxes if the value of intangibles was improperly included in the assessment.
Stay on the leading edge of fair value for financial reporting
If you stop and think about it, the area of fair value measurements has driven the development of business valuation theory in the recent past to a great extent. For instance, there’s more discussion on what used to be called the control premium (now known as the market participant acquisition premium) and its appropriate use in measuring fair value in financial reporting.
Mark Zyla (Acuitas Inc.), the author of Fair Value Measurement: Practical Guidance and Implementation, will be conducting a two-day fair value measurements workshop October 1-2 in New York City. The workshop is designed to include interactive discussions among participants, including financial statement preparers, auditors, valuation specialists, and, often, regulators. Some of the topics that will be discussed include:
In-depth review of the Mandatory Performance Framework (MPF) for the Certified in Entity and Intangible Valuations™ Credential (CEIV);
The latest in best practices in valuation of intangible assets;
Fair value of contingent consideration;
How to test various assets for impairment;
Fair value in private companies; and
An update on the SEC and new PCAOB exposure drafts.
Also, the workshop meets a significant amount of the education requirement for the CEIV credential. BVWire has attended this excellent workshop in the past, and we hope to sit in on this year’s as well. For more details, click here.
Where a company gets its revenue rather than where it is incorporated and traded should determine its exposure to country risk, advises Professor Aswath Damodaran (New York University Stern School of Business), who has issued his midyear update on country risk and its effects on valuation, capital budgeting, and pricing.
Bucharest, Romania, will become a business valuation “hub” in September with two major conferences. The 9th World Association of Valuation Organizations Congress on September 6 will cover ethics in the valuation profession. On September 7, Nick Talbot, CEO of the IVSC, will give the keynote at Business Valuation in a Globalized World, a conference hosted by the IVSC and ANEVAR, the National Association of Authorized Romanian Valuers. Speakers will include Mauro Bini (use of multiples), Diana Nikolaeva (M&A valuations for early-stage firms), Andrew Strickland (Black-Scholes model for valuing high-growth startups), Jeffrey S. Tarbell (adjusting market pricing multiples for incremental risks), William Hanlin (BV profession and the urge to change), Andrey Artemenkov (transactional asset pricing approach), BVR’s own David Foster (data and research), and more. You can watch a short video if you click here.
Also, ANEVAR president Dana Ababei will give insights on the business valuation profession in Romania. “I think it is a good time to extend an invitation to meet us, to come and learn from some of the internationally recognized experts in valuation—and to discover the beauties of Romania,” Ababei told BVWire. “We are waiting for you in Bucharest in September!”
Preview of the September 2018 issue of Business Valuation Update
Here’s what you’ll see:
“A Method for Quantifying Contract Renewal Risk in Valuations” (Matthew Gold, CFA, and Matthew Ashby, CA). A formula that explicitly incorporates the assumed probability of renewal in the valuation of businesses that depend on contracts, licenses, or permits for their future cash flows. The methodology builds on the Gordon growth model and the formula for the future value of a growing annuity.
“Stale Fairness Opinions in Related Party Transactions Should Be Updated” (Gilbert E. Matthews, CFA). It is common practice for proxy statements to contain fairness opinions that are dated weeks (or months) prior to the mailing date. Typically, they are not reviewed in the interim, which can be a problem.
“Comments on Adequate Sample Size in the Transaction Method” (Mark G. Filler, CPA/ABV, CBA, AM, CVA). A letter to the editor in response to the article “Valuation Experts Clash Over Analysis of Transactional Data” and accompanying supplement that appeared in the April 2018 issue of BVU.
“New Board and Pending Standards Highlight PCAOB Update” (BVR Editor). At the recent ASA/USC 13th Annual Fair Value Conference in Los Angeles, George Wilfert, deputy director of the Public Company Accounting Oversight Board (PCAOB), gave an update on the organization's activities.
“Work File Checklist for Contributory Asset Charges” (BVR Editor). Based on the Mandatory Performance Framework (MPF) for the Certified in Entity and Intangibles Valuation (CEIV) credential, this checklist helps document contributory asset charges, which are charges against revenues to reflect a fair return on or return of contributory assets used in the generation of the cash flows associated with the intangible asset being valued.
The issue also includes:
An expanded section of “BV News and Trends/Global BV News and Trends.”
Regular features: “Ask the Experts,” and “Tip of the Month.”
BV data spotlight: “DealStats MVIC/EBITDA Trends,” “Stout Restricted Stock Study and DLOM Calculator data,” “Economic Outlook for the Month,” and “Cost of Capital Center.”
BVLaw Case Update: The latest court cases that involve business valuation issues.
People: Daniel Russell has been promoted to senior manager at HeimLantz, which has offices in Annapolis, Md., and Alexandria, Va.; he’ll oversee and perform business valuations and provide litigation support … Rob Sanders has joined Compton & Wendler PC, in Houston as a valuation analyst … Paul Greenhalgh has joined Duff & Phelps in North West England as a managing director in its Real Estate Advisory Group … Alan Zinkin has been named a director responsible for creating strategic growth and maximizing business opportunities throughout Florida for New York City-based EisnerAmper.
Firms: Tyler, Texas, accounting firms Jerry Nelson & Associates and Gollob Morgan Peddy merged operations on August 1.; both firms have a specialty in the construction industry … New York City-based EisnerAmper has announced the opening of a new downtown office in West Palm Beach, Fla.; it has existing offices in Miami and Fort Lauderdale … Duff & Phelps has opened a new office in Mumbai … New York City-based Prager Metis CPAs LLC has opened a third office in New Jersey; the new Hackensack office adds to offices in Basking Ridge and Cranbury.
The interplay between valuation and sell-side due diligence designed to speed the process by vetting the quality of earnings and identifying potential considerations before the transaction is done is discussed.
Valuing Healthcare Brands (August 23), with W. James Lloyd (PYA) and Annapoorani Bhat (PYA). This is part of BVR's Special Series presented by the BVR/AHLA Guide to Healthcare Industry Finance and Valuation.
What’s in a (healthcare) name? Could be a lot, so learn why brand valuation services may arise for healthcare entities, and the appropriate methodologies, calculations, and considerations for brand valuation in a healthcare setting.
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We welcome your feedback and comments. Contact Andy Dzamba (Executive Editor) or Sylvia Golden, Esq. (Executive Legal Editor) at: info@bvresources.com.
