BVWire Issue #190-2 | July 18, 2018


New survey reveals overwhelming criticism of AICPA's ABV change

The vast majority (94%) of almost 2,000 respondents to a survey say they disagree with the AICPA’s decision to open up the ABV credential to non-CPAs (see prior coverage). The respondents include mostly ABV credential holders but also CPAs without the ABV as well as other stakeholders. A breakdown of the responses can be found in the charts below.

Dilution is biggest worry: The survey allowed respondents to comment, and the most prevalent remark by far is that it is felt that the change will dilute both the CPA and ABV brands and put the AICPA’s high ethical and professional standards at risk. Many respondents say they’ve worked very hard to achieve the CPA and ABV credentials and feel betrayed by the change that will allow non-CPAs to “piggyback on our good name,” said one respondent.

Other comments centered around the public confusion they feel will result and that the move appears to be a blatant “money grab” by the AICPA. “The AICPA literally has the letters ‘CPA’ in the acronym,” pointed out one respondent. “ABVs that are not CPAs, but carry an AICPA endorsed accreditation, would likely be assumed to be CPAs by the public, despite not having the appropriate training, skill, and exam results to earn the CPA designation.” Others feel that the AICPA is evolving into more of a profit-making business and away from being a member-focused organization. Said one: “Bottom line: You know why you did this: to boost revenue. We all know it and are extremely upset.”

Some supporters: A small percentage (6%) of respondents agree with the AICPA’s decision, saying that a CPA designation is not necessary to provide quality business valuations. Some respondents say they welcome “well qualified” non-CPAs as members, which will help the AICPA become the global leader in this area.

On both sides, however, a common criticism is that the change should not have been approved“ behind closed doors” with respondents calling the decision process “disappointing” and “sneaky.” They feel that the change should have been announced to the membership and their positions considered.

During an AICPA webcast this past Monday (July 16), Thomas E. Hilton (Anders), an ABV and AICPA Hall of Fame member, speaking personally, said that the AICPA should have taken an “extra step” in communicating the proposed change to its members. Eva Simpson, the AICPA’s director of valuation services, acknowledged this, saying the organization “could have done better in making sure people were aware of the changes.” She also noted that the process would be improved in the future. Hilton, who supports the change, “implored” his fellow members to look beyond the passionate and emotional response and support the move going forward. Other participants on the webcast were Annette Stalker (Stalker Forensics) and Bethany Hearn (CliftonLarsonAllen, LLP). You can listen to an archive recording of the webcast if you click here (registration required).

The survey was conducted by prominent CPA/ABV members who signed an Open Letter to the AICPA criticizing the decision. They reached out to the approximately 3,200 ABV credential holders as well as other stakeholders. You can see the full results from the survey, including all of the comments, if you click here.

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ASA vigorously supports trustee and appraiser in Brundle ESOP litigation

Readers may remember the 2017 Brundle v. Wilmington Trust case in which the district court concluded the ESOP trustee had caused the plan to overpay by almost $28 million. Notably, the independent trustee and valuation firm overseeing the underlying transaction had extensive ESOP experience. In ruling on the trustee’s post-decision challenge, the court conceded some valuation-related errors but found the mistakes were nonconsequential. The trustee has appealed the decision with the 4th Circuit Court of Appeals.

The ASA recently filed an amicus brief in support of the trustee. The document also serves as a strong statement in defense of ESOP fiduciaries and appraisers in general. It alleges that the DOL’s ESOP-focused national enforcement project has prompted a rise in lawsuits “in which a plaintiff submits a blanket accusation, without factual knowledge, that ESOP fiduciaries breached their duties … and violated prohibited transaction rules because they relied upon an appraisal that allegedly resulted in the ESOP’s overpayment for the shares it purchased.”

Noting the stellar qualifications and experience of the ESOP appraiser, the brief accuses the district court of “second-guessing” the appraiser’s sound contemporaneous analysis and value conclusions by relying on the “rough” and “after-the-fact opinion” of the plaintiff’s “underqualified ‘expert.’” The DOL’s expert approached the valuation both from a litigation perspective and with the benefit of hindsight, the brief says. It further notes that this expert was not an “independent qualified appraiser,” as required under the applicable regulations. He has served as the DOL’s “primary valuation consultant and expert on leveraged ESOPs” and performs as an advocate who “sides with the DOL and his valuations fundamentally depart from fair market value,” the brief says. Further, the expert lacks the education and training of an appraiser. (As we recently reported, the defendants in another ESOP case involving this expert made similar arguments in their partly successful Daubert motion.)

The ASA brief notes the district court opinion is vulnerable, from a valuation perspective, in three areas. The ruling improperly objects to the ESOP valuator’s use of a 10% control premium even though there was evidence that the ESOP had some control. Further, it rejects the ESOP valuator’s use of contemporaneous management projections even though the valuator “diligently probed” the accuracy of the projections. Instead, the court relied on the opposing expert’s “unsupported recasting of management’s projections,” while acknowledging those calculations lacked “a detailed analysis of how he arrived at his replacement projections.” Also, the court has acknowledged it misunderstood the concept of beta but failed to adjust its damages calculations to correct the error.

The district court’s judgment represents an “impermissible windfall for the ESOP participants,” which punishes a trustee that followed generally accepted procedures, “including hiring a highly-qualified and independent appraiser,” the brief concludes.

Digests of Brundle v. Wilmington Trust N.A., 2017 U.S. Dist. LEXIS 35811, and Brundle v. Wilmington Trust N.A. (Brundle II), 2017 U.S. Dist. LEXIS 97752, and the court’s opinions, are available at BVLaw.

The ASA will be issuing a press release on this matter which will appear in the ASA Newsroom section of its website.

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QBI guidance due out end of July

U.S. Treasury Department rules outlining which pass-through entities can claim the new 20% qualified business income (QBI) tax deduction are expected by the end of July, according to a report in AccountingToday. New IRC Code Section 199a allows a 20% write-off of QBI for sole proprietors, owners of S corporations, and members of partnerships/LLCs. But Section 199a is 22 pages long with about 20 defined terms, dozens of cross-references within the new section and to other sections, and complicated computations. The long-awaited guidance will hopefully clarify things. “Hundreds of thousands of U.S. employers still don’t know if they qualify,” says the report.

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Trade war may shift use of tax cut’s windfall

The extra cash flow companies will see from the Tax Cuts and Jobs Act will affect valuation depending on how the funds will be used. Some reports said companies would use the windfall for capital investment in both core and new businesses as well as R&D. But the escalating trade war may change that. A report from Reuters says that the trade war between the United States and China may prompt U.S. companies to shift money they had earmarked for capital expenditures into stock buybacks instead, pushing record levels of corporate share repurchases even higher.

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Valuation of power plants

A paper published in the European Journal of Operational Research examines the valuation of renewable, conventional, and storage power plants. The paper’s authors, who are with the Department of Mathematical Sciences at the University of Copenhagen, include a case study that quantifies the impact of changes in market dynamics on plant values.

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Global BV News

Global industry betas for 2Q2018

Salvidio & Partners, a Rome, Italy-based business valuation firm headed by Ascanio Salvidio, produces a quarterly report on levered and unlevered industry betas for 134 industries and “regional” betas for 10 geographical areas (including North America, the EU, and Western Europe). Its Industry Betas report for the second quarter of 2018 is now available, and you can download it if you click here.

It’s worth noting that the report combines industry and geographical perspectives and also features two separate series of levered and unlevered betas. The first series includes levered and unlevered betas estimated for any selected company, regardless of whether its gross debt is higher or lower than its cash and cash equivalents. The second series excludes “net liquidity” to represent companies where “decisions taken by management, all other circumstances being equal, may be different in case of the company’s gross debt being higher or lower than cash and equivalents,” according to Salvidio.

Comments wanted: Salvidio welcomes feedback from BVWire readers on how to improve the study, and you can contact him here.

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Preview of the August 2018 issue of Business Valuation Update

Here’s what you’ll see:

  • DealStats Ushers in Next Generation of Transaction Data” (BVR Editor). BVR has revolutionized Pratt’s Stats, the leading private-company transaction database with the release of DealStats, which merges Pratt’s Stats and Public Stats transactions into one powerful platform.
  • A Veteran Valuer Looks at the BV Profession” (Robert E. Kleeman). The recent decision by the AICPA to allow non-CPAs to get the ABV credential is one of the issues a seasoned valuation expert examines in this frank look at the BV profession.
  • New Analyses Reveal U.S. and Global BV Standards All in Sync” (BVR Editor). The different sets of U.S. business valuation standards do not conflict with each other, according to an updated tale-of-the-tape chart released by NACVA. It also released an international standards chart that compares the standards from the IVSC, RICS, and the CICBV that comes to the same conclusion.
  • Work File Checklist for the Selection of Royalty Rates” (BVR Editor). Based on the Mandatory Performance Framework (MPF) for the Certified in Entity and Intangibles Valuation (CEIV) credential, this checklist helps document the selection of a royalty rate when valuing intellectual property assets or rights such as trademarks, trade names, or patents.

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: “Pratt’s Stats MVIC/EBITDA Trends,” “ktMINE Royalty Rate Data,” “Economic Outlook for the Month,” and “Cost of Capital Center.”
  • BVLaw Case Update: The latest court cases that involve business valuation issues.

To stay current on business valuation, check out the August issue of Business Valuation Update.

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BV movers . . .

People: Alex Dokuchaev, a forensic accounting and valuation analyst at Morrison Valuation & Forensic Services, recently received his Certified Fraud Examiner (CFE) designation from the Association of Certified Fraud Examiners (ACFE) … Michele Amato has been named partner-in-charge of the professional standards group at New York-based Marks Paneth LLPBrad Smith has been appointed the next managing partner at Louisville, Ky.-based MCM CPAs & Advisors; he’s MCM’s current assurance services team leader and will succeed current managing partner Diane Medley on July 1, 2019 … Jenny Chen is the newest principal at New York City-based Prager Metis CPAs LLC; she will be a leader of the China team in the firm’s international group and will be based in the New York City office … Gina Miller has been promoted to partner at Bennett Thrasher LLP of Atlanta; she heads the firm’s new Value Acceleration and Exit Planning Services.

Firms: Squire & Co. PC of Orem, Utah, has acquired Pinnock Robbins Posey & Richins PC of Salt Lake City, effective July 1; the combined firm is known as Squire and will maintain offices in the two cities … Springfield, Mo.-based BKD LLP announced that Loeb & Troper LLP of New York City has joined the firm effective July 15 … Peterson Sullivan of Seattle announced the launch of three new consulting practices: IT risk services, managed accounting services, and strategic business consulting services … OnPointe Financial Valuation Group LLC (Chicago and Denver) has created “The OnPointe Mentoring Experience”™ to assist CPA firms in developing and expanding their services in the business valuation, litigation, and bankruptcy areas … New York City-based Mitchell Titus announced it has acquired certain assets of Chicago-based Washington Pittman & McKeever LLC, effective immediately … Appleton, Wis.-based Schenck SC will move into a new building in Wauwatosa, Wis., that has “plenty of room for growth” … Princeton, N.J.-based WithumSmith+Brown PC has announced the formation of a digital currency and blockchain technology services group.

Please send your professional and firm news to us at

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CPE events

  • Cryptocurrency – Price versus Value (July 19), with Arik Van Zandt (Alvarez & Marsal) and John Sawyer (Alvarez & Marsal).

    Stay ahead of the curve and learn the fundamental similarities and differences between valuing cryptocurrency and traditional operating companies.

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New and Trending
LinkedIn Discussions
AICPA Says Non-CPAs Can Be Eligible for the ABV

BV Experts Clash Over Statistics

The “Value” of Beer—and Breweries—Is Rising!

Your discussion could be featured here—BVR's LinkedIn group is a place for valuation professionals to share, discuss, and learn about compelling BV topics. If you're not already a member, request to join:

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We welcome your feedback and comments. Contact Andy Dzamba (Executive Editor) or Sylvia Golden, Esq. (Executive Legal Editor) at:
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In this issue:

Startling ABV survey

ASA on ESOP case

QBI guidance

Trade war

Power plants

Global news

BVU preview

BV movers . . .

CPE events

LinkedIn discussions


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