SEC climate proposal is key topic during KPMG panel

At the recent Global Financial Reporting and Valuation Conference, a panel of KPMG leaders shared their knowledge and insights on the evolving landscape regarding environmental, social, and governance (ESG) factors. During this session, audience members were particularly interested in how the SEC climate proposal can impact private companies.

The panel discussed the proposed financial statement footnote and the complexities involved in measuring and recognizing climate-related risks (and opportunities) within the financial statements. Comment letters the SEC has received to date were also discussed. Some respondents have urged expanding safe-harbor provisions for certain forward-looking and third-party information used for Scope 3 GHG (greenhouse gas) reporting. The speakers urged finance and accounting leaders to monitor how the SEC responds in order to track the likely provisions of the final rule.

The proposal is part of new sustainability-related regulations that are emerging both domestically and internationally that are creating “seismic shifts” in corporate reporting for U.S. companies. These changes will significantly affect everything from financial reporting to tax compliance, to valuations during M&A deals.

A replay of the ESG session has just been posted and can be found if you click here. Also, KPMG has an ESG webpage that can alert you to various ESG insights, information, and events.

Extra: A recent academic paper finds that companies with higher ESG scores have a lower cost of capital

Damages experts caught up in Irish bar fight

In a New York case, majority owners of an Irish soccer bar used the proceeds of a lease buyout to relocate the bar—and cut out the minority owners at the same time. The majority owners started a new corporation to operate the new bar. The minority owners said they knew nothing about all this and sued, claiming the majority owners misappropriated a “corporate opportunity.” Under the corporate opportunity doctrine, a fiduciary cannot “divert or exploit for his own benefit an opportunity that is an asset of his principal.” But, if the minority owners had known of the new venture and did not object, they would not be entitled to reap any benefits from the new bar. However, the court found that the majority owners deceived the minority owners, keeping them in the dark about the new bar, so they are indeed liable for the lost value of the opportunity, plus punitive damages. (By the way, the bar at issue is Smithfield Hall, located at 138 W. 25th St. in New York City.)

Our thanks to attorney Peter Mahler (Farrell Fritz) who alerted us to this case—check out his firm’s blog, “New York Business Divorce,” which offers valuable insights on cases of owner disputes at closely held businesses.

The case is O’Mahony v. Whiston, 2023 NY Slip Op 30482(U), Feb. 15, 2023, Supreme Court, New York County, and a case analysis and full court opinion will appear soon on the BVLaw platform.

Bickering BV thought leaders: What to think?

How often do we hear well-known, veteran valuation experts “vehemently” disagreeing with each other over various issues? Here are some examples:

• “Use a normalized risk-free rate.” “No, use the spot rate.”

• “Yes, there’s a size effect.” “The size effect is fiction.”

• “Use the historical ERP.” “No, the implied ERP is better.”

• “Restricted stock studies are a good proxy for DLOM.” “Those studies are useless.”

The list of debatable topics goes on and on. Yes, healthy debate is good, but what is the average practitioner supposed to think when even the top people in the profession can’t agree? This was a discussion point during a recent AICPA podcast on marketability discounts. Especially for practitioners just starting out, who do you listen to when they disagree strongly about how to do something? While you may go with the view of the expert who you feel is more credible, you need to evolve your thinking, the speakers said. The bottom line is to go with an approach that you are comfortable with and that you feel is more supportable given the particular situation. Practitioners invite trouble if they are resistant to change because thinking on valuation issues continues to evolve.

The podcast was hosted by David Consigli, who was joined by speakers Brian McIntyre (Withum) and Natalya Abdrasilova (BDM). There are other recent podcasts in the series with different hosts and speakers, including discussions about ESG, personal and enterprise goodwill, human capital, and more.

How do you extract tax return data?

BVR is always on the lookout for new offerings that will help practitioners. One area where we see some potential need is in extracting historical financial data from client tax returns. Do you do it by hand? Do you use an automated solution? Please take a very short survey about how you collect and process these data. All responses are confidential, but we’ll announce the overall results in a future issue. Take the survey by clicking here. Thank you in advance for participating!

Agenda set for NYSSCPA BV conference May 15

BVWire is starting to see plans coming together for this year’s conferences. The three major events (from the AICPA, ASA, and NACVA) are all later in the year, but some good events are blooming in the spring. One that we never miss is the annual New York State Society of CPAs’ Business Valuation and Litigation Services Conference, and registration is now open for this year’s event, which will be May 15 on-site in New York City and also online. Topics include a fair value measurement update, statutory fair value and the applicability of a DLOM, valuation issues in matrimonial litigation, litigation finance, cryptocurrency and NFT matters, the latest on private equity M&A, ESG human capital disclosures, and more. Speakers include Chris Mercer, Mark Zyla, Adam John Wolff, and more. Early bird pricing ends April 24. See you there!

Extra: One of the hallmarks of the Business Valuation Update newsletter is its coverage of BV conferences both large and small. If you’re not a subscriber, you can see last year’s conference coverage all in one chapter of the Business Valuation Update Yearbook, 2023 edition. (Note: You already have this edition if you are a subscriber to the BVResearch Pro platform.)

IVS exposure draft will address ESG

This April, the International Valuation Standards Council (IVSC) will publish an exposure draft outlining proposed updates to the International Valuation Standards (IVS). The draft will seek feedback on changes including new standards on “data and inputs” and explicit references to environmental, social, and governance (ESG) within the valuation process. The public comment period will last 12 weeks, during which time the IVSC will organize a series of webinars and roundtables to present details of the exposure draft. An updated version of IVS is expected to be published in 2024. For more information on the project, click here.

BV movers . . .

People: An impressive number of appointments at the International Valuation Standards Council: new members of the Standards Review Board are: Matt Clark (managing director, Stout, United States); José Covas (head of European valuations, AURA REE, Portugal); Susann Ihlau (managing partner, Mazars, Germany); and Sandra Mossios (partner, EY, UK); new members of the Business Valuation Board are: Srividya Gopal (South East Asia leader and chair APAC Management Committee, Kroll, Singapore); Vikarth Kumar (partner, Grant Thornton Bharat LLP, India); Catalina Miranda (vice president, regulatory and standards, CBV Institute, Canada); Elena Moisei (senior manager, EY, Luxembourg); Dan Peckham (global valuation technical leader, Deloitte, United States); Kevin Prall (managing director, EY, United States); Emily Tse (managing director, valuation, Canada Pension Plan Investment Board, Canada); new members of the Financial Instruments Board are: Harris Antoniades (managing director, Stout, United States); Timothy Deal (principal, PwC, United States); and Andrew Ooi (South East Asia valuation and modelling leader, Deloitte, Singapore); and new members of the Tangible Assets Board are: Ron Cohen (director, Israel IVS Forum); Becky Gaughan (head of quality and risk management, Europe, CBRE); Kyle TenHuisen (managing director, valuation advisory, Stout, United States); and Paakow Winful (director, global tangible assets valuations and advisory, Taqeem, Saudi Arabia). These new board members will take up their roles on April 1, 2023, for an initial three-year term.

Firms: New York City-based Citrin Cooperman adds a third office in the Philadelphia area by acquiring the Voorhees, N.J., operations of Moorestown, N.J.-based Gold Gerstein Group LLC, a firm that provides tax, business advisory solutions, and attest work to high-net-worth individuals and commercial businesses in the real estate, manufacturing and distribution, and professional services industries … Bowers and Co. CPAs PLLC (Syracuse, N.Y.) has acquired Robinson & Gordon Certified Public Accountants PC (Rochester, N.Y.) … The Lufkin, Texas, office of Axley & Rode LLP moved into a new building right next to its prior location.

Please send your professional and firm news to us at editor@bvresources.com.

CPE events

• Determining the FMV of Privately Held Promissory Notes, March 3, 10:00 a.m.-10:50 a.m. PT/1:00 p.m.-1:50 p.m. ET. Featuring: Bruce A. Johnson (Munroe, Park & Johnson Inc.). CPE credits: 1.0.

Corporate bonds are much too large and marketable to be used as a proxy to value most small privately held promissory notes (up to $10 million). This webinar presents a new technique and real-world examples to illustrate.

• Advanced Class on Monte Carlo Simulations, March 10, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET. Featuring: James Herr (Alvarez & Marsal) and Matthew Mezs (Alvarez & Marsal). CPE credits: 2.0.

Next-level skills in Monte Carlo simulations, such as constructing confidence intervals, two random variables or more that are correlated, and using non-Excel software platforms (i.e., Python, Octave), are presented.