May 18, 2011 | Issue #104-3 Forward to a Friend

The client isn’t happy with the value: now what?

The client believes your value conclusion is too low, and asks you to “simply” lower the cap rate. What do you do—how does an appraiser handle the disconnect between client expectations and the ultimate value conclusion (never mind retain credibility and objectivity).

“First, you smile,” said Peter Bowes (Bowes & Co., Denver, CO), who spoke at the recent meeting of the Colorado Coalition of Appraisers (CCA). “Be friendly,” Bowes added—and then ask the client to help you. Ask for the data, the sources, the documented or other defensible support for the particular aspect or assumption of value that the client would like you to change. “Consider anything,” Bowes suggested, but “commit to nothing.” By engaging the client in the process and the need for substantiated values, you’ll go a long way to maintaining your conclusions, your client relationships—and your reputation.

FASB amends ASC 820

Last week FASB issued Accounting Standards Update No. 2011-04, Fair Value Measurement (Topic 820):  Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.

BVWire asked Al King (Marshall & Stevens) to comment on the changes:

Much of this is new release is just housekeeping between GAAP and IFRS.  What’s disappointing is that the Boards continually increase required FV disclosures.  Maybe analysts can use such information but for most corporate financial reports it is truly ‘non-value added’, increasing costs, bulking up the reports and providing little useful information.  True, if you use a 15% discount rate you get a different answer from using a 14% discount rate, but how can a reader determine which is more appropriate?  Also the two Boards continue to pretend that there is no such thing as a blockage discount.  Once more, this is a triumph of theory over economic reality.

Most companies will adopt the fair-value measurement changes in early 2012.

Two new Tax Court cases sidestep subsequent events, finding dueling experts indicated lack of reasonably certain value

When will a wide divergence between opposing experts work to disadvantage both? Two new decisions by the U.S. Tax Court, in opinions written on the same day (April 28, 2011) by Judge Cohen, suggest that “the differences between the experts as to the correct value to be placed on a claim against the estate were an indication that the value of the claim could not be ascertained with reasonable certainty” on the valuation date.

Substantial amounts were at stake in both cases. In Estate of Saunders v. Comm’r, 136 T.C. No. 18, the decedent’s estate claimed a $30 million deduction related to litigation pending at the time of death, against which the IRS claimed a $14.4 million deficiency. In Estate of Foster v. Comm’r, T.C. Memo. 2011-95, the IRS sought nearly the same amount ($14.6 million) against discounted values (up to 32%) by the estate for contingent litigation claims. In both cases, the litigation was settled several years after the death of the decedent, largely in favor of the estates.

To what extent should the subsequent resolution of claims determine their deductibility? The Saunders court acknowledged the wide disagreement among federal circuit courts on the application of subsequent events—but specifically declined to enter that legal “minefield.” Instead, it found that “stark differences” in values asserted not only by both sides but also by the taxpayers’ three different appraisers was a “prima facie indication of the lack of reasonable certainty” of the claims at stake. Likewise, the Foster court cited Saunders for the proposition that a “sharp discrepancy” among opinions for the same as well as the opposing side can establish a “lack of reasonable certainty in the values they suggest.” Read the complete digest of both cases in the July 2011 Business Valuation Update; the courts’ opinions will be posted soon at BVLaw.

What’s going on with the CFA designation?

BVR analysis indicates that 3% of certified business appraisers also hold the CFA designation (the leading certifications in the profession, as reported in the new 2011/2012 BV Firm Economics & Best Practices Guide, appear in the table below).  

BVWire attended the annual CFA Institute in Edinburgh last week, and offers this update: The CFA is a price of entry to the world of portfolio analysis and investment management.   And it’s growing everywhere.  There were 20,000 CFA’s in the world, primarily in the US, in 1990.  Now there are just more than 100,000.  And, the focus has become more global; 16,000 of these are in Europe, the Middle East, or Africa, for instance.

The CFA Institute is reengineering some of its emphases while “trying to maintain the integrity of the certificate.”  One of the key initiatives is to tune the exam subject matter to “increase the focus on quality of earnings.”

Over 100,000 candidates sat for exams around the world in 2010.  For the last five years, pass rates are a little lower than they were previously; 39% pass Level 1, and 55% pass the final level 3.   The average age of a CFA is 29; this youthful number is trending down as more university-level programs come on-line.   The largest number of candidates now comes from Asia Pacific; 42% of candidates came from the far east last year, compared to 35% from North America.

What are the most common certifications in the business
valuation profession?


Certifying organization

% of total certifications 2010

% of total
certifications 2008





















CFE (Cert Fraud Examiner)




CFA (Cert Financial Analyst)
















CFP (Cert Financial Planner)
















AICPA offers new web series to launch your business valuation career

The combination of tight travel budgets and demanding workloads makes it harder than ever to find time to build your specialized knowledge base. There is no better way to grow your career than through continuous learning. In response to member feedback, the AICPA is launching a brand new Web series - AICPA Business Valuation Web Seminar Series: Core Competencies from the Nation's Leading Experts. During multiple Web sessions, seasoned business valuation experts share their best practices, proven strategies, and timely information in one of the fastest growing niche practice areas.

The first webinar starts June 2, Understanding the Statement on Standards for Valuation Services No. 1.

Forensic and Valuation Section (FVS) members receive a $200 discount if they register for the entire 17-part web series bundle. If youare not a member of the FVS Section, the AICPA is offering a $50 discount for one year of section membership.   Join the FVS Section today! (use promo code FVE11).

IVSC publishes submitted comments on DCF

Last January the International Valuation Professional Board solicited comments for an exposure draft that would replace the current GN9 ‘Discounted Cash Flow Analysis for Market Valuations and Investment Analyses’ (Revised 2007). GN9 provides practical guidance for the application of the DCF approach for the valuation of businesses as well as real estate assets. The organization received 31 comments, including one by Shannon Pratt and Roger Grabowski, and are available here.

The IVSC is also looking to form Working Groups on the following Financial Instruments Expert Advisory Group (FIEAG) projects to assist in identifying valuation problems in the financial markets:

  • Financial Instruments Valuation Methods
  • Credit / Debit Valuation Adjustments
  • Liquidity Premia
  • Yield Curve Dislocation
  • Model Uncertainty

If you would like to discuss any aspect of the IVSC’s activities or put forward a nomination for membership of a working group, please contact the IVSC Technical Director, Chris Thorne here or call +44 771 880 7326.

Is Monte Carlo simulation modeling a "leading-edge" valuation methodology?

This question, posted by Toby Tatum (Alliance Business Appraisal) earlier this week on LinkedIn’s Business Valuation Professionals group, generated a variety of thoughtful responses (and a few not-so-thoughtful ones).  Click here to read the thread.

GT publishes insights into three Delaware Chancery Court opinions

Drew Voth (Grant Thornton) wrote in the recent Business Valuation Monitor:

"When…setting valuation law precedent (and reminding us of preexisting precedent), no venue is more important than the Delaware Chancery Court. The sheer volume of companies incorporated in Delaware makes the state a natural venue for the majority of corporate shareholder value actions, and the sheer volume of cases has made the chancellor and vice chancellors — the judges — some of the most sophisticated regarding valuation issues."

Voth provides a discussion of three recent cases, the court’s findings, and insights into the implications of those findings for corporate valuations. The cases are:

  • Golden Telecom, Inc. v. Global GT LP, 2010 WL 5387589 (Del. Supr.) (Dec. 29, 2010)
  • In re Sunbelt Beverage Corporation, 2010 Consol. C.A. No. 16089-CC (Del. Ch.) (Jan. 5, 2010)
  • Berger v. Pubco Corporation, et al., 2010 C.A. No. 3414-CC (Del. Ch.) (May 10, 2010)

All of these cases are available at BVLaw.

Proposed DOL regulation continues to generate discussion

Bill McIntyre (Ohio Employment Ownership Center) recently published “Valuators Should Not Be Fiduciaries” in the Ohio Employee Ownership Center’s Owners at Work magazine (Winter 2011). In addition to summarizing the statements and opinions that have been presented to the DOL, he offers a list of points about the proposed regulation.

Join Jared Kaplan (Will McDermott & Emery) this Thursday for a one hour webinar “The Appraiser’s Role in ESOP Valuations: The New Regulation that Makes Appraisers ERISA Fiduciaries”. Kaplan, who's had extensive involvement with this proposed rule change, will provide an in-depth examination what the proposed regulation means for the appraisal profession and how practitioners can best protect and prepare themselves. One CPE credit is available.

Management services contracts between hospitals impact physician practice valuations

BVR’s Online Symposium on Healthcare Valuation continues on May 24 with “Valuing Management Services Contracted Between Physicians and Hospitals.”  Featuring Randy Biernat (Katz, Sapper & Miller), this 100-minute webinar will focus on the valuation challenges inherent in a rapidly growing aspect of the healthcare industry: direct contracts between hospitals and physicians.  Learn classic considerations and emerging trends in what is becoming an assignment to establish fair market value.

Fannon and Sellers provide insight on pass-through entity evaluations

The debate surrounding S-Corp or pass-through entity valuations have long caused tension, frustration, and even confusion in the valuation community.  However, research from the academic sector has begun to shed light on methods that should greatly aid the valuation process.  On May 26 BVR welcomes experts Nancy Fannon (Fannon Valuation Group) and Keith Sellers (University of Northern Alabama) for “Pass Through Entity Valuation Update: The Significant impact of Academic Research on the Debate,” a 100-minute webinar focusing on what this research means for pass-through entity valuation and how it can be applied to the valuation process. CPE credit is available.

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Copyright © 2011 by Business Valuation Resources, LLC
BVWire™ (ISSN 1933-9364) is published weekly by
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The Appraiser's Role in ESOP Valuations: The New Regulation That Makes Appraisers ERISA Fiduciaries
Thursday, May 19, 2011, 10:00am - 11:00 am PT
Featuring: Jared Kaplan

Valuing Management Services Contracts Between Physicians and Hospitals
May 24, 2011
10:00am - 11:40 am PT
Featuring: Randy Biernat


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