November 29, 2006 | | Issue 50-4
‘Big Six’ support unified international reporting standards

The CEOs of the six largest global audit networks have just put their collective support behind the Financial Accounting Standard Board’s (FASB) and the International Accounting Standard Board’s (IASB) efforts to create convergent accounting standards. “We are committed to facilitating the changes that will…come to business reporting,” they announce, in their newly-released Global Capital Markets and the Global Economy, and “we are keenly aware of mistakes made by some members of our profession.”

In the near term, the international branches of Ernst & Young, Deloitte, KPMG, BDO, PricewaterhouseCoopers, and Grant Thornton will be working with FASB and IASB to produce principle-based standards. “Today’s rules can produce financial statements that virtually no one understands.” The global leaders also plan to support convergence of national audit standards and minimizing the national difference in auditor oversight. To read the CEOs’ “Vision,” click here.  

Vast majority of BV Firms are still single-office operations

Three out of four business valuation firms have only one location, according to the latest data from BVR’s 2007 Business Valuation Firm Economics & Best Practices Survey (see the table below). And of the firms with multiple offices, slightly more than half report just two locations. The largest firm reports twelve locations providing business valuation services.

Table 2: How many offices performing BV work does your firm have?
% of total response
One office
Two offices
Three offices
Four or more offices

This is just a small slice of the data that will be available in the full report by year’s end; to pre-order your copy, click here.

What was the biggest BV-related event of 2006?

Was it the continued focus on fair value reporting, culminating in FASB’s recent release of FSAS 157? Or was it the IRS issuing its BV Guidelines in July—followed closely by Congress turning up the heat on appraisal standards—and appraiser penalties—in the Pension Protection Act of 2006? Or maybe the biggest news of the year came from the courts: The 5th Circuit had a busy season, reversing McCord as well as Caracci v. Commissioner. In Dela. Open MRI Radiology, the Delaware Chancery Court supported tax affecting an S Corp in a shareholder oppression case, but the Tax Court (once again) declined to tax affect S Corp earnings in an estate/gift transfer, in Dallas v. Commissioner. (Click here to search these cases, the IRS and FASB pronouncements, and more in the BVWire archives.)

What do you think had the biggest impact on the BV profession? To register your opinion, please respond to our latest web survey. It will take just a minute—and we’ll feature the results in a future issue of the ‘Wire as well as the BVU. The survey offers four choices—plus a “write in” option, and is completely confidential. If you’d like additional room to vent—er, voice your opinion, with or without attribution, feel free to email the BVWire editor directly.

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Unique opportunity: Join new task force on intangibles

The Appraisal Foundation’s new Working Group on Best Practices for Financial Reporting Purposes is now seeking volunteers to join its latest work group on contributory assets and calculating economic rents. “Our goal is to put together a document that will provide guidance for implementation of some of these best practices,” says Jay Fishman, ASA (Financial Research Associates), who is currently chairing the Foundation’s Best Practices steering committee.

“Time will be of the essence in the Working Group’s accomplishment of its tasks,” according to the on-line description of its assignment, which will attempt to answer several key questions, including:

1. What is the interplay if any, between contributory asset charges and depreciation or amortization tax shields? Is there a different interplay for tangible vs. intangible assets, respectively?
2. Should EBIT or EBITDA be taxed in a multi-period excess earnings analysis?
3. Should the owner of an asset also deserve a return on the value of the tax shield?

To join the esteemed group of experts on this project, click here. But hurry: The deadline for applications is December 4, 2006.

Alternative method for valuing the ‘tax shield’

And speaking of the “tax shield” (income tax benefits from interest deductions): A lead article in the just-released issue of Business Valuation Update™ (December, 2006) analyzes an alternative method for valuing this critical but common intangible. Increasingly popular in graduate business schools, the Adjusted Present Value (APV) approach develops a discrete, separate value of the tax shield, and then adds it to the asset value. For a free copy of the full article by two managing directors of Spectrum Consulting Partners, LLC (New York City), who compare the APV method to the more traditional ADR (Adjusted Discount Rate) approach, click here. Or just subscribe to the BVU.

No Canadian Economic Outlook Update™—yet

A subscriber to BVR’s Economic Outlook Update recently emailed, asking if the quarterly report covered the Canadian Economy. Unfortunately, the EOU hasn’t yet reached across our northern border, but try our partners, Consensus Economics, Inc. (publishers of Canada Economic Forecasts) here.

As for the latest U.S. data from the EOU: The real GDP is expected to grow by 2.5% in the fourth quarter of 2006 and by 2.7% in the first quarter of 2007. For 2006 and 2007, the real GDP growth rate is expected to be 3.4% and 2.6%, respectively, while in the longer term, the real GDP is expected to grow by 3.1% for the next ten years (2008-2016).

To order a one-year subscription or a back issue of the Economic Outlook Update click here.

If you have just one question for management. . .

“What’s the worst conceivable thing that could happen to this company externally?” This is one of the “magic questions” that Warren Miller (Beckmill Research) believes is “vital” to ask during management interviews. And of course, there’s the immediate follow-up: What’s the worst thing that could happen to the company internally.

Miller’s comments were part of his most recent BVR telephone conference on “Joined at the Hip: Combining Valuation and Strategy to Enhance Value for Clients.” To purchase a transcript and/or CD, click here. And to download a free copy of Beckmill’s tri-level framework for assessing unsystematic risk—or “SPARC” (Strategy, People, Architecture, Routines, Culture), go to, and click on the “Resources” and “Public Library” links.

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