There was a healthy turnout of forensics and valuation experts in Las Vegas for the 2019 AICPA Forensic and Valuation Services Conference. Conference chairs Nathan DiNatale (CliftonLarsenAllen) on the valuation side and Michael Fahlman (Berkeley Research Group LLC) on the forensics side greeted the attendees at the event, which had the theme “Primed for Transformation.”

The keynote speaker, economist Todd Buchholz (Sproglit), talked about the possibility of a coming recession, but he noted that the U.S. economy keeps humming along nicely. A “supply-side shock” is keeping inflation down—a huge supply is being dumped onto the market from the likes of Uber, Airbnb, and others. More importantly, what he calls the “scariest secret in economics today” is that the U.S. is benefitting from the global slump, which is keeping interest rates low. “What ever happened to the tightly integrated world economy?” he asked.

After the keynote—which was packed with attendees—it was on to the breakout sessions:

• Picking up on the notion of supply-side shock from the keynote address, a session on forecasting stressed the importance of considering macroeconomic conditions into a company valuation. Which ones are relevant to your subject company? Consumer confidence? Unemployment? Housing starts? And don’t just think nationally—drill down to the regional and local economy (think about how locale affects real estate values).

• Reviewers of valuation reports say that experts are not taking into account all of the impacts of the Tax Cuts and Jobs Act into their valuations, especially the impacts on cost of capital. No one in the audience has yet to adjust the WACC for the interest deduction issue, but “keep an eye on it.”

• We now have three choices for empirical cost of capital data: (1) D&P’s Cost of Capital Navigator; (2) BVR’s Cost of Capital Professional; and (3) Professor Aswath Damodaran (New York University Stern School of Business).

• When using restricted stock studies to estimate DLOM, make the underlying companies compare closely with your subject company.

• Don’t lose sight of the basic fundamental that a company’s value is a function of three factors: (1) cash flow; (2) risk; and (3) growth. This is also a great way to explain valuation to laypeople.

• Don’t treat the income and market approaches in silos—they interrelate with each other.

• Many more firms will be coming on the market—the owners’ children just don’t want the family business.

• The most prevalent M&A damages claims stem from: (1) AR and the allowance for doubtful accounts; (2) inventories (the thorniest issue); and (3) warranty reserves.

Also, there was a good deal of emphasis on fair value for financial reporting. There were sessions that covered regulatory updates from the SEC, PCAOB, and FASB; valuation implications of new accounting standards (e.g., revenue recognition, leasing); inventory valuation (from the upcoming business combination guidance); the new AICPA guide to private equity/venture capital; valuations of financial instruments; and recent developments with the CEIV credential. In addition, The Appraisal Foundation’s Appraisal Issues Task Force (AITF) had its meeting during the conference. The AITF is a voluntary group of valuation professionals who specialize in the field of valuation for financial reporting and seek to improve practice in that area. The group works with the FASB and the SEC to evaluate proposals and recommend methodology, assumptions, and approaches.

We’ll have more details in future BVWire issues, and more extensive coverage will be in the January 2020 issue of Business Valuation Update.

Next year’s FVS conference will in Aurora, Colo., Nov. 9-11, 2020, at the Gaylord Rockies Resort & Convention Center.

Pointers for expert witnesses from the
AICPA FVS conference

BVWire sat through several excellent sessions involving valuations for litigation purposes at the 2019 AICPA Forensic and Valuation Services Conference in Las Vegas. Here are a few good pieces of advice we picked up:

• With fewer cases going to trial, experts who want to preserve opportunities must get involved in the process early, even before a case is formally filed.

• Expert discovery is an increasingly important lynchpin for many family law cases because more cases than ever are settling as opposed to going to trial.

• Ask whether your deposition will be videotaped; having a visual record of your performance during the deposition can be a powerful tool for the opposing lawyer.

• Trusts and cryptocurrency are two areas defining the future of family law litigation; are trust assets part of the marital estate? As for cryptocurrencies, they represent just another asset, so all the typical discovery duties apply: find the asset, categorize it, and value it.

• Visuals (pictures, graphs) are often more effective in communicating a valuation concept than a lot of words.

• Given the high exclusion rates for financial experts (43% per a PwC study), it’s almost obligatory for attorneys to file a Daubert challenge.

• Google yourself! You need to know what’s “out there” that could be used to hurt your testimony.

More details will be in future BVWire issues, and more extensive coverage will be in the January 2020 issue of Business Valuation Update.

Cannabis appraiser comments on recent guidance

Last week’s BVWire covered the September 2019 AICPA FVS Eye on Fraud quarterly report, “Marijuana and Forensic Accounting—High Times for CPAs?” In it, the authors provide some cautions on cannabis valuations and indicate that “[i]t appears many cannabis businesses are using the fair value model, which is the same model used in the agricultural industry.” Ron Seigneur’s firm (Seigneur Gustafson LLP) has focused an increasing portion of its practice on valuation, economic damages, and financial forensics work in both the cannabis and the hemp/CBD sectors. He has provided BVWire with some valuable comments on the observation regarding the fair value model:

I suspect the authors are referring to the guidance found in the IFRS accounting pronouncements for the valuation of biological assets for financial statement disclosures (IFRS - IAS 41 Agriculture), but it is unclear from the limited information provided in this article. IAS 41 has been a lynchpin for Canadian pubco financial disclosures for some of the largest cannabis cultivators in the world and given the slow burn many of these stocks have witnessed over the past several months, one has to agree that the risks are many and significant.

Our firm has been doing cannabis appraisal work for many years for a broad range of needs including litigation matters, M&A and even estate and gift. Much our current work is focused on the value of current and pending license rights. While we are well aware of the IFRS guidance we have never used a “fair value model” for any of our opinions. We do agree, however, on the emphasis the authors put on the unique (and rapidly evolving!!) risks associated with work in this sector. All of our work has been for ownership interests within the legal, regulated side of the cannabis industry and our experience has been that the vast majority of those trying to navigate these challenging waters are trying very hard to be fully compliant with the laws and regulations that are in play in their particular jurisdiction, all while many are paying exponential tax liabilities for the privilege of operating a state legal, federally illegal enterprise under the burden of IRC 280E and beyond.

There is a growing (no pun intended) body of knowledge and resources available to assist practitioners who choose to provide service and support in this niche and I applaud the AICPA and BVR for helping to elevate the awareness of what practitioners need to know to competently serve this multibillion-dollar industry.

BVWire will attend November 15 FASB roundtable on goodwill amortization vs. impairment

The FASB will conduct a public roundtable discussion on November 15 in Norwalk, Conn., on its Invitation to Comment (ITC) on moving from the current impairment model for goodwill to amortization. BVWire will attend the roundtable in person and will report on the proceedings in a subsequent issue. The meeting will be audio webcast and archived on the FASB website for 90 days. For details on how to attend in person, click here. You must register in advance, and seating is available on a first-come, first-served basis. The FASB received almost 100 comment letters on the ITC with members of the valuation profession having serious concerns over going back to a model that treats goodwill as a wasting asset.

BVR now offers two closed-end fund reports for estimating DLOC

Closed-end fund (CEF) data are commonly used to derive discounts for lack of control (DLOC) for closely held holding companies invested in marketable securities. CEFs are the most comparable public proxies to investment-holding companies because both have a limited number of shares available to investors. These shares must be purchased from other investors instead of the fund itself. Business Valuation Resources now offers two sources of CEF data. Prepared by Bruce A. Johnson and James R. Park, these reports, with current and historical data, save you hours of research time. The two reports available are:

• "2019 Closed-End Fund Report: Fixed Income Securities." Use this report to compare privately held family limited partnerships (FLPs) and LLCs that hold money market funds, certificates of deposit, government bonds, municipal bonds, corporate bonds, or other fixed income investments.

• "2019 Closed-End Fund Report: Stocks and Equity Investments." Use this report to compare privately held FLPs that hold common stock, preferred stock, mutual funds, REITs, or other corporate equity investments.

AICPA honors young FVS practitioners

The AICPA’s Standing Ovation Program recognizes young (age 40 is the limit) CPAs holding the Certified in Financial Forensics (CFF) or Accredited in Business Valuation (ABV) specialty credentials who have exhibited exemplary personal achievement. During the 2019 AICPA Forensic and Valuation Services Conference in Las Vegas, the following individuals were honored (listed alphabetically):

• Jennifer Allen, CPA, ABV, CFF, Anthem Forensics, Henderson, Nev.;

• Brian Barnthouse, CPA, ABV, RSM US LLP, Minneapolis;

• Andrew Baum, CPA, ABV, CFF, Harper Hofer and Associates LLC, Denver;

• Asif Charania, CPA, ABV, CFF, Keiter Stephens Hurst Gary & Shreaves PC, Glen Allen, Va.;

• Kathryn Culver, CPA, ABV, PYA, P.C., Knoxville, Tenn.;

• Nene Gianfala, CPA, ABV, CEIV, Chaffe & Associates Inc., New Orleans;

• Natalie Lewis, CPA, CFF, Windham Brannon LLC, Atlanta;

• Tiffany Lewis, CPA, CFF, StoneTurn Group LLP, Houston;

• John Luna, CPA, ABV, CFF, White, Zuckerman, Warsavsky, Luna & Hunt LLP, Sherman Oaks, Calif.;

• Nick Lynch, CPA, CFF, Dean Dorton Allen Ford PLLC, Lexington, Ky.;

• Greggory Peat, CPA, CFF, FTI Consulting, Lake Oswego, Ore.;

• Joshua Sechter, CPA, ABV, MPI, Syosset, N.Y.;

• Zachary Snickles, CPA, CFF, Grant Thornton LLP, Phoenix;

• Quynh Tran, CPA, CFF, Berkeley Research Group LLC, Houston; and

• Thomas Wagner Jr., CPA, ABV, Blue & Co. LLC, Carmel, Ind.

BVWire congratulates these young FVS practitioners!

Political uncertainties over the past quarter remain unresolved, such as the potential conflict between the U.S. and Iran, trade dispute between the U.S. and China, and the Brexit negotiations, reports KPMG in its 10th edition of the International Valuation Newsletter, published quarterly. As a result of these developments and low inflation rates, central banks around the world continued to cut interest rates over the past three months. Highlights of the report’s market update are:

• Major stock market performances: Emerging markets significantly decline in Q3;

• EURO STOXX 600 sector multiples: IT dominates Q3 but loses significantly on a quarterly basis;

• Current risk-free rates for major currencies: Interest rates continue to decline; and

• Recent country risk premiums and inflation forecasts for the BRIC countries: Both short-term growth expectations and risk premium for China have increased.

The report also focuses on the importance of “achieving consistency in currency conversions” in company valuation.

BV movers ...

People: At the 2019 AICPA Forensic and Valuation Services Conference in Las Vegas, William Fellows, CPA, ABV, a partner in Deloitte Risk and Financial Advisory, was named 2019 Business Valuation Volunteer of the Year and Elizabeth Woodward, CPA, CFF, director of forensic accounting and litigation support with Dean Dorton Allen Ford PLLC, was named 2019 Forensic & Litigation Services (FLS) Volunteer of the Year … Lori A. Roth, CPA/ABV, CFF, has been named national managing partner at New York City-based Prager Metis CPAs; she has expertise in audit and assurance services, litigation support, and business valuations.

Firms: Construction industry specialist firm Forehand & Associates of Orlando, Fla., has joined CliftonLarsonAllen LLP (CLA) … C&D CPAs and Advisors (Solvang, Calif.) has joined the North America region of PrimeGlobal, an international association of independent accounting firms … Speer & Associates Ltd. of Dallas joined Fort Worth, Texas-based Whitley Penn on November 1; the group will work out of the firm’s Plano, Texas, location … New York City-based Marcum LLP merged with CPA Consulting Group of Nashville, Tenn., effective November 1; the firm adds two partners and 15 associates to Marcum’s Nashville office … Rochester, N.Y.-based EFPR Group is merging in the accounting practice of Nowicki & Co. of West Seneca, N.Y., into its Williamsville, N.Y., office … The partners and associates of Klein Hall of Aurora, Ill., joined Milwaukee-based Wipfli on November 1; this adds 25 Klein Hall employees, including five partners, to Wipfli’s presence in the Chicago area.

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

Upcoming BVR training events

• FREE WEBINAR: BV Hiring Made Smarter: Expert Tips to Land (and Keep) the Best Talent
  (November 14), with John Borrowman
  (Borrowman Baker LLC).
  
  A veteran BV recruiting specialist will discuss how to tell a more attractive story about your practice and the position, interview more productively, and how to measure and test your candidates.
  
  

• Reasonable Certainty for New Business Lost Profit Calculations (November 20), with Josh Shilts
  (Villela & Shilts).
  
  Recent case law and various approaches to validate a lost profits projection for early-stage companies are discussed.