BVR Logo November 16, 2022 | Issue #242-3

BVWire is your go-to source for the latest in the business valuation profession. Highlights for this week include:

Inflation showcased in lead-off session at the AICPA FVS conference

As this issue rolls off the (virtual) presses, BVWire is attending the AICPA & CIMA Forensic and Valuation Services Conference. The kickoff session of the three-day event, which was presented by Carla Nunes and Jim Harrington, both with Kroll, discussed the cost of capital ramifications of the Russia-Ukraine War and global inflationary pressures.

Uncertainty and volatility: The raising of interest rates by the major central banks and the war have led to progressively weaker growth forecasts for the U.S. and other economies. “There will be a lot of pressure on earnings over the next couple of years,” said Nunes in a recent video. Revenue growth will depend on the ability to pass on increased costs to customers, but costs may outpace revenue growth and the price increases could weaken demand.

The increased uncertainty about economic growth and company earnings could result in a variability around expected cash flows, which makes equity risk higher. Recently, Kroll increased its recommended U.S. equity risk premium (ERP) from 5.5% to 6.0% when developing USD-denominated discount rates as of Oct. 18, 2022. This is matched with the higher of a normalized risk-free rate of 3.5% or the spot 20-year U.S. Treasury yield as of the valuation date if it is higher than 3.5%, Kroll said in a recent update.

Also, increased financing costs raise the cost of debt, so there may be less M&A activity, Nunes remarked, and you could see valuations going down.

Appellate court rules on valuation of inventory in Sears bankruptcy

Sears (the Amazon of its day) recently emerged from bankruptcy after four years and thousands of court filings. One of the many issues involved in the bankruptcy was the valuation of inventory.

Wide disparity: Second-lien holders, entitled to payment only after the debts of first-lien holders have been discharged, argued that the value of the collateral that secured their claims, as measured on the petition date, vastly exceeded what they had been paid and that they were accordingly entitled to priority payment of the difference. At trial, all parties put on evidence as to the value of the assets at the petition date. The differences varied widely. “The differences among these values turned primarily on how the experts calculated the revenue Debtors could expect to earn from selling their inventory.”

The appeal dealt primarily with this inventory issue and how it should be valued. The Bankruptcy Court, affirmed by the district court, used a net orderly liquidation value (NOLV) to determine the value at the petition date. The appellate court affirmed the judgments of the two lower courts.

The case is ESL Invs., L.P. v. Sears Holdings Corp. Debtor-Appellee (In re Sears Holdings Corp.), 2022 U.S. App. LEXIS 28584, and a case analysis and full opinion can be found on the BVLaw platform.

New FASB rules on crypto coming in first half of 2023

Under proposed accounting rules, fungible tokens will be measured at fair value as opposed to the cost (less impairment) model. The rules will be issued for public comment during the first half of 2023, said FASB chair Richard Jones at a recent conference, according to a report. Back in May 2022, the FASB added a project on digital assets to its technical agenda that would provide standards for crypto accounting. It was later announced that nonfungible tokens (NFTs) and certain stablecoins were to be excluded from the forthcoming guidance. Before the proposed guidance is released, the FASB will need to address certain issues, such as where changes in fair value should be presented (in earnings or in other comprehensive income), disclosure requirements, and whether the change in measurement attribute be recognized prospectively or retrospectively.

AICPA session reiterates request for comments on business combinations guide

A session at this week’s AICPA FVS conference discussed the recently released Draft Accounting and Valuation Guide, Business Combinations, which provides guidance and illustrations regarding the accounting and valuation considerations for business combination transactions. It addresses many accounting and valuation issues that have emerged over time and is designed to help preparers, auditors, and valuation specialists understand and comply with the requirements of FASB ASC 805, Business Combinations, and FASB ASC 820, Fair Value Measurement. The AICPA is seeking comments, which are due by Jan. 15, 2023 (see the document for how to submit comments). To download the working draft, click here.

Reminder: IRS has job openings for BV experts

The agency is looking to hire experienced business appraisers for 14 open positions at various U.S. locations. The official job posting can be found if you click here. The IRS uses the title “financial analyst” for its business valuation specialists, and the salary range is from $94,373 to $150,703 per year. The position involves reviewing (and sometimes challenging) valuations of operating entities, holding entities, or intangible assets prepared in a fair market value/tax context. The positions are “telework eligible” after the probationary first year, which allows the analyst to work remotely approximately four days a week. Federal benefits include a pension and a “great” work-life balance. The job posting has all of the details, including job description, experience requirements, locations offered, how to apply, and more. If you have any questions, contact Gary Smith, IRS lead financial analyst, at

Early-bird discount ends soon for NACVA’s conference December 14-16

There is a $100 discount if you register by November 30 to attend the NACVA “super” conference that will be December 14-16 in-person from two locations: Park City, Utah, and Fort Lauderdale, Fla. BVWire attended NACVA’s last conference this past August (see some takeaways here), and we see some interesting topics and top speakers in the featured sessions for December (click here).

KPMG releases cost of capital study

KPMG has published its “Cost of Capital Study 2022” that addresses the impact of high inflation on company valuations. This edition examines the influence of rising inflation rates on business models, corporate developments, and on long-term return expectations (cost of capital) based on sector-specific analyses. To download the study, click here.

OECD releases final fiscal valuation guidance for crypto-assets

The Organization for Economic Cooperation and Development (OECD) has published the final Crypto-Asset Reporting Framework (CARF), which provides for the automatic exchange of information between countries on crypto-assets. These are intended as global standards, though the U.S. likely will not adopt them, and it’s left to individual countries to apply them within their own jurisdictions.

The final CARF provides some guidance on hard-to-value assets. They allow analysts to rely on the second value of new resulting property if the hard-to-value asset is exchanged. In addition, if the relevant crypto-asset service provider does not maintain an applicable reference value, it may rely on, first, the internal accounting book values with respect to the relevant crypto-asset should be used. If a book value is not available, a value provided by third-party companies or websites that aggregate current prices of relevant crypto-assets must be used if the valuation method that third party used is reasonably expected to provide a reliable indicator of value. If neither of the above is available, the most recent valuation of the relevant crypto-asset must be used. If a value can still not be attributed, a reasonable estimate may be applied as a measure of last resort.

Prior to the release of the final rules, based on responses to the initial March 2022 draft, the OECD revised many provisions including the definition of covered assets, the treatment of decentralized finance (DeFi) platforms, and who would be required to report. The final rules include a new threshold of $US50,000 for retail transaction reporting.

Preview of the December 2022 issue of Business Valuation Update

Here’s what you’ll see:

  • Good News in New BVR Survey of Young ASA BV Experts” (BVR Editor). Preliminary results of a first-ever survey designed to gain some insights and perspectives to help the profession better attract and develop the younger generation of BV practitioners. The survey was conducted by BVR and the BV recruiting firm Borrowman Baker with the support of the American Society of Appraisers and was sent to ASA members under 40 years old in the business valuation discipline.
  • Hot Topics at the 2022 VSCPA Forensic and Valuation Conference” (BVR Editor). It was back to in-person attendance at the 22nd annual Forensic and Valuation Conference hosted by the Virginia State Society of CPAs. Topics included the income approach, effective recruiting, reasonable compensation, guideline transactions, surviving cross-examination, IRS developments, and a “Hardball With Hitchner” session that covered some front-burner issues.
  • Appraisers Continue to Be Excluded Most Under Daubert, Per PwC Study” (BVR Editor). Under Daubert, appraisers were excluded more often in 2021 than any other type of financial expert witness, according to the latest edition of an annual PwC survey. Of the three most common financial experts (economists, accountants, and appraisers), appraisers had a 38% exclusion rate in 2021, followed by accountants (32%) and economists (27%). The article gives more insights into the survey and some ways to avoid a Daubert challenge.
  • New Case Points Up Practice Opportunity in Reasonable Compensation” (BVR Editor). Opposing counsel attacked a valuation expert over his expertise in assessing reasonable compensation—and also criticized the data he used. The expert prevailed in this challenge, which illustrates that valuation experts can take on engagements in tax matters and shareholder disputes involving the fair market value of executive compensation.
  • Pratt’s Document Request Checklist Stands the Test of Time” (BVR Editor). The new sixth edition of Shannon Pratt’s Valuing a Business does not only contain a great deal of valuation concepts, but also includes some very practical advice and tools. One such tool that has endured is a checklist for an initial request for documents. The list has some minor updates, but it is essentially the same as the one Pratt included in prior editions.
  • Recap of the New Jersey CPA Society FVS Conference” (BVR Editor). Some excellent speakers covered litigation tips, malpractice, estate tax audits, statistics for lost profits, cryptocurrency, and divorce matters at the Forensic and Valuation Services Conference hosted by the New Jersey Society of Certified Public Accountants (NJCPA).

The issue also includes:

  • A full section of “BV News and Trends/Global BV News and Trends”;
  • Regular features: “Ask the Experts” and “Tip of the Month”;
  • BV data spotlight: “DealStats MVIC/EBITDA Trends,” “ktMINE Royalty Rate Data,” “Economic Outlook for the Month,” and the “Cost of Capital Center”; and
  • BVLaw Case Update: The latest court cases that involve business valuation issues.

To stay current on business valuation, check out the December 2022 issue of Business Valuation Update.

BV movers . . .

People: David Mitchell has been appointed as managing director in the valuations practice of Interpath Advisory, formed two years ago as a management buyout from KPMG; he was previously head of the UK valuations team at BDO and has specific expertise in the specialized area of tax and restructuring valuations … Michael Koch, CVA, has been chosen to lead the valuations practice at Lancaster, Pa.-based RKL LLP; he has experience in valuation, financial modeling/projections, and litigation support and has performed engagements for gifting, estate planning, buying or selling a business, and other analysis and consulting for clients in a wide variety of industries … Rob King, CPA/ABV/CFF, associate director in the Hattiesburg, Miss., office at Postlethwaite & Netterville, was named chairman of the forensic, litigation, and valuation services committee for the Society of Louisiana CPAs.

Firms: Albuquerque, N.M.-based REDW LLC has added Edwards Largay Mihaylo & Co. PLC (ELMCO) of Phoenix, a firm that provides tax compliance, business and tax consulting, and accounting services to a wide range of clients … Los Angeles-based SingerLewak has combined with HBLA Certified Public Accountants of Irvine, Calif., which has 21 employees and provides accounting, audit, tax, estate planning, and bookkeeping services to privately held businesses including professional services firms such as engineering, architectural, law offices, and medical and veterinary practices … Parsippany, N.J.-based Sax LLP is adding Steven R. Press CPA PC of Mamaroneck, N.Y., a firm with a focus on employees and founders of tech and high-growth companies … Carmel, Ind.-based Blue & Co. LLC is adding Lee R. Ford & Associates of Carmel, Ind., which serves clients in the areas of construction, real estate, and privately owned businesses.

Please send your professional and firm news to us at

CPE events

This webinar will cover the theory behind discounts for lack of marketability, using a DLOM on a minority interest as well as on a controlling interest, and the different models and tools that are available.

An opinion of value down to the very last penny? A DLOM taken out to three decimal places? Valuation experts who focus too much on math can fall into the “illusion of precision” trap that moves experts away from using judgment in the process.


Holiday Break

BVWire will be taking a break to enjoy the U.S. Thanksgiving holiday next week. We will resume publication on Wednesday, November 30. We wish you a very safe and happy holiday!

We welcome your feedback and comments. Contact Andy Dzamba (Executive Editor) at:


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