New faces, ideas highlight the AICPA FVS conference in Dallas

BVWire attended the AICPA and CIMA Forensics and Valuation Services Conference in Dallas last week, and we were impressed by the number of new and younger faces we saw—both attending the event and making presentations. There were also some new vendors in the Exhibit Hall, which added to the freshness of the event. Plus, there were some excellent networking events, which, of course, you could take advantage of only if you were on-site.

As a result, there was a healthy turnout—about 700 in total, with about half online and half in person. And it was a mix of valuation (ABV) and forensics (CFF) experts, which was also about half and half. Also, we noticed a fair number of valuation experts who were not CPAs. Several years ago, the AICPA uncoupled the CPA and ABV credentials so that non-CPAs could hold the ABV. We were told that 20% of ABVs are not CPAs and that 35% of new applicants for the ABV are not CPAs.

Old and new: One would expect to see the veteran thought leaders, and the event didn’t disappoint. For example, Jim Hitchner (Financial Valuation Advisors) was there with his great insight into all things BV and announcing that the new fifth edition of Financial Valuation: Applications and Models will be ready to ship very soon (available on Amazon). Carla Nunes and Jim Harrington, both with Kroll, did their ever-popular session on the current economy and the impacts on valuation and cost of capital. But then we saw some speakers who were new to us, such as Jenny Allen (Anthem Forensics), who did a very well-attended session on valuing a cash business (with co-presenter David Consigli of FAZCPAs) and Michael Dragiev, who recently became chief auditor at Armanino, doing a session on how auditors review IRC 409A and ASC 718 valuations (along with colleague Jason Woon and Greg Russ from Forvis Mazars).

Some sessions dealt with perennial topics, and you would think that nothing would be new—but not so. For example, Lisa Cribben (Hawkins Ash) took a fresh look at the market approach, urging attendees to use it more and showing how to expand the horizon when looking for comparable companies.

AI interest high: Among the most popular sessions were three breakouts dealing with artificial intelligence and how practitioners can use it to increase efficiency. We were happy to see two speakers from the academic world doing a session—Daniel Street and Joseph Wilck from Bucknell University, who have several papers out on the use of AI in accounting. They did a good overview session with some very solid advice. Rod Burkert (Burkert Valuation Advisors) took it a step further with his session on some specific use cases for AI (he’s got a new newsletter coming on AI for BV). And then Cristina Chen-Oster and Ronnie Shah, both with M2M Capital, did an advanced session on their firm’s AI-powered platform for private-company valuations.

That’s just a small sample of what we saw, and we’ll have more coverage in future BVWire issues and in Business Valuation Update. Next year’s event will be in Colorado—at the Gaylord Rockies Resort & Convention Center in Aurora. We urge you to attend and to do so in person. There is a great deal to learn outside the formal breakouts as there is sitting in a session.

First out of the gate: NACVA issues AI guidance

All the valuation professional organizations (VPOs) are examining the use of artificial intelligence and machine learning (ML) in the profession, but NACVA is the first to formally issue any type of guidance, which you can download if you click here. The guidance, in the form of an Advisory Brief, is nonauthoritative and is a broad first step to “align emerging technologies with steadfast professional judgment and ethical standards.” Some specific points include:

• AI and ML technologies should “augment, not replace” professional expertise;

• Analysts must consider confidentiality, data integrity, and nondiscrimination;

• It is “essential to verify the AI and/or ML outputs are not misleading;” and

• Disclosure of the use of these technologies should be considered to “uphold the transparency of the valuation process.”

The guidance also urges members to keep up to date on developments regarding AI and ML, as they are changing at a lightning-fast speed.

In a statement, NACVA CEO Parnell Black said: “The Association believes it is imperative we lead the way for our membership and the profession at large in areas where developments affect our profession and practice; and the impact AI is having on just about everything we know certainly warrants our attention and focus.”

Extra: There will be several AI and ML sessions at the last of the Big Three conferences for the year, NACVA’s Business Valuation & Financial Litigation Super Conference in Las Vegas on December 12-13. We hope to see you there!

DOL to ‘heat up’ regs for ESOP valuations

Long-awaited regs from the Department of Labor on ESOP valuations are a “forthcoming attraction that will heat up a fair amount of our resources for the fall,” said Jeff Turner, acting deputy director of the Office of Regulations and Interpretations at the Employee Benefits Security Administration (EBSA), reports the American Society of Pension Professionals & Actuaries (ASPPA). EBSA is the enforcement arm of the DOL. The regs will give guidance on how to establish fair market value for shares of a business an ESOP acquires.

Sunlight needed: Turner said the department has seen its share of the “good, the bad, and the ugly” with ESOPs, according to the report. “We have seen a number of circumstances where the stock value has been inflated, primarily to benefit the selling shareholder. That’s the guy that owns the company. That’s the guy that hires the appraiser. So, you can see that a bit of sunlight is needed in that environment. And that’s where this proposed regulation will exist this fall.”

The business valuation community has been at odds with the DOL over the agency not following valuation standards in its assessment of fair market value (aka adequate consideration). There is concern that the new proposed regs will reflect this, so it’s important for the valuation profession to make its voice heard during the public comment period before the regs are finalized.

Appellate court affirms decision regarding overstated projections

A big red flag when using financial projections in a DCF is relying on ones that were prepared for some other purpose, especially if there was a tendency to paint a rosy picture. Another factor to look at is how well the company actually performed compared with its projections in the past.

In a New York buyout dispute, the court rejected a DCF by the petitioner’s expert that used projected earnings the company had used a short time earlier to qualify for a bank loan. The petitioner argued that, since the loan was made and it’s a federal crime to give false statements to a bank, the projections must have been credible. The respondent’s expert used a single-period capitalization method and came up with a much lower valuation.

No good: The court did not look favorably on the projections used for the bank loan. Plus, the company had never met a single projection in the years examined. Therefore, the court ruled that the projections were not reliable, making the DCF model prepared by the petitioner’s expert unreliable. The valuation from the respondent’s expert prevailed in the case. The petitioner appealed, and the decision was affirmed.

The trial court case was Magarik v Kraus, Index No: 606128-15, Nassau County, Supreme Court of New York, J. Destefano (April 10, 2020), which is on BVLaw. The appellate decision is Magarik v Kraus USA, Inc., 2024 NY Slip Op 04964 (Oct. 9, 2024).

BVR expands scope of RADA search tool

Many BVR users have been putting the new Research and Data Assistant (RADA) through its paces. RADA is a state-of-the-art search tool that gives concise, summarized responses and page references when you enter a simple prompt. Until now, RADA has only been available within the BVResearch Pro platform, but it now can be used with more BVR offerings: the DealStats Value Index, Economic Outlook Update, Control Premium Study Quarterly, and the BIZCOMPS/BVR Deal Review. But wait, there will be more—RADA will continue to evolve and will be deployed over more BVR data and content, so stay tuned. For more details and how to use RADA, click here.

Tomorrow! Healthcare compensation case studies

Join Kathryn A. Taylor (ECG Management Consultants) as she presents two case studies of compensation valuation—one involving call coverage and one on medical directorship arrangements. She will discuss the methodology, relevant regulatory environment, and the enforcement actions that could trigger stiff financial penalties. The webinar, Examining Case Studies in the Healthcare Context, is tomorrow, November 7, from 10:00 a.m. to 11:40 a.m. PT (1:00 p.m. to 2:40 p.m. ET), and it qualifies for two CPE credits. For details and to register, click here. (No charge for holders of the BVR Training Passport Pro.)

Extra: Next week, there are two webinars of interest: one on the conversations valuation experts must have with attorneys and the other on case studies on valuing personal goodwill (see the “CPE events” section in this issue for more details).

IVSC seeks board members

The International Valuation Standards Council (IVSC) is seeking applications for roles on its Standards Review Board and three subject matter-specific boards, covering business valuation, tangible assets, and financial instruments. Applicants should have extensive expertise in valuation, ESG, and international perspectives, “ensuring a broad representation of skills and geographies.” The new board appointees will start their terms in the second quarter of 2025. Applications can be submitted online through the IVSC website, and the closing date for applications is December 16. For more information, click here.

BV movers . . .

People: At the AICPA and CIMA Forensics and Valuation Services Conference in Dallas, several professionals were given the Standing Ovation Program Award, which recognizes young finance professionals who exhibit exemplary professional achievement in the areas of forensic accounting and business valuation; the recipients are: Sara Maddox, ABV (DMJPS, Asheville, N.C.); Kristyn Ostman, CPA/CFF (Alvarez & Marsal, Washington, D.C.); David Harkins, ABV (Mercer Capital, Nashville, Tenn.); Ashleigh Lansing, CPA/ABV (Sound Forensic Economics CPA, Bellevue, Wash.); Kent Swartzberg, CPA/ABV/CFF (CBIZ Forensic Consulting Group LLC, Bakersfield, Calif.); Sasha Moore CPA/ABV (CBIZ Forensic Consulting Group LLC, Tampa, Fla.); Ross McSwain, ABV (Grant Thornton, Charlotte, N.C.); Anthony Venette CPA/ABV (DeJoy & Co., Rochester, N.Y.); Alex Mats CPA, CFF (HKA, Chicago); and Nicholas Contey, CPA/CFF (DMC Group, Jersey City, N.J.).

Firms: Reading, Pa.-based Herbein + Co. has its first location in Delaware with the acquisition of Wilmington, Del.-based Bumpers & Co. … Rochester, N.Y.-based The Bonadio Group will merge with Wilmington, Del.-based CPA advisory firm Cover & Rossiter; the deal adds over 20 new team members and six team leaders.

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

CPE events

‘We Need to Talk’: Valuable Conversations That Attorneys and Business Appraisers Must Have, November 12, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET. Featuring: L. Paul Hood Jr. (Paul Hood Services) and Timothy R. Lee (Mercer Capital). CPE credits: 2.0.

Hear from an attorney and valuation expert about the critical things they need to discuss that can make or break an engagement.

Explicate the ‘Personal’ in Goodwill, November 15, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET. Featuring: Josh Shilts (Shilts CPA PLLC) and R. James Alerding (Alerding Consulting LLC). CPE credits: 2.0.

Recent developments have brought the analysis of enterprise versus personal goodwill to a new level. Hear about that as well as some case studies and practical applications of the methodology.