BVR Logo October 30, 2019 | Issue #205-5

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

Diverse feedback to FASB regarding goodwill amoritization vs. impairment

The FASB received almost 100 comment letters on its Invitation to Comment (ITC) on how to account for certain identifiable intangible assets acquired in a business combination. Should annual goodwill impairment tests be done away with for public companies? Should other assets be subsumed into goodwill? Should there be more disclosures about goodwill and intangible assets? These are just a few of the 29 questions that the ITC posed as the FASB revisits this issue. Comments were due October 7.

All over the map: The comment letters (all of which can be viewed if you click here) represent a broad range of respondents, with a disproportionate amount being corporates (in almost every sector), according to Chad Morrissey, a principal in PwC’s Deals Practice, who spoke on a recent podcast. Comments also came from accounting and valuation firms; societies (such as the ASA, AICPA, and RICS); consultants; individuals; and educational institutions. Interestingly, not a lot of comments were from the investor or user community, he notes. All of the respondents said they appreciated the chance to comment, and all agreed that it was necessary to revisit this issue, but that’s where the convergence ended. Responses to the issue of amortization versus impairment were “all across the board,” he says.

Members of the valuation profession have serious concerns over going back to a model that treats goodwill as a wasting asset. Here are some of the points they made in their comment letters:

  • The concept of goodwill amortization leads to inaccurate accounting results and is not compatible with the premise of going concern inherent in the consideration paid to acquire nearly all businesses;
  • For public entities, the benefits to users of financial statements of information provided by the current goodwill impairment model outweigh the costs (which are modest) of providing that information;
  • There are valuable footnotes about assumptions made in the impairment test;
  • Providing an option to test goodwill at the entity level would be a big mistake— good performance of the other parts of the acquired firm could conceal poor performance of the company;
  • Some commenters oppose removing the requirements to assess goodwill for impairment at least annually, while others say the threshold for impairment testing should be upon a triggering event;
  • Synergies that often appear in the goodwill allocation do not have finite lives—they continue into perpetuity; and
  • Convergence with global standards (IFRS) is important; the IASB’s current majority views are that reverting to goodwill amortization would not provide significantly better information and that other intangibles should not be subsumed into goodwill.

What’s next? FASB will conduct a public roundtable discussion on November 15 in Norwalk, Conn. 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.

BV expert shows how to produce a viable valuation with little financial data available

BV expertise matters, as a recent Florida divorce case shows in which the parties’ experts faced the challenge of valuing a company that once operated abroad but was sold a decade before the divorce trial. Only the owner spouse’s experienced valuation expert produced a defensible valuation, the trial court found. The state Court of Appeal affirmed.

This baroque marital dissolution case began in 1995, when the wife filed for legal separation and later for divorce in Ohio. In 2009, the wife asked a Florida court to determine and distribute marital assets and award her spousal support. The Florida case was tried in 2016. There was no transcript of the trial court testimony. The issue was how to value a company in which the husband obtained an ownership interest in 1991, while being overseas, which he sold in 2006 for nearly $2.4 million. The company operated in the Middle East.

Coverture fraction method: For purposes of calculating the marital value of the company, the valuation date was 1995. The husband’s expert used a coverture fraction method. As the numerator, he used the number of months during which the asset was marital in nature, and, as the denominator, he used the total length of ownership. The coverture fraction was 23.3%, which he then applied to the 2006 sales price. The husband’s expert arrived at a marital value of the asset, as of 1995, of almost $556,000. The former wife’s share was almost $245,000, considering her share of taxes paid by the former husband on the sale.

The wife’s expert used an income approach even though both experts apparently said it was “very difficult” to come up with accurate estimates of an “interim value” where no “normal” financial records were available given the passage of time and location of the business. The trial court adopted the approach of the husband’s expert.

On appeal, the wife argued the trial court should have credited her expert’s valuation. Rejecting the argument, the appellate court noted the wife’s expert “was a CPA with no business valuation credentials” who used an income approach “despite having essentially no financial documents reflecting the cash flow, liabilities, assets, and so forth of the company.”

In contrast, the Court of Appeal said, the trial court found the husband’s expert was “experienced in valuing businesses and offered a reasonable approach” to valuing the company “despite having little financial data beyond the ultimate price for which Former Husband sold his interest.” The appellate court also observed that, when there is no transcript of the trial court testimony, an appellate court should give “utmost credence to [the trial court’s] fact findings.”

Considering these factors, the state Court of Appeal upheld the trial court’s value determination.

A digest of Kvinta v. Kvinta, 2019 Fla. App. LEXIS 10172 (June 28, 2019), and the court’s opinion, are available at BVLaw.

Dig deeper into restricted stock studies
for DLOM

A common approach to developing a discount for lack of marketability (DLOM) when using restricted stock studies is to simply list their averages and use those figures in the estimate. This is the “benchmark average” approach, but it does not provide enough analysis, says Pasquale Rafanelli (Empire Valuation Consultants) during a recent webinar. The analysis should tie the restricted stock study to the characteristics of the subject company. Rafanelli spent some time discussing the Stout Restricted Stock Study (formerly FMV Opinions), which includes the DLOM Calculator. The calculator embodies the restricted stock comparative analysis approach (RSCAA), which is driven by the financial characteristics of your subject company as well as the volatility of the market. The results can be used as a sanity check to a standard DLOM analysis, or they can play a more important role in the overall analysis. The calculator’s output reports can be used in an appendix to your report.

NACVA looks to recruit mentors

NACVA is recruiting up to 60 to 80 members to act as mentors to support the organization’s membership in a number of ways, such as being included in an online directory for easier connection with members. Also, mentors will be available to answer questions and help guide CVA and MAFF candidates through the certification process. What’s more, approved firms will be available as a resource for members to obtain support to joint venture large projects or take on engagements in which they may lack experience. For more information and for the requirements for mentors, see the NACVA CEO’s Message—Third Quarter 2019.

Call for statutory regulation for valuers in India

At the first Global Valuation Summit organized by the Institute of Valuers (IOV) in New Delhi, the chairman of the Insolvency and Bankruptcy Board of India (IBBI) said that a statutory body should be established for valuers in that country. “IBBI is looking for valuers who are part of a setup that has accountability, responsibility and the necessary skillset to manage their mandates,” said MS Sahoo, according to a release. “This is an important aspect of IBBI to have fair valuations of businesses and assets.” The IBBI is the authority that recognizes registered valuers’ organizations (RVOs), registers valuers, and monitors their conduct and performance in relation to valuation assignments under the country’s Insolvency and Bankruptcy Code (IBC) and the Companies Act. Currently, there are 1,350 registered valuers (for real estate, machinery and equipment, and securities or financial assets) who are registered through 11 RVOs.

BV movers ...

People: Joining New York-based Empire Valuation Consultants in a new Long Island office are Harold L. Deiters III, CPA/ABV/CFF/CGMA, CFE, MAFF/CVA, as a managing director; Joseph Ammirati, CPA/ABV/CFF, ASA, as a director; and Pasquale Rafanelli, CPA/ABV, ASA, CVA/CBA/MAFF, CFE, CDFA, as a senior manager; they were with Deiters & Associates LLC Herald-Mail Media readers voted William F. Fritts, CPA, CVA, a member of SEK, CPAs & Advisors, No. 1 accountant in the Tri-State area (Maryland, Pennsylvania, and West Virginia) for 2019; he is a member-in-charge of the firm’s Hagerstown (Maryland) office and provides accounting and tax services as well as valuation services primarily for estates and buy-sell agreements.

Firms: New York City-based Friedman LLP will relocate its Marlton, N.J., office to newly designed space in the same town; the firm will also open a new office in Los Angeles … West Hartford, Conn.-based blumshapiro has merged with SunBlock Systems, a cybersecurity, digital forensics, business intelligence, and technology consulting firm in Reston, Va. … Naperville, Ill.-based Sikich plans to acquire Scanlan & Leo of Oak Brook, Ill., on November 1; John Scanlan and Joseph Leo will be admitted as partners … Wallace Neumann & Verville of Las Vegas will be joining Fargo, N.D.-based Eide Bailly on November 18; the deal brings three partners and 13 staff members to the firm and will bolster its expertise in several key industries, including entertainment, construction, and medical practices … Houston-based Weaver has opened a new office in Oklahoma City, its 12th location in the U.S.; the office will initially focus on working with energy companies and middle-market businesses across other industry sectors … Chicago-based Baker Tilly Virchow Krause has opened a new 30,000-square-foot, state-of-the-art office in Central Pennsylvania that will be the firm’s primary hub for this region.

Please send your professional and firm news to us at

Upcoming BVR training events

  • Don’t Make Me Call Security!’: How to Consider Data Security in a Business Appraisal (October 30), with Mike Blake (Brady Ware & Co.) and Charles Hoff (Data Security University). This is part of BVR’s Special Series on Intellectual Property.

    According to Inc. Magazine, 60% of successful cyberattacks force the target business to close. An appraiser and a cybersecurity expert will discuss how this very material risk should be captured in a business appraisal.

  • The IP in IPO: IP Valuation Lessons from Recent Public Exits (October 31), with Efrat Kasznik (Foresight Valuation Group LLC). This is part of BVR’s Special Series on Intellectual Property.

    The presenter will analyze several recent IPOs involving unicorns to understand how intellectual property assets are driving the valuations.

We welcome your feedback and comments. Contact Andy Dzamba (Executive Editor) or Sylvia Golden, Esq. (Executive Legal Editor) at:

LinkedIn Icon
Twitter IconYouTube Icon

Business Valuation Resources, LLC
111 SW Columbia Street, Suite 750, Portland, OR 97201
1-503-479-8200 |
© 2019. All rights reserved.