New paper examines ‘estimated current value’ in Trump case

The FASB needs to clear up the definition of how assets are valued in personal financial statements, concludes a new paper. The author examines the key forensic accounting issues in the New York case in which the court found former President Trump and others civilly liable for providing misleading financial statements to banks and others. ASC 274 requires such statements to be based on “estimated current value,” and the definition of this was hotly contested in the Trump case.

‘As if’ or ‘as is’? The defendants claimed the wording in the definition meant value “as if” the asset had been developed or after legal restrictions were removed. The plaintiffs claimed the value should be “as is,” meaning its value today without future enhancements. A bank executive involved in making loans to Trump testified that he understood the valuation to be on an “as is” basis.

The rule is so flexible that estimates of value for the same asset could “differ by orders of magnitude” and still be acceptable under GAAP, the paper says. Trump testified that he considered his personal financial statements “worthless.”

The paper examines other accounting issues in the case, including differing views of materiality, the protective value of disclaimers for financial statement issuers and accountants performing compilations, the impact of deferred tax liabilities on net worth, and whether personal financial statements have value. In calling for the FASB to clarify the definition, the author concludes: “A situation where reputable experts can disagree so fundamentally over the allowable values is not tenable for the profession.”

This paper is the featured paper in a new monthly recap of research and academic papers of interest to valuation experts that now appears regularly in Business Valuation Update.

Court devises own ROT for valuing a plumbing business

In a Nebraska divorce case, neither side offered expert testimony as to the proper methodology for valuing the husband’s plumbing business. The husband’s expert (who did not testify) did a valuation of the physical assets of the business, which came to $288,575. The wife did not engage an expert and did a valuation herself, using a rule of thumb (ROT) of two to four times gross revenue, coming up with a range of $675,000 to $1.2 million.

Down the drain: The trial court disagreed with both valuations but used the wife’s ROT methodology, adjusting it downwards to one times gross revenue, which was $332,900. The court agreed with the wife’s assertion that the “business had more value than its physical assets” but did not explain why it chose the one times gross revenue multiple. (We note that the 2024 Business Reference Guide reports that MVIC/net sales for a plumbing business of this size is 0.42.)

The appellate court affirmed the trial court’s decision, noting that, since neither side presented expert testimony as to the proper methodology for valuing a business of this type, the trial court did not abuse its discretion in coming up with the value.

The case is Casement v. Casement, 2024 Neb. App. LEXIS 506, and a case digest and full opinion are available on the BVLaw platform.

What marketing technique works best for you?

This year, what has been your most effective marketing strategy? Social networking? A website redesign? Time-tested face-to-face meetings? Let us know in this month’s “Two-Minute Practice Builder” survey. Please take just a few minutes to give us your observations—click here to take a fast survey. The survey deadline is October 25, and we’ll share the results in the October 30 issue. Thanks for participating!

NACVA to roll out ‘AI Data University’

Later this year, NACVA will launch an AI information library known as “AI Data University™” as part of its efforts to “stay ahead of the AI curve and be proactive in this realm on behalf of our members and the professions we support,” according to the organization’s CEO message for the third quarter of 2024. The service will be free to members who have been surveyed about AI and asked anyone interested to join the beta testing and development team for the new offering.

Earlier this year, NACVA, through its new Leadership Initiative Board (LIB), set up an Artificial Intelligence and Machine Learning Commission. The group is made up of two representatives each from the LIB, Ethics Oversight Board (EOB), Standards Board (SDB), and the Executive Advisory Board (EAB), representing interests “from all sides of the AI equation.”

Revamped BVI offers BV certification and ongoing training

BizEquity has “relaunched” its Business Valuation Institute (BVI), a “groundbreaking online educational platform designed to enhance your expertise in business valuation,” according to a blog post. BVI offers the Certified Business Valuation Specialist (CBVS) course, which, the group says, is the only course of its kind that is fully online and self-guided. In addition to the course, BVI will update its library with new courses, resources, and training materials.

A&M releases IPO compensation report

Alvarez & Marsal has released its annual “Initial Public Offering Compensation Report,” which is an analysis of executive compensation arrangements among companies with recent IPOs. The report uses data from proxy statements of 497 companies with a median market capitalization of approximately $731.2 million that have undergone IPOs in the past two years. To download the full report, click here.

CBV Institute partners with VersaFi to promote gender equity

CBV Institute, Canada’s valuation professional organization and standard-setter, has partnered with VersaFi (formerly Women in Capital Markets) to help foster a more inclusive culture in Canadian finance, with a particular focus on empowering women. Through this partnership, the two groups will work together to support and promote diversity, advancing equity and inclusivity for women at all stages of their careers.

BVIUK annual conference is sold out

According to a LinkedIn post, tickets to the BVIUK 2nd Annual Conference in Business Valuation have sold out. The conference, which will be held November 15 in London, does not appear to have a virtual attendance option. This year’s theme is “Valuation Excellence: Enhancing Standards, Methods, and Processes.”

Preview of the November issue of Business Valuation Update

Here’s what you’ll see:

• “Valuation Standards That Apply to Ethical Dilemmas With AI” (BVR Editor). Although the various valuation standards don’t specifically address artificial intelligence, certain ethical standards indeed apply, and they deal with integrity/objectivity, professional competence, confidentiality, due professional care, and sufficient related data. In a session at the ASA annual conference, Karen Lascelle (John Burk & Associates CPAs) reviewed the relevant standards from the ASA, AICPA, NACVA, and USPAP, and we’ve configured them into a chart.

• “Short Takes and Tips From the Annual ASA Conference” (BVR Editor). There was a lot of interesting information to be found both inside the sessions and at the various networking events at the recent ASA Annual Conference in Portland, Ore.

• “ASA Recap: Uncertain Economy Puts Spotlight on Valuation Report Narrative” (BVR Editor). Some current economic data are presented that are key inputs for valuations. Plus, an example of how BVR’s new Research and Data Assistant (RADA) “asks” Gary Trugman (Trugman Valuations) for some advice on writing the economic analysis section of a valuation report.

• “ASA Outlines Efforts to Step Up Its Game Amid Market Challenges” (BVR Editor). G. Adrian Gonzalez Jr., the ASA’s new international president, and the new CEO, Lana Vukovljak, discuss some of the latest efforts to advance and serve the group’s nearly 5,000 members and the broader valuation profession. Interested in volunteering? The ASA Business Valuation Committee needs help with various projects.

• “Need to Explain the Valuation of a Multilayered Entity? Try This Chart (BVR Editor). At the recent two-day Forensic and Valuation Conference held by the Virginia Society of CPAs (VSCPA), there was a good presentation on related-party companies in divorce with valuation expert Karolina Calhoun (Mercer Capital) and attorney Kevin Segler (KoonsFuller), which included a very effective visual.

• “RESEARCH UPDATE. Featured Paper: ‘Key Forensic Accounting Takeaways: People Ex Rel. James v. Donald J. Trump et al.’” A monthly roundup of research papers of interested to valuation experts. The featured paper focuses on the confusion over the definition of “estimated current value” for personal financial statements, which was a hotly debated issue at the New York trial of Donald Trump. Other papers are listed that discuss ESG, CEO/CFO gender, thinly traded assets, and using Monte Carlo to estimate a synthetic beta.

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,” “FactSet/BVR Control Premium Study,” “Economic Outlook for the Month,” and the “Cost of Capital Center”; and

• BVLaw Case Update: The latest court cases that involve business valuation issues with one case featured in a detailed analysis.

To stay current on business valuation, check out the November 2024 issue of Business Valuation Update.

BV movers . . .

People: Corey S. Robinson, CVA, has been admitted as a partner at Reading, Pa.–based Herbein + Co. Inc.; he is in the firm’s Management Advisory Services department, where he provides services to clients such as budgeting and forecasting, cash flow and revenue management, and other specialized financial projects; he also advises a team of specialists in preparing quality of earnings reports, business valuations, litigation support, cash-flow forecasts, and operational analyses … Mark Hayden, CPA, CFA, ASA, has joined Houston-based Weaver as a managing director in its rapidly growing valuation practice; he has more than three decades of experience in business and securities valuation, forensic accounting, and mathematical modeling and has held partner-level positions at two Big Four firms where he focused on valuing operating companies, intangible assets, and complex financial instruments.

Firms: According to PE Hub, CohnReznick is allegedly exploring a private equity deal, which would mean six of the country’s top 20 accounting firms (per INSIDE Public Accounting rankings) have taken private equity investment … Dallas-based VMG Health, a valuation and consulting firm in the healthcare sector, has acquired Tampa, Fla.-based Carnahan Group, a healthcare technology consulting firm that offers software such as the FMV-MD® platform, an algorithm-driven solution that provides automated fair market value opinions; the firm will be integrated into VMG’s Physician Compensation and Strategic Consulting divisions … Chicago-based RSM US is in advanced discussions to merge with its London-based firm RSM UK Holdings Limited, which is designed to create a leading platform to provide assurance, tax, and consulting services for middle-market leaders globally.

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

CPE events

Valuation Considerations for Gift and Estate Tax, October 16, 10:00 a.m.-10:50 a.m. PT/1:00 p.m.-1:50 p.m. ET. Featuring: Anthony Festa (Marshall & Stevens Inc.), David Gaynor (Marshall & Stevens Inc.), and Patrick Craig (Marshall & Stevens Inc). CPE credits: 1.0.

Experts in three different valuation disciplines will demystify the valuation process for estate assets, including intangibles, machinery and equipment, and real estate. The panel will provide examples and discuss how their results are reconciled with each other to produce credible results.

Introduction to Power Automate: Automate Your Workflows and Increase Productivity (A BVR and CBV Collaboration), November 5, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET. Featuring: Tomas Milo (Sigma Optimized). CPE credits: 2.0.

BVR and CBV Institute present this webinar, which will review key features and examples using Microsoft’s Power Automate, a comprehensive, end-to-end cloud automation platform powered by low code and AI. Examples will show how the technology can be used to automate repetitive work, reduce errors, and increase efficiency.