The Frontline of Fraud Risk Management Internal fraud occurs as the result of a series of weaknesses within internal control systems, which are at the top of the fraud risk management pyramid. This article defines the three essential types of internal controls, their five interrelated components, and how they can be instituted for maximum protection. ...

When is it appropriate for highway/heavy construction contractors? This article discusses the appropriateness of using the Asset-Based Approach for minority interests in companies where that approach results in higher value than the Income or Market Approach. ...

A view of the use and limits of option models (Part 2 of 2) Option pricing models (OPMs) are increasingly used to estimate the discount for lack of marketability (DLOM) in the business valuation profession. Some analysts disagree about whether OPMs are applicable for estimating the DLOM. Since OPMs were originally derived to determine option prices for publicly traded securities, many analysts question the ...

Beginning this year, the PCAOB is making it a priority to examine whether or not firms that offer non-audit service lines are compromising the quality and accuracy of their audit services by doing so. In yet-to-be-scheduled roundtable discussions with audit firm leaders, regulators are expected to delve into the potential implications for such consulting arrangements. According to PCAOB chairman, James Doty ...

New private company cost of capital model delivers consistent and observable results The Implied Private Company Pricing Line (IPCPL) Cost of Capital Model seeks to eliminate pitfalls for unsystematic risk, liquidity, small stock premium, PTE taxes, and cash/leverage by utilizing real transaction, market-clearing prices between buyers and sellers of comparable small private businesses. ...

A view of the use and limits of option models (Part 1 of 2) Option pricing models (OPMs) are increasingly used to estimate the discount for lack of marketability (DLOM) in the business valuation profession. Some analysts disagree about whether OPMs are applicable for estimating the DLOM. Since OPMs were originally derived to determine option prices for publicly traded securities, many analysts question the ...

The U.S. Supreme court recently upheld the 40 percent penalty in gross valuation misstatement when the partnerships involved were determined to be shams with no economic substance and as such, the partners’ outside basis in the partnership was zero.  The unanimous decision, written by Justice Scalia, resolved a split among the circuit courts as to whether the penalty applied.  The Fifth Circuit Court, where ...

Historical perspective and current recommendations The Internal Revenue Service published Discount for Lack of Marketability: Job Aid for IRS Professionals (Job Aid) in August of 2013.  Now, two new books provide  advice on how to prepare a DLOM and which methods valuators  should consider and why.  These will help any business valuation practice, whether working on a DLOM for the IRS or any other purpose. ...

With the number of retirements in the accounting profession expected to soar over the next decade, many foresee a wave of CPA firm sales happening at the same time.  Anticipating the trend, the Journal of Accountancy has offered up its method of valuing a CPA firm, but the method and results differ depending on whether an external transaction or internal transfer is involved.  Of particular concern is the s ...

A help or hinderance? On July 1, 2013, FASB issued exposure drafts calling for public commentary on three proposals that address private company stakeholder concerns. Two proposals involve accounting for identifiable intangible assets and goodwill acquired in business combinations. In this article, Mark Zyla analyzes the proposed changes, including potential concerns, and their far-reaching impact on the in ...

Valuators play different roles depending on client needs When individuals enter into business transactions, they seek the assistance of a valuation expert to support their decision-making process. Depending on the circumstances and specific needs of the individual, a valuator may find that a business valuation isn’t really what the client needs. Often times, valuators will find themselves on a different ass ...

Will the valuation report prepared by the non-accredited CPA be admitted? The author was recently involved in an Oklahoma domestic relations case where the opposing expert contended he did not have to abide by AICPA standards, reporting or otherwise, since he was not a member of the organization. This article summarizes how this issue was handled by the Oklahoma judge. ...

According to data presented by McKinsey & Company and reported by Bloomberg.com, up to 20 percent of the world’s largest banks may be broken up or merge as part of a correction strategy to boost shareholder returns.  As banks refine their focus on products and regions, the number of global, universal banks may drop from 25 to less than 10.  In 2012, global banks earned an 8.6 percent return on equity, w ...

How long will it last? Dividend recapitalizations provide a mechanism for owners, including private equity firms, to return capital to them (the investors) in lieu of an outright sale. The article discusses trends, the reasons for recapitalizing, and suggests what characteristics to look for when considering this technique. ...

The AICPA has published a comprehensive overview in The Tax Advisor that examines IRS oversight of CPAs who provide valuation services.  Special emphasis is placed on Sec. 6695A, which imposes large penalties for substantial valuation misstatements, and the reason the IRS has increased its involvement in appraisal issues.  The IRS Appraisal Review Process is examined, as well as specific actions that may be ...

A different perspective on profit and performance Balanced benchmarking provides a mechanism by which to assess and manage business branches and units. It also provides a unique insight as to the available paths to improve productivity and complements other analytical tools. The combined effect is that its use provides insight into best practices and ways to improve productivity. ...

More on the neutral business valuator and the mediation process This article, by one of the top national leaders in the mediation profession, discusses the importance of having reliable facts to expedite the settlement of conflicts where the value of a business is a key factor. ...

Increased Scrutiny for ESOP Fiduciaries This article presents a case for higher scrutiny for ESOPs as well as their fiduciaries. By juxtaposing protocol with proverbs from Aesop’s fables, valuable lessons are learned for business and life. ...

Reality TV offers more than entertainment Reality turnaround TV shows provide valuators lessons that go a long way toward improving their consulting and valuation skills, and client deliverable. Those lessons could result in more opportunities and greater credibility. ...

In a letter to the FASB and IASB, the AICPA’s Financial Reporting Executive Committee (FinREC) suggested that a dividing line be created between Type A and Type B leases that deviates from the rule the boards have proposed.  While FinREC supported the objectives calling for transparency and recognition on-balance sheet for all leases, it disagreed with the test for how leases would be classified.  For detai ...