Has the Securities and Exchange Commission given M&A business brokers the “green light” to engage in securities transactions? The Securities and Exchange Commission (SEC) issued a January 31, 2014, No-Action Letter indicating it would not take enforcement action against an M&A broker contemplating a securities transaction. ...

Fannie Mae has officially launched a new website focused solely on appraiser quality monitoring.  The site is based on Fannie’s new appraisal review process, which was created to support data accuracy and consistency.  Through the site, lenders now have access to a list of appraisers whose reports are subject to a complete and thorough review by the agency, as well as those whose work is no longer accepted. ...

In the “good old days" before the crash of 2008, Wells Fargo generated $100 billion in mortgage revenue every quarter.  Now, it makes barely half that.  As the largest US bank by market cap, it’s now seeking alternative business and product lines to fill that unfathomable financial gap.  Sources say that Wells Fargo is exploring the idea that the virtual currency, Bitcoin, might be the perfect revenue repla ...

Capturing value within the horizon using accounting-based valuation This article examines two alternative approaches to the Discounted Cash Flow (DCF) Method when seeking to capture the majority of total value within the horizon. A closer look is given to the Residual Enterprise Income (REI) Method as well as the Abnormal Enterprise Income Growth Method (AGR) in comparison to the DCF Method, and a determina ...

In a well-supported article by zerohedge.com, the author suggests a “fix” to the current problems with price-to-earnings (P/E) multiples.  Among the questions answered are:  Can P/Es tell us anything about stock valuations during periods of earning recessions?  Is a bear market closer than we think?  If so, when is the best time to buy?  What do today’s inflated valuations mean for long-term returns?  Why a ...

In a brief, but telling article from Inc.com, Jeremy Quittner cites statistics from the November 2013 Janus Monthly Equity Report that suggests the tech and social media industries may be heading for a burst of 1990’s proportions.  This is due largely to the outrageously enormous public debuts of companies like Facebook and most recently, Twitter.  The stratospheric valuations only become more unrealistic w ...

According to Tax Court decisions Part 1 of this article examines eight of the 16 most common mistakes made in business valuation reports according to U.S. Tax Court decisions. Business valuation textbooks, training manuals, and conference presentations may do a good job of teaching the right ways to conduct valuations. But in some respects, the most authoritative teacher of what is right and, just as import ...

The Black Scholes Model The true value of a stock option is often greater than its intrinsic value. This article takes a theoretical approach to valuation that focuses on the time value of money with the Black-Scholes Option Pricing Model. ...

New technologies are emerging in the market to fast, that we barely acquaint ourselves with one before two more burst onto the scene.  Not all of these advancements will impact our world or even still be around a decade from now.  The ones that do last, however, will transform the economy and our lives in significant ways.  In an extremely informative and interactive report by McKinsey & Company titled, ...

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 ...