In a brief but revealing article by the Wall Street Journal, auditors at the seven largest accounting firms in the U.S. were cited for deficiencies found in 37.5 percent of the audits inspected by regulators.  The vast majority of the deficiencies involved evaluation of the market prices companies supplied for complex assets.  Citations were also made for failure to test managers’ assertions about the metho ...

Wandry v. Commissioner In certain cases, formula-driven, gift-giving plans have proved to be successful. In other cases, they have not. What characteristics differentiate a formula gift-giving plan that can withstand the Internal Revenue Service (the “service”) scrutiny and be upheld in Tax Court from a plan that gets defeated?  The Wandry decision1 provides insight into these questions and highlights issue ...

Summary and Solutions Morningstar announced in September 2013  it will discontinue publishing the SBBI Valuation Yearbook, but that it will continue to publish the Ibbotson SBBI Classic Yearbook.  James Harrington, who was previously director of business valuation research in Morningstar's Financial Communications Business, provides a summary of which data is being discontinued and continued, along with a d ...

According to the Wall Street Journal, now would be a good time to sell a business.  When examining the small-business-for-sale market, transactions are up significantly from this time last year.  In 2012, there were 1,189 small businesses sold between July and September, while 2013 has surpassed that total with 1,685.  The upswing in sales has been mostly in service companies, followed by retailers and rest ...

In defense of the Discounted Cash Flow Method Richard R. Conn challenges criticism of the Discounted Cash Flow Approach and premise that the Market Approach is superior to an Income-Based Approach, even when there is more just superficial observations. The author proposes that “ it is important to realize that the circumstances in which the DCF Method indicates a different value than the market price should ...

Beyond an all-or-nothing approach This overview examines the circumstances under which S corporations may or may not be tax affected. Particular emphasis is placed on family law engagements, which do not always involve a consistently defined standard of value, which creates much confusion for valuation analysts. ...

  In case you missed it, the Professional Standards and Guidance Committee (PSGC) of the Appraisal Institute (AI) submitted its official comments to the Appraisal Standards Board of The Appraisal Foundation regarding feedback to drafting changes to the 2016-2017 USPAP.  In its candid response, AI says USPAP has a “mixed record” when it comes to addressing appraiser behavior in a way that establishes pu ...

In its Washington Report and State News web section, the Appraisal Institute (AI) recently reported that the U.S. Small Business Administration (SBA) released an updated Standard Operating Procedure 50-10 5 F.  The update institutes guidelines for SBA lenders making use of SBA credit assistance.  The alteration affecting valuation involves business and intangible assets in circumstances where there is a cha ...

Just because a corporate stock price is on the rise, is that justification enough for the huge payouts executives receive?  While shareholder returns are usually the most prominent factor considered by corporations when determining executive pay, many elite business school educators and industry experts don’t think they should be.  They contend that executives regularly profit off short-term bullish markets ...

In an article titled, “PCC to Ask FASB to Endorse First Private Company GAAP Exceptions”, under the subhead, “Business combinations”, the Journal of Accountancy reveals that the Private Company Council (PCC) approved a proposal to FASB that would allow a private company to elect to amortize goodwill acquired in a business combination on a straight line basis over 10 years or less. The proposal is conditiona ...

A review of BVR’s Guide to Discounts for Lack of Marketability. If you are looking for a comprehensive source of information about the DLOM and the cases that business appraisers consider for confirmation of a method, look no further than BVR's Guide to Discounts for Lack of Marketability, Fifth Edition by John Stockdale, Sr. ...

The standard 10 stages to use in an intangible asset engagement In this second installment, Robert F. Reilly completes his review of the 10 typical stages of any intangible asset analysis engagement. For purposes of this article, an intangible asset analysis may include a valuation, damages analysis, transfer price study, or other economic analysis. The business appraiser will typically consider these stage ...

The standard 10 stages In this first half of his two-part series, Robert F. Reilly summarizes six of the ten typical stages of any intangible asset analysis assignment. For purposes of this article, an intangible asset analysis may include a valuation, damages analysis, transfer price study, or other economic analysis. The business appraiser will typically consider these stages, or elements, before, during, ...

How we define tangible and intangible assets is paramount to accuracy and fairness in valuation. In this article, Dr. Carl Sheeler, responds to a September 9, 2013 concept paper authored by Rick Baumgardner, Chair of the Appraisal Practices Board of the Appraisal Foundation, titled “Valuation Issues in Separating Tangible and Intangible Assets.” ...

Things change because markets are not logical; markets are emotional. In an analysis featured on CNNMoney.com, Ben Horowitz lays out the specific challenges of raising capital and valuing startups in the current economic climate. In an eye-opening comparison, he looks at the price/earnings ratios (P/E) of all S&P 500 IT companies for the last 18 years. With this wide of a time span, one might expect som ...

An alternate business valuation report format This article briefly describes an alternate format for business valuation (BV) reports that can make them more understandable. ...

Structured settlements are a useful tool, but not always advisable! There is plenty of acrimony in marital dissolutions. One way to possibly address the financial concerns of all and reduce acrimony is to consider the use of a structured settlement. A structured settlement replaces one lump payment with smaller payouts over time. It’s a concept frequently used in workers’ compensation or tort cases, but mor ...

In their recently released Beige Book, the Board of Governors of the Federal Reserve System break down the economic performance of the nation within seven business sectors across 12 metropolitan economic districts.  Prepared at the Federal Reserve Bank of San Francisco, the findings are based on all data collected on or before August 26, 2013.  Business sectors covered include consumer spending & touris ...

  According to the US Bureau of Economic Analysis, “research and development” (R&D) are now considered a fixed investment. The report, released last month, contains GDP figures categorizing R&D with this distinction. R&D now joins software in a new category labeled “intellectual property products”. While some see the change as only affecting a small number of economists, others see the move as b ...

Valuing Nokia Siemens Networks Nokia Corporation is bound to look very different after Microsoft buys its devices division. When the initial purchase was announced, most in the industry were shocked. The bigger question is: How much will the remaining parts of the company be worth once the deal is done, and how should they be valued? Analysts from JP Morgan Cazenove provide a very interesting breakdown in a ...