Admissibility of Expert Witness Testimony and Reliability of Methodology On April 24, 2023, the Supreme Court of the United States approved two amendments to Rule 702. The language of these amendments was modified slightly from the language of the proposed amendments approved by federal judiciary’s Advisory Committee on Evidence Rules. This article discusses the amendments and how the changes will impact the admissibility of expert witness testimony. On December 01, 2023, new amendments to Rule 702 of the Federal Rules of Evidence will go into effect that will impact the admissibility of expert testimony. These amendments concern the standard for…
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Consideration of Adultery in a No-Fault State and Elimination of Permanent Alimony (effective in Florida as of July 01, 2023) Florida has eliminated permanent alimony. This article discusses this change in the law, including the new alimony structure, consideration, burden of proof, and fact that the court now is allowed to consider adultery in determination of support. More than 200 laws passed in the recent 2023 Florida legislative session including: HB[1] 543, which allows Floridians to carry guns without concealed weapons licenses;[2] HB 1305, which sets requirements for the Florida Department of Transportation to conduct inspections of the Walt Disney…
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Sanity Checks to Keep it Real and Defensible (Part II of II) This is the second QuickRead article on interest rate volatility and modeling, read Part I here. As valuation professionals, we know that we need to develop and test the interest rate assumption. Valuation professionals also need to understand the impact that an interest rate used will have on the cash flows and value of the firm, and ensure that the rate is real and defensible. Monte Carlo modeling allows us to test the underlying assumptions. Time to put it all together. This is the second QuickRead article on…
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The Vital Role of Seamless Internal Communications When occupational fraud occurs within an organization, it is not a surprise that the root cause of the fraud was due to deficient internal controls. However, what does “internal controls” mean to all parties involved at an organization? Accountants should know what “internal controls” are, but does this concept resonate with the personnel within the sales or operations departments? Perhaps not. This article discusses the importance of having all members of the organization involved in the internal control process. Internal Communication and its Impact on Fraud Prevention When occupational fraud occurs within an…
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The Choice of Models and Considerations When Developing a Rate for Your BV Report (Part I of II) Why all the excitement about interest rate volatility? Can’t we just look at a multi-year average and use that in our calculations? Well, we could, but considering recent and expected volatility, that might lead to some big errors. There are several reasons. In this article, the author discusses various models and the importance of the rate developed for a BV report. Why all the excitement about interest rate volatility? Can’t we just look at a multi-year average and use that in our…
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(Part V) To look to the future of the BV profession, we must explore the relevant dynamics within the industry. That starts with looking to our past to see what events and milestones brought us to where we are today, followed by ascertaining the economic and demographic trends leading us into the future, and culminating with identifying those trends which will have the greatest impact upon the profession. NACVA set upon drafting a white paper that would provide valuable insight to the future of the business valuation profession, with Chris Mercer taking the lead who is known by nearly every…
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More Than Just a Conversation What tools are available to assess an owner’s readiness to exit a business? What process exists to enable professionals to assist an owner with exit planning? This article is based on three tools presented and discussed at NACVA and the CTI’s July 2023 Business Valuation and Financial Litigation Super Conference. Those three tools are the Business Exit Readiness Index (BERI), the Owners Dependence Index (ODI), and the Growth Planning Index (GPI). These three owner survey tools deliver actionable information for the advisor(s) and the business owner client. These tools are useful at different points of…
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First Steps in the Fraud Investigation The first steps in a fraud investigation are crucial to setting the tone and can set the stage for a successful, or lack thereof, investigation. This article details the first steps a company should take when initiating a fraud investigation, what experts will be necessary to uncover illicit behavior, and what parties need to be notified. Introduction Fraud is a pervasive issue that affects businesses, organizations, and individuals across various industries. Often, an organization is surprised to find itself a victim of fraud, especially when the perpetrator is a trusted employee. According to the…
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Emerging Technologies, Emerging Ethical Risks This article summarizes points made at the Address at the 2023 NACVA Annual Conference. On-Demand Course: We Know Smart Contracts are “Smart” but Are They “Ethical”? Emerging Technologies, Emerging Ethical Risks It is not the business of the botanist to eradicate the weeds. Enough for him if he can tell us just how fast they grow. –C. Northcote Parkinson, in Parkinson’s Law, 1957. On July 13, 2023, I was invited to deliver the Keynote Address at the NACVA and the CTI’s Business Valuation and Financial Litigation Super Conference held at the Cliff Lodge in Snowbird,…
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Move Out of Your Comfort Zone In this month’s column, Rod Burkert discusses embracing risk and a growth mindset. If you are unhappy with your practice for any reason, is it because you are playing it too safe … too small? Is your reluctance to take risks (which aren’t really risks) holding you back from reaching the next level … whatever that might be for you? Read on, learn from a seasoned BVFLS expert. If you’re unhappy with your practice for any reason, is it because you are playing it too safe … too small? Is your reluctance to take…
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A Case Study In articles published in The Value Examiner, “A Hybrid Approach to Estimating Company Specific Risk,” and “A Hybrid Approach to Determining Company Specific Risk: Using Monte Carlo Simulation,” the author explains the theoretical basis for using a company specific risk premium in the build-up method and presents a methodology for developing the company specific risk premium. Then he shows how to incorporate Monte Carlo simulation into the model. The model is a variation of David Wood’s MUM for allocating personal and business goodwill and the risk rate component model. The following article is a review of some…
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Theory to Practice VPS StraightTalk Webinar, June 15, 2023 This article summarizes key takeaways from the June 15, 2023, VPS StraightTalk Webinar presentation co-led by R. James Alerding, CPA, ABV and Carli D. Lehr, CPA, CVA, CSEP. The speakers discussed how to differentiate between a projection and forecast, the importance of developing a reliable cash flow or projection evaluation of specific risk to the overall valuation, lessons from court cases regarding the use of forecasts, and what valuation standards say about the use of prospective financial information in business valuations. This article summarizes key points. Business valuation analysts spend a…
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in Business Valuations The advent of ChatGPT and its other AI apps has come to the forefront. This is potentially disruptive technology that will raise uncomfortable issues, but also open the door to innovation and new industries. AI will impact how business valuations are performed and the role of accredited professionals. This article discusses how AI and machine learning could impact the business valuation profession. Is knowledge power? Artificial intelligence (AI) refers to using computers, IT systems, and technologies and their abilities to perform tasks that naturally require human intelligence, i.e., simulated cognitive, critical thinking, and reasoning capabilities. How does…
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(Part IV) To look to the future of the BV profession, we must explore the relevant dynamics within the industry. That starts with looking to our past to see what events and milestones brought us to where we are today, followed by ascertaining the economic and demographic trends leading us into the future, and culminating with identifying those trends which will have the greatest impact upon the profession. NACVA set upon drafting a white paper that would provide valuable insight to the future of the business valuation profession, with Chris Mercer taking the lead who is known by nearly every…
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Structured, Clear, and Well-Researched and Reasoned In a litigation setting, a well-written business valuation report can position your conclusion of value as credible. When completed for tax purposes, a well-written business valuation report can help avoid an IRS challenge. In any circumstances, a well-written business valuation report can provide the business owner with ways to increase cash flow and reduce risk. After business appraisers learn information about a business, research the economy and applicable industry(ies), analyze the financial statements, and estimate the value of the business, the work is captured in a report. In many cases, it is the business…
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Part Two in a Series Addressing Advances in Forensic Accounting and Financial Forensics The author of this series of articles is co-founder of Valid8 Financial Forensics Software, a Seattle, WA and Boulder, CO-based professional service provider. This second article, and those in the forthcoming series, set forth techniques used to investigate financial fraud allegations and the reliance and value of artificial intelligence in these investigations. My first article in this series made the case that changing financial markets were setting the stage for an increase in financial fraud cases in the years ahead. As investigations increase, so will the need…
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The “Least Bad” Method Determining a discount for lack of control (DLOC) is one of the more challenging tasks facing business valuators. The reason for this is the methodologies used each have weaknesses. In this article, David Goodman looks at two methods and explains the difficulties in relying on them. This is a case where business appraisers may need to rely on the “least bad” method … a term of art. Determining a discount for lack of control (DLOC) is one of the more challenging tasks facing business valuators. The reason for this is the methodologies used each have weaknesses.…
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An Interview with Zain Kalson, founder of Etheia As part of a broader dialogue around business valuations in the context of divorce, this article features an interview conducted by Andrew Thompson, Esq., with Zain Kalson, the founder of Etheia. The article discusses trends regarding how advanced data analytics are helping attorneys and experts sort through hidden assets, analyze expenses, and improve outcomes in marital property divisions. As part of a broader dialogue around business valuations in the context of divorce, I (Andrew or “Drew”) recently had the opportunity to sit down with Zain Kalson (“Zain”), the founder of Etheia, and…
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Tests of Reasonableness Business appraisers use tests that ask whether decisions made are legitimate and designed to remedy a certain issue under the circumstances. These tests are commonly referred to in the valuation literature as tests of reasonableness. Several methods have been suggested and employed (e.g., purchase justification test), but limited literature speaks to the use of a test of reasonableness for company specific risk premia (CSRP). This article explores data sources and analyses available to appraisers to provide a “test of reasonableness” to increase the confidence level and analysis of their CSRP analysis. Business appraisers use tests that ask…
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Evaluation of Your Priorities Most BVFLS practitioners happen to have fallen into this line of work by accident or chance. How can we prioritize and also find meaning and purpose in our profession. Rod Burkert shares his views on this subject. Henry David Thoreau said, “The price of anything is the amount of life you exchange for it.” This made me think, “How much of our lives are we exchanging for the price of our practices?” Most of us wake up in the morning with a combination of these business-related thoughts: How do I get the work I have done?…