Skip to content
Search

News & opinion

17 JUL 2019

Timeline reveals advances in trust in fair value for financial reporting

A great deal of progress has been made in the efforts to enhance the public trust in valuations for financial reporting. What was once viewed by regulators as a "fractured" profession has pulled together to respond to criticisms over a perceived lack of unified qualifications, standards, and enforcement in the area of fair value for financial reporting (FVFR).

FVFR timeline

Business Valuation Update attended the recent RICS Business Valuation Symposium in New York City, and one session chronicled the events and developments in FVFR that strikingly illustrated the advances the profession has made (see the accompanying timeline).

The session was conducted by Anthony V. Aaron, formerly with EY and now an adjunct professor at the University of Southern California (Leventhal School of Accounting), and Jay E. Fishman, managing director at Financial Research Associates. Both of these individuals—along with other speakers and attendees in the room—have been personally responsible for much of the progress the profession has made.

At one time, they point out, the profession was primarily centered on fair market value measurements for tax purposes. The rise of fair value measurements for financial reporting in the late 1990s and early 2000s triggered a diversity of practice and "black boxes." It was perceived that the business valuation profession couldn't get its act together in the area of fair value for financial reporting. Even worse, it was felt that public trust in valuations was not at an acceptable level.

One important element of this success has been collaboration, and the RICS event highlighted the teamwork that has gone on in the past and that will be key to moving forward on this matter.

Based on comments from many stakeholders including FASB board members and senior SEC staff members, the profession has taken steps to build trust in the profession. For example, The Appraisal Foundation began issuing a series of financial reporting valuation advisories as best practices (with talk of more to come).

In 2016, a landmark coalition was formed by the ASA, AICPA, and RICS in a major effort to launch the Certified in Entity and Intangibles Valuation (CEIV) credential and its Mandatory Performance Framework (MPF), which focuses on the level of documentation required to support a valuation expert's work. The Big Four as well as many smaller firms have trained their staff in the CEIV, and more will get the credential when the quality monitoring process is finalized.

Positive results

After all of the time and effort spent in this area, the question is: Are we in a better position in terms of public trust and transparency? The consensus from the conference speakers and audience members is "yes." Appraisers are no longer reluctant to have auditors review their work. Also, the nature of PCAOB inspections with regard to fair value measurements bears this out. While about 50 percent of the PCAOB findings on deficiencies continues to involve fair value measurements, the findings are more nuanced than they were before.

Property measurement

Certified in Entity and Intangible Valuations

Enrol now

bv-timeline
Timeline of progress

Also, it appears that the regulators are pleased with the progress that has been made, although they have made no definitive public statements to this effect.

One important element of this success has been collaboration, and the RICS event highlighted the teamwork that has gone on in the past and that will be key to moving forward on this matter.

Welcoming the attendees was Neil Shah, regional managing director for the Americas for RICS, who was joined by Mary Jane Andrews, president and CEO of the CBV Institute (formerly the CICBV, a Canadian group), and Johnnie White, newly named CEO and executive vice president of the American Society of Appraisers (ASA). These groups—and others—are working together to move the profession further along in the area of fair value for financial reporting.

  • By Andy Dzamba, Executive Editor of BV Resources and reprinted with permissions from Business Valuation Resources, LLC