| redentialing has always been an essential way for professionals to distinguish themselves and highlight their qualifications in a particular field. This article focuses on the Accredited in Business Valuation (ABV) credential, administered by the AICPA, and describes its charter, its underpinnings and its evolution as the accounting profession goes through a metamorphosis in response to changing economic and legal challenges.
The ABV credential is conferred upon CPAs who have demonstrated the skill, education and experience necessary to satisfy stringent requirements (see “ Eligibility Requirements for the ABV Credential ”). These requirements were designed to address certain areas of skill, education and experience that are critical to practicing business valuation successfully. For those individuals who provide court testimony as well, having mastered these requirements in order to render a business valuation opinion in the courtroom is not only desirable, it is mandatory. Two well-known and oft-cited court cases dealing with expert testimony, Daubert v. Merrill Dow Pharmaceuticals, Inc. and Kuhmo Tire Co., et. al. v. Carmichael, et. al., codify the Court’s view of expert testimony as follows:
|(1) The witness must have sufficient experiential capacity in his field of expertise. This capacity encompasses knowledge, skill, experience, training, and education;
(2) The facts evaluated must be within the witness’s field of specialized knowledge.
Many an expert has been precluded from testifying due to a lack in one of the foregoing areas. Although not fatal to a practitioner’s future, having one’s testimony precluded in a court of law certainly doesn’t enhance the prospect of future work. Some practitioners say they have no desire to testify in court and therefore do not need to satisfy the stringent requirements noted above. This is myopic as such an attitude betrays a lack of intellectual curiosity vital in perfecting one’s skill set. So how does a practitioner gain the skill, education and experience to deliver relevant and reliable business valuations? In a word: ABV.
|“My sources are unreliable, but their information is fascinating.”
(1933 – )
born London, England,
UC Berkeley ‘street’ philosopher.
The first exam for the ABV credential, designed by the AICPA business valuation subcommittee of the consulting services division, was offered in 1997. Today, there are approximately 1,500 credentialed ABVs. The criteria established by the BV subcommittee focused on the specific skill, education and experience needs outlined above. As the credential celebrates its fifth birthday, it has met with resounding success, both in the normal course of business as well the more contentious environment of the courtroom. The ABV credential is pegged to tried and true procedures, and is tested and monitored for specific continuing education as the valuation industry evolves. Robert Herz, chairman of the Financial Accounting Standards Board (FASB), has said: “Traditionally, accountants have focused on reliability and historical costs, thereby potentially sacrificing the increased relevance in financial reporting that more current value measurements might bring. Thus, I believe that both corporate accountants and auditors need to become more conversant with and knowledgeable about economic and finance concepts and valuation techniques.”
The traditional work environment for CPAs spans a broad range of skills particular to the profession. The preparation and interpretation of financial statements are a core competency of the CPA. However, additional skills are needed to render competent business valuation services. Through the ABV exam, this additional business valuation “body of knowledge” is tested and reinforced. So how does a CPA gain such knowledge if it can’t be obtained in the normal course of their daily activities? In another word: education.
Recognizing the accuracy of Mr. Herz’s words, the BV subcommittee established educational requirements and created educational resources beyond the high levels already required for the CPA certificate itself (see “ Eligibility Requirements for the ABV Credential, ” below). Education in the business valuation industry is a must as the profession changes constantly in response to new research, court rulings and creative applications of existing valuation methodologies. Just consider the plethora of new tax and auditing pronouncements and it isn’t hard to understand the need for formal education programs that exists in business valuation. Fortunately, the AICPA recognizes this need and has provided resources for the creation of new business valuation classes and seminars that allow the intellectually curious CPA to gain an enhanced understanding of the profession.
Although the foregoing skill and educational requirements appear easy to accomplish on their face, the most critical item of all is experience. As in virtually all fields of endeavor, book knowledge alone is wholly inadequate to prepare the business valuation practitioner for the real world. It’s the application of one’s education that sets apart the dilettante from the true professional. There is no substitute for “doing it” and doing it takes time. The experience requirement of the ABV is designed to instill confidence in the users of business valuation services that an ABV has the requisite experience to do the job and do it right. As the adage says: “Good judgment comes from experience, and experience comes from bad judgment.”
|Today’s users of financial information seek both relevance and reliability. Reliability is thought of as consistently reproducible. In an interview with CFO.com in February, Mr. Herz said: “Accounting has historically not defined income as change in wealth, or change in net worth or value. It has defined it by thousands and thousands of conventions that measure allocations of historical costs.” He continues today by emphasizing, “But I think this is beginning to change with fair value and measurement metrics being increasingly emphasized in the financial markets and accounting.”
Today’s financial markets and users of financial information are struggling to obtain the most relevant, reliable information. Recent events have reemphasized the need for reliability. Sarbanes-Oxley has spawned the Public Company Accounting Oversight Board to assure reliability is maximized. Meanwhile the Financial Accounting Standards Board, in cooperation with the International Accounting Standards Board (IASB), is moving rapidly toward fair value accounting and principles-based standards. FASB and the IASB believe it is their responsibility to move financial reporting to encompassing more relevant information than just historical cost.
Eligibility Requirements for the ABV Credential
To be eligible to apply for the ABV credential, a candidate must
Hold a valid and unrevoked CPA certificate.
Pass a comprehensive business valuation examination.
Provide evidence of ten (10) business valuation engagements.
Provide evidence of 75 hours of life-long learning related to the business valuation body of knowledge, such as
Continuing professional education.
Approved courses at an accredited university or college.
Presenting/lecturing of topics related to the BV body of knowledge.
Authoring of articles/publications in topics related to the BV body of knowledge.
As noted earlier, the first exam for the ABV credential was offered in 1997 and was designed to establish specific skill, education and experience requirements. Since then, the program has been extremely successful in educating and training business valuation practitioners who determine fair value and measure performance metrics. Who, then, is better prepared and equipped to meet the challenges identified by Mr. Herz and being sought by FASB and the IASB? Clearly an ABV with training and experience in both accounting concepts and value measurement would be the individual of choice.
The world has changed. Today’s information providers must do so in a way that is easily understandable, relevant, reliable and comparable. Today’s information must reflect today’s environment; it must have predictive value by being sufficiently timely that it influences today’s decisions. It must be representational, faithful, verifiable, neutral and generally capable of being reproduced with consistency. Once achieved, the information is then useful because it is comparable. It is comparable to management by monitoring changes from period to period. It is comparable to investors by monitoring differences across companies and industries thus maximizing the investors’ choices for alternative investments. This leads to maximum efficiency in the markets, a cornerstone for the strongest economy in the world.
FASB, in cooperation with the IASB, is nearing completion of two projects that will affect these issues. The Fair Value Measurement project will
“develop a Statement that will establish a framework for measuring fair value … The Statement, which will be developed in phases, will focus on how, not when, to measure fair value. … The Board’s longer-term objective is to improve its conceptual framework, developing conceptual guidance for it to use in determining “when” to measure fair value that will focus on how the qualitative characteristics of relevance and reliability should be applied in making that determination.”
This exposure draft is expected to be issued shortly and will be compatible with the AICPA BV subcommittee issuance of Statement on Standards for Valuation Services.
In 2004, FASB is expected to issue a second critical exposure draft, “Financial Performance Reporting by Business Enterprises.” Its primary objectives are
To improve the quality of information displayed in financial statements so that investors, creditors, and others can better evaluate an enterprise’s financial performance and
To ascertain that sufficient information is contained in the financial statements to permit calculation of key financial measures used by investors and creditors.
Initially this project is expected to focus on the reformatting of financial information in a more understandable and comparable way. More information on FASB’s current projects is available online at www.fasb.org/project .
|The trend is clear: Fair value is here to stay. In the future, information will be presented in much more understandable, relevant, reliable and comparable ways. Service providers (read: CPAs) will need to be trained in value metrics. Today there is increasing demand for service providers who understand how business really works and can report that relevant information reliably and understandably.
Beyond the FASB project on performance reporting, performance measurement services are a natural step for those trained in value metrics. In a December 2002–January 2003 article in CPA Consultant, John Nix, president and managing partner of Bates Carter and Company, said: “Performance measurement is a methodology that examines a balanced set of non-financial and financial measures that drive the overall success and future value of a company. It is a flexible process that incorporates a range of services and standards that a business can use to benchmark its performance. In addition, it is a proven profit-enhancement tool that provides a better way to manage a business … The business reporting model of the future is performance measurement based.”
Edi Osborne, president of Mentor Plus, an organization devoted to teaching performance measurement techniques to CPAs, defines performance measurement as “the identification of critical success factors that lead to measures that can be tracked over time to assess progress made in achieving specific targets linked to an entity’s vision.” She goes on to say: “The future of the profession is translating complex information into critical knowledge. Performance measurement is the realization of this element of the vision.”
The ABV, with its emphasis on specialized skill, education and experience specific to value metrics, answers the call. It provides the tools for CPAs specializing in BV to deliver understandable, relevant, reliable and comparable information to users of that information. The ABV is not only the go-to for the value answer, but the go-to necessary to manage value.
NEIL J. BEATON, CPA/ABV, partner-in-charge at Grant Thornton LLP in Seattle, and MICHAEL J. MARD, CPA/ABV, managing director of the Financial Valuation Group, Tampa, Florida, represent the AICPA business valuation subcommittee on FASB’s valuation resource group. Their e-mail addresses are neil. firstname.lastname@example.org and email@example.com , respectively.