Valuation services, once performed on an ad hoc basis with calculations often scribbled on the back of an envelope or errant sheets of paper, have, over recent years, morphed into one of the most in-demand services and soaring growth areas for firms.
Like what you see? Click here to sign up for Accounting Today's daily newsletter to get the latest news and behind the scenes commentary you won't find anywhere else.
As an example of the recent rise in engagements, business valuations were cited as the No. 1 niche service in growth among Accounting Today's 2011 Top 100 Firms, as the call for specialists and those holding specialty valuation credentials widens.
The American Institute of CPAs reported that nearly 3,000 members are holders of its Accredited in Business Valuation designation, while the National Association of Certified Valuation Analysts said that nearly 5,000 have earned its Certified Valuation Analyst, Accredited Valuation Analyst and Certified Forensic Financial Analyst designations. Other valuation credentials include the Certified Business Appraiser from the Institute of Business Appraisers.
And in a proactive push to prepare college students for the valuation field, a number of universities currently offer a valuation curriculum as part of their accounting programs, including Florida Atlantic University. More recently, the Vanderbilt Owen School of Management announced a Master of Accountancy program that focuses on careers in valuation services for an international public accounting firm, with the first classes starting in August 2012.
"I think the [valuations] bar has definitely been raised," opined Randall Paulikens, a partner at New Jersey-based Top 100 Firm WithumSmith+Brown, where he oversees the valuations, litigation support and forensic accounting services unit, which employs roughly 30 people. "Years ago, valuations was simply dropping numbers in a spreadsheet and it was really a matter of professional judgment. But now it's become more sophisticated and formalized. People want the balance sheet to be as reflective of the value of the company as possible. Since the passage of FAS 157 on fair value measurement and FAS 141 on business combinations, there's a lot more testing for impairment. So you have people trying to measure the appropriate value that has to be reflected in the books, and that's basically created a whole new science."
'GIFTS ARE ON SALE'
Paulikens and others point to a confluence of events that have generated that rising demand for valuation services.
Perhaps first and foremost, the estate tax and gift tax have the same exclusions and rates: $5 million and 35 percent, respectively, in 2011 and 2012. That sent a clarion call to high-net-worth clients - who might be facing the estate tax in the future - to begin transferring or gifting assets while they are still alive.
"There's a lot more opportunities to transfer wealth," said Paulikens. "And with the depressed economy, business owners might see their companies at a relatively low value and might transfer 15 shares of their firms now, as opposed to maybe 10 when the economy was good."
"Our office joke is that gifts are on sale," quipped Mandeep Sihota, a principal at New York-based T100 Firm Citrin Cooperman. "The last two years, a lot of people sat on the sidelines because they were not sure what would happen with the tax laws. But with the [gift and estate] exemptions, it has become the perfect storm for gift and estate tax planning."
She also reported that her department - which has roughly 20 professionals divided between valuations and fraud auditing - has seen an uptick in shareholder disputes and matrimonial cases, where valuation expertise is critical.
"People may have started litigation and then held off legal proceedings for lack of funds," she said. "It is now a good time to sever ties. They figure if they're the ones who have to give up the assets, give them up now because they're worth less."
Scott Bouchner, director of forensic and business valuations at Miami-based Top 100 Firm Berkowitz Dick Pollack Brant, has been involved in valuation work since 1990, and said that he has seen a concerted push for increased valuation services since the AICPA's introduction of Statements on Standards for Valuation Services No. 1. Those formalized standards apply to institute members performing business valuation services and describe acceptable criteria for both valuation engagements and calculation engagements.
"It's both an evolution and an economic response," said Bouchner. "We're seeing more litigation surrounding valuations issues. I recently testified in a case between two partners in a medical practice that is dissolving because the economics are no longer there. I was retained by the court as a neutral party and each doctor hired their own appraiser. So you had three experts."
Like others, Bouchner's department is riding the wave of demand in estate and gift planning: "The easy answer is companies and properties are worth less today than they were two and three years ago. So even in the bad economy the silver lining is that it creates an opportunity to do estate planning, so you'll see more real estate being turned into an LLC or put in family-controlled partnerships."
THANK THE BOOMERS
"The economy has caused happy and unhappy situations," said Joseph Thornton, head of the valuation department for Mitchell Wiggins & Co. in Richmond, Va. "Some people are seeing an upturn in business, but because of the economy, some senior generations are either delaying retirement or accelerating it and gifting shares of the company."
Thornton, who was a member of a task force for the Virginia Society of CPAs that developed the content for a two-day valuation conference, said that each day for the next 19 years, there will be Baby Boomers reaching the age of 65, and that has spurred a slew of planning and subsequent valuation engagements for the firm.
Because of the high demand, the firm is marshaling more of its staff to get involved in valuations. "We're going to need more resources," Thornton said. "We have a big inventory."
Jack Knight, a partner at Birmingham, Ala.-based Barfield Murphy Shank & Smith, said that because of the rise in valuation requests, including a jump in next-generation transfer work, his firm is training some of the younger professionals to bolster resources.
"When I first began [in valuations] eight years ago, there was a good bit of activity, but when the economy went south, a lot of those projects came to a halt. We're getting back into it now. When we began the valuations division here, we started it in-house with several of the existing partners. But now we're working with some of the younger staff and gravitating toward that. We've identified it as a very good niche for our firm."
Explained Sihota of Citrin Cooperman, "This is still a relatively young industry, and readers of valuation reports have become more sophisticated in terms of valuation methodologies and research, and want more folks with accreditation, and practitioners need to be prepared. The traditional accountant doing one valuation per year doesn't fly anymore."