The IRS to BV experts: We want you!
No, not for an audit. The agency is looking to hire experienced business appraisers for 14 open positions across the U.S., Gary Smith, IRS lead financial analyst, tells BVWire. The IRS uses the title financial analyst for its business valuation specialists. The salary range is from $94,373 to $150,703 per year, according to the job posting, which you can see if you click here.
Other side: “As can be expected, the position involves reviewing (and sometimes challenging) valuations of operating entities, holding entities, or intangible assets, prepared in a fair market value/tax context,” Smith says. Some travel may be required, and the positions are “telework eligible” after the probationary first year, which allows the analyst to work remotely approximately four days a week. Federal benefits including a pension and a “great” work-life balance, “along with the peace of mind that comes from knowing that you’re working for the right side of the table!” he quipped. Bet you didn’t know the IRS had a sense of humor!
For all of the details, including job description, experience requirements, locations offered, how to apply, and more, just click here. The job posting should answer all your questions, but if you have any other questions for Mr. Smith, you can email him at Gary.A.Smith2@irs.gov.
How long will high inflation last?
The U.S. economy will be returning to a more normal level of inflation by late 2023 and heading into 2024, according to published research presented during a recent BVR webinar conducted by William Harris (Trugman Valuations). In the short term, valuation analysts should examine their subject company’s industry to assess the impacts of inflation because not all industries have been impacted the same, Harris pointed out. At his firm, he has seen some companies struggling with supply-chain issues and rising input costs, while other companies have been able to pass through these costs successfully to end users. Therefore, a thorough understanding of how the current economic environment impacts the subject company is essential, he stresses.
Methodology: Because of the current economic picture and the events that have impacted the last few years of historical financials, the capitalized cash flow (CCF) model has given way to the discounted cash flow (DCF) model, Harris notes. He also advises that, with the market approach, an understanding about how the current inflationary environment impacts guideline public company multiples and transaction multiples is also essential. Historically, high levels of inflation have driven down publicly traded and M&A multiples and have eroded corporate earnings. Stock prices have tended to be lower as investors have increased their required rate of return expectations. With respect to the M&A market, deal volume has historically declined in high inflationary environments and multiples have tended to be lower. This is largely due to the increased financing costs since the Federal Reserve tends to fight inflation by raising interest rates, which makes financing transactions more expensive.
Harris wrote two articles in the October issue of Business Valuation Update explaining the valuation impacts of high inflation, which also includes a case study of an income forecast that takes high inflation into account.
Koltin’s eye-opening remarks at the NACVA conference
Allan Koltin (Koltin Consulting Group) has served as an adviser and broker on many of the biggest M&A deals in the accounting space. During his keynote address at a recent NACVA conference, he made some observations that some may find surprising, including a prediction that private equity will soon own more than half of the top 20 accounting firms. While much of what he said related to CPA firms, BV firms are facing similar issues. As for the M&A frenzy, part of the reason for it is the recognition that acquisitions are needed for larger firms to be able to grow at a reasonable rate (you can only bill out so many hours). He also noted that once PE firms acquire a large accounting firm as an “anchor tenant,” they will seek out smaller firms with between $15 million and $100 million in revenue for potential M&A deals. He made several other observations:
- Offshoring is a model whose “time has come” because many practitioners have become so busy that they can’t devote enough time to managing their firms.
- The “war for talent” is “tremendous” and will continue for the next five to 10 years. The number of accounting grads is down and so is the number of CPA exams being taken.
- Staff costs have ballooned to 40% to 50% of overall firm costs (it used to be one-third each for overhead, staff/workforce, and partners’ profit).
- Reliance on compliance work is changing and is shifting more to higher value-added and more profitable areas of advisory services.
Koltin also noted that the aging of the profession is creating a need for succession planning, including some creative alternatives to traditional strategies.
Extra: The next NACVA “super” conference will be December 14-16 in-person from two locations: Park City, Utah, and Fort Lauderdale, Fla. A virtual option is also available, and sessions can be ordered á la carte. Click here for details.
Prevailing expert comments on ‘moonshine’ case
In an earlier issue, we reported on an appellate court case involving the valuation of an owner’s one-third share in a Tennessee moonshine distillery (click here for the prior coverage). The court opinion said that the expert whose valuation the court accepted offered a modified report that eliminated the discount for lack of control (DLOC). But the expert who prevailed, Renee Harwell (Harwell Valuation Advisors), tells us: “Actually, the valuation wasn’t modified. My valuation report showed the lack of control and lack of marketability adjustments, as the entity was an LLC that filed as a sole proprietorship that represented itself as a partnership, so it was unknown what law to apply. The appellate court went with partnership.”
Harwell continues: “Why the appellate court remanded when they could have simply removed the lack of control adjustment is unknown. However, upon remand the same valuation report was used, and the adjustments pointed out to the court, which then declared the value at $35,000 without the DLOC.”
The case is Boesch v. Holeman (II), 2022 Tenn. App. LEXIS 335, and a case analysis and the full opinion can be found on the BVLaw platform.
Goodwill impairments YTD 2022 are up, per Kroll analysis
Risky financial markets and an uncertain economic environment add up to increased goodwill impairments. So far in 2022, the amount and frequency of goodwill impairments recorded by U.S.-based companies have increased. An analysis by Kroll finds that, compared to 2021, the top 10 impairments recognized thus far are triple the size of the top 10 for overall 2021 (see below). The data were compiled on Aug. 15, 2022.
Kroll notes that the spotlight is now on goodwill impairment assessment because many companies have annual goodwill impairment testing dates that fall in the second half of the year. What’s more, “significant changes in the economic environment increase the likelihood of having to perform a quantitative goodwill impairment test (rather than a qualitative assessment),” the firm says. You can read more of Kroll’s analysis if you click here.
BVWire to cover the AICPA FVS conference November 14-16
BVWire is looking forward to the AICPA & CIMA Forensic and Valuation Services Conference November 14-16, which will be live from the Wynn Las Vegas and Encore. It will also be streamed online, and there’s a “select 7” option that allows you to focus on specific topics to match your needs. The event offers 12 to 20 CPE credits, and the agenda has something for everyone. One session we are sure to attend will discuss the AICPA’s draft of its new accounting and valuation guide for business combinations. You can get more details and see the full agenda on the conference site if you click here. Watch for our coverage in future issues!
Reminder: Please take a survey on Excel add-ins for the GPCM
As part of BVR’s ongoing surveys related to data resources and methodologies, we’re exploring the use of Excel add-ins for the guideline public company method (GPCM). Are Excel add-ins prevalent? Which add-ins are used? What other data resources are used for the GPCM? Please take a very short two-minute survey, and we’ll present the results here in a future issue. Learn what your peers are doing! To go directly to the survey, click here. If you already took the survey, thank you!
Global BV News
IVSC issues new paper on brand value
The International Valuation Standards Council (IVSC) has released the third in a series of perspective papers on intangible assets. Parts 1 and 2 of the series examine the “Case for Realigning Reporting Standards With Modern Value Creation” and took a deep dive into human capital value creation and measurement. Part 3 takes a deeper dive into brands and reputation value creation by:
· Examining how brands generate value for organizations and the attributes of such value creation;
· Analyzing how investors assess the enterprise value creation attributable to brands; and
· Discussing the value measurement techniques and assumptions used to estimate the value of brands.To download the new paper, click here.