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Closely Held Business Valuations Face Greater Scrutiny from Congress and FASB

NEWS RELEASE

Contacts:
Mark Carrington
(703) 341.5880
mcarrington@bna.com

Arlington, Va. (April 16, 2009) – With Congress pushing crisis-driven rule changes, and FASB approving controversial guidance on fair value and impairment of debt securities, the subject of corporate valuations is under intense scrutiny from every quarter.  “Business valuation has become one of the most rapidly increasing areas of practice within the accounting profession,” say Nicholas Mastracchio and Alina Niculita, authors of BNA Portfolio 5147, Closely-Held Business Valuations, the latest addition to BNA’s Accounting Policy & Practice Series.

How are business valuations made for businesses whose ownership is private and restricted to a few shareholders and whose shares are not traded on public exchanges or issued through an initial public offering?  BNA Portfolio 5147, Closely Held Business Valuations, offers an in-depth examination of the procedures and methodologies available to valuation specialists. For more information on the Series go to: http://www.bnatax.com/tm/apps_details.htm

Closely Held Business Valuations provides detailed step-by-step guidance on how to perform a valuation of a closely held business. It starts with a discussion of the various types of premises and standards of value that may be appropriate in different circumstances. Premises include: 1) value on a going concern basis and 2) value on a liquidation basis; Standards include: 1) fair market value, 2) fair value, 3) intrinsic value, and 4) investment value.

The valuation process starts with an economic analysis of a company's industry, the company itself, and the environment in which the company exists and operates – either as a top-down approach (economy―industry―company) or as a bottom-up approach. This Portfolio also discusses when and how to use specialists.

After reviewing the economic analysis, the industry analysis, and company analysis, Mastracchio and Niculita review the various market, income, and asset methodologies giving specific direction as to how to select and apply the best approach. Closely Held Business Valuations explains how to adjust company earnings for the best projection of future results (normalization) and how to develop and determine the appropriate discount and capitalization rates to use. Guidance is also given as to how to synthesize the indications of operating value that the various methods produce.

The discussion then turns to the impact of excess assets and non-operating assets and liabilities on the valuation and to (often controversial) adjustments to valuation in the form of discounts and premiums.

“There are so many different approaches to valuating businesses today that it's imperative that the pros and cons of each method are closely evaluated," notes George Farrah, Executive Editor of the BNA Accounting Policy & Practice Series. "This Portfolio addresses the risks and benefits to various valuation methods and is especially timely in the current economic climate where valuation assumptions face great volatility and there is greater scrutiny of financial reporting.  Our goal is to help practitioners make more informed decisions."

About the Authors

Coauthor Nicholas J. Mastracchio, Jr., limits his practice to valuations and related areas. He has written extensively on business valuation and is a frequent contributor to Journal of Accountancy, CPA Journal, The Practicing CPA, Family Law Review, Journal of Small Business Management, ABA Banking Journal, The Trusted Professional, Trial Lawyer and The Practical Accountant. Dr. Mastracchio is a member of the Auditing Standards Board and the National Association of State Boards of Accountancy. (NASBA)

Coauthor Alina V. Niculita is the president and chief operating officer of Shannon Pratt Valuations. She is a chartered financial analyst and a member of the Chartered Financial Analyst Institute, the American Society of Appraisers, and the Licensing Executives Society. Ms. Niculita is the former managing editor of Shannon Pratt's Business Valuation Update©, BVLibrary™ and the Economic Outlook Update.™

About BNA Tax & Accounting
BNA Tax & Accounting is the foremost source of news, analysis, and practice tools for tax attorneys, estate planners, accountants, and corporate tax and financial accounting professionals. For more than 50 years, BNA Tax & Accounting has offered practitioners expert insights and guidance on every significant issue in tax planning and financial accounting. Written by practitioners for practitioners, BNA’s award-winning Portfolios offer topic-driven, in-depth guidance on transactions designed to help tax and accounting professionals achieve new levels of excellence and client service. Visit BNA Tax & Accounting online at www.bnatax.com.

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