When you hear the word measurement, what comes to mind? For most of us, measurement implies an exact science. However, there are situations, especially in the financial sector and broader business community, where measurement is not so easily defined or ...


3 Pitfalls Valuation Professionals Should Avoid and more...

3 Pitfalls Valuation Professionals Should Avoid

Shutterstock_366281486When you hear the word measurement, what comes to mind? For most of us, measurement implies an exact science. However, there are situations, especially in the financial sector and broader business community, where measurement is not so easily defined or performed. And one of those situations is fair value measurement.

What makes fair value measurement such a challenge is that, unlike real property and other tangible assets (which can be objectively measured and valued), there’s tremendous subjectivity and diversity within the available and applicable valuation resources, guidance and methodologies. This diversity often manifests itself in inconsistent application and documentation which, in turn, can result in valuation deficiencies.[1] The reaction to these valuation deficiencies can be seen in heightened regulatory scrutiny and diminished investor confidence.

As regulators and investors continue to push for greater transparency in financial markets, both domestically and internationally, financial statement disclosures that rely on professional judgment generally – and fair value measurement specifically – will continue to receive scrutiny.

Valuation professionals who avoid certain deficiencies will produce more supportable, consistent and well-documented valuations. As a result, clients and auditors will have a clear understanding of how the valuations were determined, thus increasing overall trust in the valuation professional.

Here are three common deficiencies that should be avoided:

1. Insufficient documentation for professional judgment. Assumptions used to determine the fair value of a product or service are often not well supported by the valuation professional. Inputs based on professional judgment that are qualitative in nature are present in every valuation engagement. However, if they’re not properly documented, the users of the valuation report (e.g. client, auditors) are left to guess what the valuation professional was thinking. Well-documented qualitative inputs provide a clear path from the thought-process to the results disclosed in the valuation report.

2. Insufficient documentation of fair value conclusion. It’s common for valuation professionals to use multiple methods when determining fair value. In situations where multiple methods are used, it’s important to thoroughly document how each method contributed to the final conclusion of value. However, what’s not appropriate is to simply take an average of the results without providing a rationale for doing so. How the results of each method are weighted and integrated into the final conclusion of value relies heavily on the professional judgment of the valuation professional. Therefore, adequate documentation of the work is crucial to support the conclusion of value properly.

3. Lack of professional skepticism when reviewing management’s prospective financial information (PFI). A company’s PFI might be prepared routinely by one or more members of management or, in larger companies, an internal functional group often called “financial planning and analysis” (subsequently referenced as ‘management’). Valuation professionals must understand and document how the PFI was developed by management. It’s important to be aware of the purpose for which the PFI was prepared and understand whether the PFI was developed using market participant assumptions. Part of the valuation professional’s responsibility is to evaluate the PFI provided by management for reasonableness in general, as well as in specific areas.

Factors and common procedures to consider when preparing an assessment of a company’s PFI may include, but are not limited to:

  • Comparison of prior forecasts to actual results
  • Comparison of PFI to industry expectations
  • Check PFI against other internally prepared financial information for consistency
  • Comparison of entity PFI to historical trends
  • Understand who prepares the PFI and how often is it prepared
  • Perform mathematical and logic check

Fair value measurement deficiencies present challenges not only for valuation professionals, but also for their clients, investors and regulators, as well as others who are placing their trust in a company’s financial statement. With more consistency and transparency in the valuation process, and a dedicated focus on the qualifications and oversight of valuation professionals, fair value measurements can effectively meet the needs and expectations of the global marketplace and those who contribute to its ongoing evolution.

The AICPA recently introduced a new credential – the Certified in Entity and Intangible Valuations (CEIV) credential – which aims to add more transparency to the valuation of entities and intangible assets. Learn more about the CEIV credential and how credential holders can reduce deficiencies in fair value measurements by following the performance framework.

[1] The term ‘deficiencies’ is used broadly here to define errors or omissions in a valuation professional’s report or supporting work documents; however, readers should understand that this also is a technical term used in the audit profession as well, where it has a different meaning.

Mark O. Smith, JD, CPA, Lead Technical Manager - Forensic and Valuation Services, Public Accounting, Association of International Certified Professional Accountants.

Tape measure image courtesy of Shutterstock.


3 Workplace Lessons from the Movie "Hidden Figures"

Shutterstock_550217752Some of history’s best stories are the ones we haven’t heard.

Until the Oscar-nominated film “Hidden Figures” premiered, few people knew a group of pioneering African-American female mathematicians helped propel the U.S. forward in the Space Race.

Thanks to the prominence of the movie, these trailblazing women are finally earning recognition. “The true story also demonstrates the crucial value of diversity in the workplace,” says Kim Drumgo, Director of Diversity and Inclusion at the AICPA.

“A diverse workforce exposes employees to the value of different perspectives and experiences,” Drumgo adds. “It fosters innovation and a growth mindset.”

As the U.S. and the AICPA celebrate Black History Month, Drumgo shares three lessons we can learn from “Hidden Figures”.

  1. Strive for inclusion

“Every member of an organization is responsible for creating an inclusive workplace,” Drumgo says. “Research has shown our natural tendencies may be to gravitate to and be more trusting of people like ourselves.” So, creating an inclusive workplace may take purposeful effort, such as fostering a work culture that prioritizes collaboration.

In the movie, astronaut John Glenn demonstrates the power of inclusion when he greets staffers working on calculations for his mission. Although he’s directed to shake hands with only white staffers, he greets the entire receiving line. Glenn’s understanding of the importance of the inclusion of all talent was needed to make the mission to space possible.

“Glenn looked past what society told him and focused on the value that each individual would bring to the mission,” Drumgo adds. “He not only challenged social norms, but his small gesture of inclusion created trust between him and the women.”

“I believe we can solve the shortage of talent by looking beneath the surface of the assumptions, bias and stereotypes we have for others and ourselves, says Drumgo.

  1. Challenge ‘groupthink’

Sometimes, poor business decisions or policy missteps within an organization can be the result of ‘groupthink,’ a phenomenon that occurs when people conform to common thinking, such as stereotypes, or simply do things the way they’ve always been done to avoid conflict.

“In most cases, there is at least one person who clearly sees the dysfunction of groupthink and has enough courage to challenge it,” adds Drumgo.

In “Hidden Figures”, mathematician Katherine Johnson confronts one such situation when she’s denied access to a staff briefing that has never been open to women.

A supervisor explains his reasoning by saying, “There is no protocol for women attending the weekly debrief.” Katherine’s response: “There is no protocol for men circling the earth either, sir.” And just like that, the chain of groupthink was broken.

  1. Grow your career by growing others

“The women depicted in the movie recognized the value they offered not just to NASA, but in leading the way for women and generations to come,” Drumgo says.

In a key scene, Dorothy Vaughn, the unofficial supervisor to 20 African-American women at NASA, was offered a promotion. She wouldn’t accept the move unless she could take the other women with her. This proved to be a career-enhancing opportunity for Vaughn. “We all get to peak together or we don’t peak at all,” said Vaughn.

“Mentoring is the greatest way to grow the talent you are leading and the greatest way for mentors to grow as leaders as well,” Drumgo says. There are a variety of free resources available, such as the AICPA’s upcoming webinar—How to Effectively Coach, Mentor and Sponsor Diverse Talent—to help leaders and organizations form successful engagement programs to fully maximize their talented staff.

These are just a few of many lessons that can be gleaned from this Oscar-nominated and widely celebrated film. There are lessons about stereotypes, unconscious bias and fostering an inclusive workplace, all which have significant effects on how the world does business. If you have not seen the movie, take some time to do so. Who knows what other lessons you may discover?

For more information on the AICPA’s diversity and inclusion initiative in addition to a variety of tools and resources, please visit aicpa.org/diversity.

Click here to register for the free webinar—How to Effectively Coach, Mentor and Sponsor Diverse Talent.

Samiha Khanna, writer, editor and media relations adviser.

"Hidden Figures" image courtesy of Shutterstock.


3 Reasons Every Client Should Complete a FAFSA

Shutterstock_538627324Are you wondering if all of your clients should complete the Free Application for Federal Student Aid (FAFSA) for their college-aged children even if they don’t anticipate qualifying for any federal aid?

Consider the following scenario: A successful couple own and operate a business and have two children in college. At 58 years old, the husband suddenly and unexpectedly passes away from a heart attack, rocking the family and ending the business.

The family, however, had faithfully completed the FAFSA annually for their children, although they had never previously qualified for financial aid. Within one week of the death of the father, both universities contacted the children with financial aid packages that allowed them to stay in school.

Would these universities have responded similarly had the families not filed the FAFSA? Perhaps. However, it would presumably have been a much longer and more difficult process to gather financial information in the midst of such a crisis.

This is not a far-fetched scenario. In fact, I encountered this exact set of circumstances with a client, and the speed at which the universities responded underscored how important it is to ensure all clients complete the FAFSA for their children.

Still not convinced? Let’s look at a few of the reasons you should be encouraging and assisting your clients in this process, and review some planning opportunities to enhance their financial aid eligibility.

Regardless of your clients’ income or assets, if they have children attending college, they should complete the FAFSA.

  1. In order to qualify for any federal aid or financing, including non-need based loans, students must complete a FAFSA. Additionally, many colleges use the FAFSA for their own scholarships and aid, even merit or non-need based options.
  2. Circumstances change. College is generally a four-year endeavor, and a lot can happen in that time. If your clients experience a death in the family or a loss of income, having filed FAFSAs in the past will make it easier for the family and college to react.
  3. Many colleges mine these forms for data on students and their finances – including whether the student fits the profile of what the school is looking for.

Planning Opportunities to Enhance Aid Eligibility

CPAs can offer tremendous value to clients who complete the FAFSA, and it’s critical to start planning early. In a change effective for the 2017-18 school year, families can begin filing the FAFSA on October 1, 2016 using their 2015 tax information, which means the base year for purposes of computing the expected family contribution (EFC) is two years prior.

  1. Start with income. Assets are assessed at 5.6% when computing the estimated family contribution (EFC), however, 47% of parents’ assessable income is available for college costs. Deferring income such as bonuses, capital gains, and distributions is a logical place to start your planning. For example, a client with a C Corporation can drop his or her salary or have the C Corp make larger contributions to the retirement account. Don’t neglect planning for untaxed benefits; the FAFSA requires that you add back certain income items including employee retirement account contributions, child support, and untaxed interest.
  1. Relocate assets. Retirement assets and home equity are not assessed for purposes of computing the EFC, so clients can proactively shift assessable assets by making contributions to retirement plans before the base year, or by paying down their mortgage. When considering retirement contributions, plan early! If these contributions are made in the base year, they will be added back as untaxed benefits on the FAFSA. However, for future years, they will not be assessed again. Additionally, using cash to make large purchases in the base year or pay down consumer debt can also be considered to reduce cash on hand.

For more planning ideas and customizable client articles on education planning, the AICPA’s Personal Financial Planning Section members have access to content from Broadridge Advisor Solutions, including “Positioning Your Income/Assets to Enhance Financial Aid Eligibility.” If you are a CPA offering advice to individuals, be sure to use resources from the PFP Section to help you as you provide estate, tax, retirement, risk management, education and investment advice.

Gary E. Carpenter, CPA, CCA, Executive Director, National College Advocacy Group. Based in New York, Mr. Carpenter has over thirty years of experience in tax and financial planning and has spent the past seventeen years in college planning and consulting. He is a CPA and Certified College Advocate (CCA), the co-founder and Executive Director of the National College Advocacy Group, and an active committee member for the New York State Society of CPAs.

FAFSA application image courtesy of Shutterstock.


5 Ways to Develop Your Professional Skills Through Digital Learning

Shutterstock_264713135Disruption in the marketplace, changes to regulations, tax reform, technology advances and globalization make developing professional competencies more important than ever for CPAs. According to a recent Harvard Business Review article, “continuous and persistent learning isn’t merely a decision. It must become a habit. And as such, it requires careful cultivation.”

Ongoing skill development is critical for maintaining your professional relevance. You need to dedicate time to continue your competency development. But where do you start, and how do you fit it in to your schedule? Digital learning activities provide opportunities to incorporate learning into your daily life and offer flexibility that a traditional classroom can’t. Here are five digital learning activities to try:

1. Social media

Leveraging social media to gain insights from thought leaders and peers around the globe is an easy way to incorporate digital learning into your development plan. Obtain valuable resource tips, find articles and discover infographics on LinkedIn. Exchange professional opinions in discussion forums pertaining to emerging industry trends and get peer input on your unique business challenges through your social channels. These guides from the AICPA can help you get started with best practices.

2. Podcasts

Podcasts provide you with an opportunity for hands-free learning. Listen to podcasts from industry leaders, authors, and keynote speakers while exercising or commuting. You can stimulate your mind while improving your body physically and utilize your commute time for your professional development.

3. Immersive online courses

A new and exciting trend in the evolution of online learning is the integration of 3D avatars and augmented reality. Real-world scenarios provide a powerful context for learning technical information, and interactive media with engaging graphics heighten the overall learning experience.

4. Resources from professional associations

Take advantage of online resources that typically come with most professional association memberships. Many membership packages, including the AICPA’s and your state CPA society’s, come with an online login to access digital toolkits, interactive e-books, videos from thought leaders and downloadable templates. You can find opportunities to obtain valuable insights, helpful resources and exposure to industry experts and stay up-to-date on the latest developments, enabling you to get the most out of your membership investment.

5. Online conferences

Conserve two of your most precious resources, time and money, while accessing all the conference content when you attend virtually. Online conferences help you save on travel expenses and time by offering live streaming so that you can participate via desktop or mobile from your office or home. These experiences are enhanced by a number of features that are unique to the online experience, including live chat, interactive polling, immediate downloads of presentations and session note-taking features that automatically email your notes to you after a session.

All of these digital learning activities provide convenience and flexibility while helping you build your competency so that you can stay up-to-date with your learning and sharpen your skills. I encourage you to include them in your development plan and to make time each week for your continued growth.  

AICPA ENGAGE features six conferences in one online event June 12-15, 2017. Online attendees can earn up to 35 hours of CPE. Learn more about the online experience here.

Michael McKenzie Grant, MFA, Director – Learning Design and Development, Association of International Certified Professional Accountants.

Woman studying image courtesy of Shutterstock.


Want Brady’s Mental Toughness? 10 Inspirational Movies to Watch

Shutterstock_151134017If you’re one of the 111 million people who watched the New England Patriots power their way out of defeat at the Super Bowl, did you think it was just about over in the third quarter when the Atlanta Falcons were leading 28-3? I admit, I did. Even paid my tab and headed home. We were in for a surprise as the Patriots (led by quarterback Tom Brady) charged ahead and turned the game around to win 34-28.

As a perennial backer of the underdog, I was rooting hard for the Falcons but that doesn’t lessen my respect for a team that resisted falling into a “it’s a lost cause, let’s just get this over with” mentality. Let’s face it, we’ve all been at that point: whether it’s a career challenge, relationship or financial difficulty, or perhaps a health problem, some hurdles seem impossible.

Of course, part of the challenge is knowing what’s truly beyond reach and what isn’t. Becoming a rock singer is out of the question for me unless every rock fan loses their hearing. But many goals are attainable; watching a few of the movies listed below may help reinforce that fact. These films, which include suggestions from AICPA colleagues, depict mental toughness in facing huge hurdles. While Hollywood does embellish, these feel real for the most part and many are based on real people and events.
  1. Erin Brokovich (2000) – Based on the real story of an unemployed mother who gets a job as a legal assistant and takes on “Goliath” (a large utility) in her investigation of groundwater pollution that is harming the townspeople nearby.
  2. Hello, My Name is Doris (2015) – A shy, unassuming 60-something woman gets inspired by a self-help seminar to pursue a crush on a much younger colleague, shaking up her sheltered and routine life in the process.
  3. Hidden Figures (2017) – The inspiring true story of three African-American female mathematicians who, despite the substantial gender and race barriers of the time, played a key role in the United States’ historic launch into space.
  4. I Know Why the Caged Bird Sings (1979) – This film traces author Maya Angelou’s life  growing up as a young black girl in the South during the Depression, and how she overcame a traumatic childhood to discover her true worth.
  5. Joy (2015) – The title character of this movie is a divorced mother of two coping with parents and an ex-husband who lean on her heavily. An inventor at heart, Joy creates a self-wringing mop and faces a lot of hurdles on a journey to make her invention a success.
  6. Miracle (2004) – Kurt Russell plays real-life coach Herb Brooks, who took the U.S. men’s hockey team to the 1980 Olympics to challenge the legendary Soviet Union team.
  7. Pursuit of Happyness (2006) – Broke, homeless and responsible for his young son, Chris Gardner refuses to give up on his dream to be a stockbroker (based on the book by the real Chris Gardner).
  8. Rudy (1993) – Being far smaller than any football player doesn’t prevent this determined kid from pursuing his goal of playing for the Notre Dame College football team.
  9. Secretariat (2010) – The first horse to win the Triple Crown in 25 years, Secretariat became a legend for his speed and size, but it took the persistence of co-owner Penny Chenery to stay in the race.
  10. Vision Quest (1985)High school wrestler Louden Swain has to lose 23 pounds to challenge the state champion whom he is determined to beat. With little support from his coach or father, can he do it, especially when a romantic interest shows up?

But what about...?

Some of you may be protesting the absence of Rocky, The Blind Side, etc. They are excellent movies - there just wasn’t room for all of them and I wanted to include some that folks may have either forgotten or didn’t know about and, for those who mainly watch the Super Bowl for the commercials, some without a sports theme. Ray, Philadelphia and Lorenzo’s Oil are a few more I would recommend to celebrate the human spirit.  Please feel free to add here to our list – we’d love to hear what movie has inspired you the most.

Ann Marie Maloney, Communications Manager – Tax and Personal Financial Planning, Public Accounting, Association of International Certified Professional Accountants.

Illustration courtesy of Shutterstock.

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