Determination of Value

Francisco "Frank" ROSILLO, CPA, ABV, ABAR, CBA, CVA, CFE, CFF, CFFA, is the managing director of the Valuations and Forensics Advisory, LLC. Serving an international clientele, the firm provides business valuations, mergers and acquisitions transactions, and forensic accounting advisory services. Rosillo is a frequent national lecturer and trainer in valuation and forensic accounting topics. He has authored Institute of Business Appraisers (IBA) and National Association of Certified Valuators and Analysts (NACVA) courses and the practice aid, Business Appraisal Review. Frank also teaches a five-day NACVA Appraisal Review Workshop and is a member of the Board of Governors of the Institute of Business Appraisers. He has been the recipient of several CPA accounting professional awards in business valuations and litigation support. His financial expert witness experience includes cases in federal and state courts.

• Preface xiAcknowledgments xiiiChapter 1: The Problem 1In Search of a Truth 1The Assurance Expert 4Credibility Is Not Synonymous with Truth 7Where Do We Go from Here? 8Chapter 2: The Solution 9Toward a Defi nition of Credibility 9The Attributes That Make You Credible 10Operational Credibility Attributes 11Personal Credibility Attributes 19General Observations about “Credibility” 21Credibility Is Not Synonymous with Truth 23Don’t Confuse Opining with Decision Making 25Beware of Black Box Opinions 26Conclusion 26Chapter 3: The Credibility Pyramid and the Importance of a Well-Defined Analytical Process 29The Importance of Process 29The Valuation Process 31The Credibility Pyramid 34Three Problem-Solving Phases 36Conclusion 41Chapter 4: Pyramids, Not Castles 43Why Is Credibility Important? 44Reasonable Assurance 47Generally Accepted Practices 50Generally Accepted Practices Lead to Uniformity and Professional Consensus 54Analytical Gaps 55Informed Judgment 56Conclusion 59Chapter 5: Climbing the Credibility Pyramid 61The Importance of Revenue Ruling 59–60 61Identification of Key Pre-Engagement Parameters 63Planning to Acquire Knowledge about the Subject 65General Planning Considerations 69The Importance of the Standard of Value as You Climb the Pyramid 79Self-Assessment Tools 83Stepped Reading 87Conclusion 88Chapter 6: How to Develop and Report Your Opinion 91Practice Presenting Your Written Findings Orally 91Valuation Adjustments 102Description of a Benchmarking Methodology Used by Valuation Analysts 106Benchmarking: Relative Weights and Qualitative Analysis 111Make Sure There Are No Analytical Gaps in the Development and Derivation of Growth Rates 115Incorporating Prospective Information That Is Presented into Your Opined Results 119Reporting Your Opined Results 126Conclusion 129Chapter 7: Reasonableness Tests 131Determining Reasonableness 132Example 1: Derived Estimate of Value 136Example 2: Guideline Company Method 139Example 3: Use of Market Multiples 144Example 4: Federal Tax Compliance 145Conclusion 146Chapter 8: Enhancing the Integrity of Your Opinion 149Understanding the Credibility Threshold 150Understanding the Scope Undertaken 152Understanding Analytical Responsibilities and the Impact of Matter/Cause/Effect Analysis 154Conduct Your Analysis within the Parameters of the Economic Reality Relevant to the Facts and Circumstances 156Maintain a High Level of Professional Skepticism and Engagement Awareness 157Review Your Analytical Process for Relevance and Typical Common Errors 160Be Ready to Respond to Ethical Challenges 162Enhancing the Integrity of Your Opinion When at Trial or in Hearings 163Enhancing the Integrity of Your Opinion When at Deposition 166Conclusion 166Chapter 9: Reviewing the Work of Others 169Review Engagement Procedures to Consider 170Preparing a Document Request for a Review Engagement 172The Role to Be Assumed: Reviewing Expert or Reviewing Consultant 173Limiting Conditions and Assumptions 174Determining an Appropriate Scope for Your Review 175Minimum Scope Considerations in a Review Engagement 177Conclusion of a Business Appraisal Review Engagement 177Business Appraisal Review Opinion 178Reviewer’s Independence 182Common Errors and Analytical Gaps Found in Valuation Reports 183Conclusion 188Chapter 10: The Journey Continues 189Definition of Credibility 189Attributes Attached to a Credible Opinion 190Separating Decision Making from Opining 192A Note on Generally Accepted Principles and Practices 193A Definition of the Concept of Informed Judgment 193Suggestions for Assessing Your Own Methodology—the Importance of Reasonableness Tests 194Suggestions for Enhancing the Integrity of Your Opinion 194Conclusion 195Appendix 197About the Author 209Index 211