The New Age Accountant

There has been much discussion surrounding the immediate necessity for the business valuation profession to present a united front to the financial reporting community. The three primary professional organizations, the ASA, NACVA, and the AICPA, stand apart for a host of political and economic reasons. It appears that the enormous opportunity that fair value and the new accounting requirements present to the valuation industry as a whole has only served to elevate efforts for each organization to differentiate. It is clear each is striving to become the thought leader and gold standard in terms of both resources and brand value with regards to their respective credentials. The AICPA, for example, has no less than four Practice Aids in the works which will address various issues and challenges in valuation for financial reporting. The Appraisal Foundation, parent of the ASA, has two working papers addressing slightly different issues.

The SEC and the FASB have both publicly admonished the valuations community regarding their fragmentation and lack of unified infrastructure, to which each organization has responded not by seeking in earnest to consolidate organizations but rather to simply “win” the battle for survival. The AICPA and the ASA seem to both have compelling proposals – the AICPA touts its massive installed base of CPAs, long history, and well established infrastructure as primary reasons why it should be the central organization for business valuation, with an additional implication being that valuation should in turn be subsumed by the accounting professional and the CPA credential. The ASA, on the other hand, points to its pseudo government status vis-à-vis the Appraisal Foundation and its long history in the valuation realm across the spectrum of disciplines as its primary differentiating features. Further, many would agree that the ASA is currently the most well regarded pure play business valuation credential and that the ASA has served as the prevailing organization to date.

I have to say that the challenges that lie ahead appear too large and too profound for any of the organizations mentioned above. The fair value movement is global, and represents a profound departure from historical accounting standards. Preparers of the future will need to gain significant comfort with advanced financial concepts. Further, they will be determining, not verifying, values that are represented on financial statements. This is already the case with identified intangible asset values recorded in M&A transactions under FAS 141. At this point in time anyone can do this work – there is no credential required. Even though in many instances these values can constitute over half the book value of the assets and can have a profound impact on earnings, anyone can create these values. To make matters worse, this example is the tip of the iceberg. When fair value is implemented in the form envisioned, which will happen (some in the US believe it will be peeled back, but fail to see the global momentum behind it and the fact the USA must be a part of the global financial system or risk losing trillions in foreign investment capital), there will be a massive skill deficit. There must be a global organization that steps in to fill the void. The organization must have a recognized credential that demonstrates the preparer has sufficient knowledge and training to engage in valuation practices. There is only one organization, and one credential, that can make the claims – the CFA Institute and Charter Financial Analyst designation. The CFA Institute has more than 97,000 members, who include the world’s nearly 84,000 CFA charterholders, in 134 countries and territories, as well as 136 affiliated professional societies in 57 countries and territories.

I make the argument here that if the valuation community truly wants to solidify its position in financial reporting activities, the domestic, legacy organizations of ages past need to graciously admit a new market entrant and provide ways for their members to get the CFA certification. The credential has incredibly strong brand value and would immediately elevate the reputation of the profession from “disorganized and unskilled” to “undisputed gold standard”. The SEC, FASB, IASB, PCAOB, and all other regulatory organizations would fervently welcome the organization and investor confidence, so absolutely critical to the success of the migration to fair value and undergoing significant challenges in these times, would be upheld. It would also allow the CPA profession to continue its course in the discipline of accounting while allowing seamless integration of finance into financial reporting, governed by an organization that knows it better than anyone else.
Personally, I think this is inevitable. Unfortunately, political forces, pressing on many sides, will continue to delay the process. The ramifications will be significant. Rattled investor confidence, rampant abuse and manipulation as a result of both under-skilled preparers and reviewers, and continued infighting on behalf of organizations surviving beyond their natural lives.