A Must-Read presentation

Business Valuation Resources produced a panel relating primarily to 409A compliance, generally addressed to valuation practitioners. We enjoyed their perspective so much that we would put it on our recommended reading list for all. The guys at Grant Thornton had a great perspective that we’ve seen echoed by many in the audit community.

Beginning on slide 13 this presentation starts to get interesting, with the unveiling of the concept that IRC 409A is colliding headlong with SFAS 123R. This is punctuated on slide 17 when the authors state “To date, neither the SEC nor the IRS has stated definitively whether these two standards of value would result in similar valuation conclusions.” Now I’ll underscore the obvious: two very important authorities, the SEC and the IRS, each require valuations of stock options, each apply different standards of value, and neither has commented the conflicts between the two. This has the valuation industry in a fit.

Thankfully, as this presentation describes, the intrepid valuation practitioners of worth have found a way to gracefully walk a line that satisfies both standards of value in a single document. At Arcstone, we call this our Gold Standard valuation report. It is also known as a dual-purpose report, since it satisfies both the IRS and the SEC. Unfortunately for privately held companies, the work of valuation is becoming more complex, not less.