A Gem from the AITF Top 25

Noting the absence of authoritative guidance relating to Fair Value accounting, the Appraisal Issues Task Force (AITF) paper from February 2006 highlights a significant issue: a valuation specialist and a financial auditor “may disagree on the appropriate approach to value an asset.” Naturally. However, as the AITF paper points out, the real issue is that:

“resolving such disagreements in the absence of authoritative guidance is unnecessarily difficult. Valuation professionals are faced with the potential for differing interpretations on technical issues depending on the client’s auditor… As a consequence, it is apparent that valuation ‘standard-setting’ would benefit from a transparent, deliberative process.”

We are in complete agreement. Our clients suffer from this issue again and again, and frankly it drives our senior analysts nuts. One week we’ll have a Big Four auditor take a stand on one issue, and the next week we’ll see an opposing stance from a different individual at the same firm. Both will say “it’s the [firm name] way.” What are we supposed to do with that?

There is no authoritative guidance on these evolving standards, and that vacuum is hurting the client, often costing them thousands of dollars a turn. Dead Weight Loss due to opaque standards. Nice.

We hope the Valuation Resource Group, recently formed by the FASB to wrestle with these issues, is successful, and quickly so.