Mergers & Acquisitions

Accountants Protecting Their Turf

Should appraisers of business assets have to be accountants? Robert Pozen says the attempt to push such a requirement is misguided.
Robert PozenOctober 4, 2018

Do appraisers of business assets have to be accountants? To most CFOs, the answer would be no. However, a vocal group of accountants is pushing to limit a recognized professional designation for appraisers to those already licensed as certified public accountants. This is the type of formalistic approach to professional qualifications that keeps out good people in an effort to safeguard fees.

After major problems with real-estate appraisals in the late 1980s, a dedicated foundation developed a widely accepted uniform set of professional standards for appraisals. More recently, SEC officials have encouraged expansion of the pool of qualified appraisers to meet the growing demand for the valuation of intangible business assets, such as intellectual property, in order to make financial statements as accurate as possible.

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Intangible assets of the S&P 500 companies were on average 84% of their total assets in 2015, according to a study by Ocean Tomo. Financial companies must now value illiquid bonds in the category of level 3 (indeterminable from market prices or models). And all private companies must value their common stock before granting stock options to meet the conditions in Section 409A of the Internal Revenue Code.

Earlier this year, the American Institute of Certified Public Accountants (AICPA) responded to this growing demand by expanding the eligibility for its ABV (Accredited in Business Valuation) designation to include non-accountants as well as accountants. However, the Institute’s decision is now strongly opposed by a group of accountants who seem to believe that allowing non-accountants to obtain the ABV designation will undermine the credibility of this designation and reduce its appeal to clients.

Robert C. Pozen

In my view, this opposition is a misguided attempt to protect the turf of the accounting profession. In fact, CFOs have often retained independent appraisers of business assets who are not accountants, but who hold professional designations other than the ABV.

The ACIPA currently has 3,400 members with accounting degrees who have earned the ABV designation. In addition, the National Association of Certified Valuators and Analysts (NACVA) says that it has 7,000 members with the designation of Certified Valuation Analyst (CVA). To earn a CVA designation, these members must meet a relevant list of educational and experience requirements, which do NOT include having an accounting degree.

While NACVA is a for-profit organization, the American Society of Appraisers (ASA) is a non-profit group much like the AICPA. ASA reports that it has 1,564 members with the designation of Accredited Senior Appraiser – Business Valuation. To earn this designation, these ASA members must meet a relevant list of educational and experience requirements, which do not include having an accounting degree.

Under the revised AICPA requirements, non-accountants can gain ABV status only if they are well qualified as appraisers.These requirements include:

  1. Holding a bachelor’s degree from an accredited college or university
  2. Completing the AICPA course on professional conduct and standards
  3. Passing the ABV examination, unless they have passed an equivalent exam
  4. Having a minimum of 1,500 hours of business valuation experience within the last five years.
  5. Completing 75 hours of valuation-related continuing education within the last five years

The recalcitrant group of accountants believe that the AICPA should have promulgated its revised ABV requirements directly to all members, instead of working this proposal through several of its committees over three years.Although this would probably have been a better procedure, the proposal deserved to be adopted in any event.

Of course, CFOs looking to hire an appraiser want someone with a professional designation based on appropriate requirements. But in the end, CFOs will select a specific appraiser based on his or her reputation, skills, and experience in the relevant type of asset. Those qualifications are much more important than whether the appraiser happens to have an accounting degree.

Robert Pozen is a senior lecturer at MIT Sloan School of Management and a senior visiting fellow at the Brookings Institution.