As a business valuation guy, I’m not accustomed to reading about our small and young profession on the front page of the Wall Street Journal, or, well, the front page of the Business & Finance section of the WSJ on August 24th. The article begins as follows:
Some CPAs are up in arms about a move by their industry’s main trade group to allow people from outside their ranks to be credentialed to help companies value complex assets.
At the outset, let me be clear that I offer no opinion regarding whether the AICPA should (as it has) or should not (as argued by some) offer the ABV credential to non-CPAs. However, the article caused me to think about the significance of the AICPA’s new position for business valuation.
There are three primary business valuation credentialing organizations in the United States and a fourth, relatively new entrant.
- American Society of Appraisers (ASA) offers the ASA designation or that of Accredited Senior Appraiser
- NACVA offers the CVA designation or Certified Valuation Analyst
- AICPA offers the ABV designation or that of Accredited in Business Valuation
- Relatively new to the game in the United States, the London-based Royal Institute of Chartered Surveyors (RICS) offers the MRICS designation or Member of RICS.
The above designations are the primary business valuation designations of the noted organizations. Some offer additional credentials, so there is a bit of what some call “alphabet soup” involved in the credentialing world.
In addition, each of the above organizations has published a set of business valuation standards that credentialed members of their groups must follow when issuing appraisals. Then there are the Uniform Standards of Professional Appraisal Practice (USPAP) promulgated by The Appraisal Foundation.
The bottom line is that there can be confusion among users of business valuation services over which credentials are most relevant and which standards are preferable in their particular circumstances. This has led to certain regulatory pressures for business appraisers to get organized for the marketplace, as summarized here in an Accounting Today article:
Beginning in 2005, U.S. capital market regulators suggested changes may be needed in the valuation profession. They commented on the number of professional bodies providing credentials and the lack of a consistent set of professional, technical and ethical standards. SEC Deputy Chief Accountant Paul A. Beswick suggested during a 2011 speech at an AICPA conference that the valuation profession develop a single set of qualifications, standards of practice and ethics, and a code of conduct to ensure consistency and transparency in financial reporting measures for public interest entities.
The regulatory pressure on business valuation, especially in the financial reporting arena, has been real.
In response to the SEC and other constituents, three organizations, the ASA, the AICPA, and RICS have developed a new certification, called the CEIV designation, or Certified in Entity and Intangible Valuations. Presently, these three VPOs, or Valuation Provider Organizations, offer the CEIV designation in competition with each other.
They each market the credential separately, so revenues from the credentialing process will come from courses to prepare for the required exams and then, from ongoing dues.
The Big Four accounting firms, as well as the larger CPA firms down the list a bit, have hundreds (or more, I have no count) of business appraisers involved in financial reporting valuation services. At present, these firms can send their appraisers to either of the ASA, the AICPA, or RICS to obtain this new CEIV designation.
There are about 3,200 CPAs who also hold the ABV designation according to my recent web search. There are perhaps 2,300 credentialed business appraisers in the ASA. There is some overlap in these two memberships because some CPAs have both the ABV and the ASA.
The other two credentialing organizations are NACVA and RICS. NACVA has about 5,600 active, credentialed CVAs, which should give the ASA and the AICPA something to think about. I have no source for the credentialed membership of RICS in the United States, but I believe the number to be considerably less than that of the ASA (above).
In addition, business valuation professionals are aging. In a recent speech, I reported that the average age of CPA partners is in their mid-50s. The average age of credentialed appraisers in the ASA is about the same. Firm statistics are not available, but the average age of NACVA credentialed members is probably a bit less. The NACVA has been focusing on attracting a younger membership for some time.
Recent growth in the business valuation business has likely been along the lines of inflation, and maybe a bit more, so the business is fairly mature.
Throw all this together into the pot and one can infer that a land grab is underway — or will be underway, to capture the dues from aging memberships, any new participants (like potential CEIVers), and any appraisers that can be convinced to jump ship (or to obtain an additional designation).
It is against this backdrop that we should think about the new position of the AICPA to offer the ABV designation to non-CPAs.
The Current AICPA Decision: About the Money?
The ABV designation has been offered to CPAs with appropriate business valuation experience and evidence of qualifications since 1998.
Now, non-CPAs can earn and hold the ABV designation. They have to meet many of the requirements that CPAs face in earning the credential, and then some. For example, non-CPAs must have 75 hours of business valuation related education. They also have to have 1,500 hours of valuation experience (compared with the 150-hour requirement for CPAs).
From the AICPA website about the ABV exam:
The Accredited in Business Valuation (ABV ®) credential is granted exclusively by the AICPA to CPAs and qualified finance professionals who demonstrate considerable expertise in business valuation through their knowledge, skill, experience and adherence to professional standards. To obtain the credential, you must pass the two-part, modular ABV Exam. The exam requirement is waived for AM and ASA credential holders of the American Society of Appraisers, CFA credential holders of the CFA Institute and CBV credential holders of the Canadian Institute of Chartered Business Valuators (emphasis added).
I heard about the availability of the ABV designation through normal industry channels. Before the WSJ article, I wondered why the AICPA would take the step to offer its ABV credential to non-CPAs. On reflection and talking with a few friends around the country, I developed a couple of thoughts:
- The WSJ article talks about the pent-up demand for valuation professionals. CPAs have not been rushing to fill the perceived shortfall based on their seeking the ABV credential.
- Other credentialing societies (like the American Society of Appraisers) have not been experiencing much if any growth in credentialed members recently, so expected growth is not the key source of demand.
The AICPA has a tremendous marketing machine, and perhaps the goal is to convince other credentialed appraisers to obtain an additional designation. The waiving of requirements for appraisers credentialed by other groups (above) suggests that this is at least one of the reasons.
It seems to me that the AICPA may be going after three markets with its decision to offer the ABV to non-CPAs:
- The large number of non-CPAs who are valuation professionals within the largest CPA firms
- The market for the CEIV designation, much of which would seem to overlap with the above
- Any of the rest of the non-CPA world who thinks that obtaining the ABV credential solely or as an additional credential would justify the acquisition cost (time and dollars) and the ongoing expense (dues, ongoing education and the like) of membership
As I see it at present, the AICPAs decision is about the money, but I think more is involved.
More Than Just the Money
Appraisers have recognized for many years that there is a need for consolidation of credentialing and for standards. The SEC’s push was just external recognition of a present need. There has already been some consolidation.
- The NACVA acquired/merged with the Institute of Business Appraisers, the earliest business valuation focused credentialing group, in 2008. The IBA previously offered the CBA designation, or Certified in Business Appraisal, and the ABAR designation, or Accredited in Business Appraisal Review.
- A number of real estate societies have merged or disappeared. For example, the American Society of Appraisers recently merged with the NAIFA, or National Association of Independent Fee Appraisers.
- I recall discussions many years ago about the potential merger of the American Society of Appraisers with RICS. This was at the time when the RICS was beginning to focus on business appraisal in the United States. I don’t know if any formal discussions were ever held, but there was substantial speculation among ASA membership about the potential.
If the SEC impetus for consolidation of credentialing and standards continues beyond the new CEIV designation, there will be continuing pressure on credentialing organizations to rationalize the profession for the benefit of customers.
As I think about it, the AICPA’s action is the first step in an almost certainly coming consolidation. What I mean is that thirty years from now (when I won’t be around), the business valuation credentialing and standards landscape will be different than it is today.
I don’t know who will be on first or who will be gone. I’m just certain that things will be different in the future. Also, the landscape will be not just national for the United States, but international.
In this light, the action by the AICPA seems to be a rational business decision. I make no comment on internal AICPA politics or how the decision to offer the ABV credential to non-CPAs was made. These issues have riled the group of their ABV members who are discussed in the WSJ article.
But the AICPA is saying, in effect:
If you are not a credentialed business appraiser and you are not a CPA, then we offer the path of not too much resistance to being credentialed. And we offer the best path to the CEIV for public reporting.
If you are a credentialed business appraiser and you are not a CPA, come join us for “one-stop shopping” for your credentialing and standards needs.
If you are a CPA/ABV, stick with the program and we will expand our scope and influence and the value of your credential as we grow into the future.
I could, of course, be wrong, but I don’t think so. Change is a-coming. And now, I, too, could get an ABV designation, but I won’t rush. I already hold three designations from three credentialing organization, the ASA (actually FASA from the American Society of Appraisers), the CFA (from the CFA Institute), and the ABAR (from NACVA). Dues enough for now!
I have friends and business associates who are adamant that the AICPA is wrong in making its recent change, and I have friends and business associates who think they are moving in the right direction for the future.
I welcome your comments to a friendly and not nasty debate.
In the meantime, be well!
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