New Framework for Financial Reporting Valuation Results in Zero Audit Questions for PE Firm
Client: An East Coast private equity firm recently acquired a nearly 100-year-old manufacturing company based in the Midwest. The Brown Smith Wallace Transaction Advisory team performed a purchase price allocation on the $100,000,000 acquisition. The private equity firm is audited by a national accounting firm well versed in reviewing purchase price allocations and pressure testing all valuation assumptions.
Opportunity: Having performed so many of these valuations for both public and private equity owned companies, our experience recognized that there was a need to eliminate inefficient back and forth communication and redundant testing among all parties on the back end of the project.
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In addition to getting the auditors on board with the Transaction Advisory team’s valuation approaches early in the engagement, the Transaction Advisory team also implemented the CEIV certification Mandatory Performance Framework (MPF).
According to the American Society of Appraisers, the MPF “serves as a practical, non-authoritative guide that defines the necessary work to provide supportable and auditable fair value measurements for financial reporting purposes. The Framework also helps to ensure the consistency and transparency of those reports.”
The Transaction Advisory team incurred an upfront investment of time to:
- Read and understand the MPF
- Build out templates for the MPF that outlines their assumptions in detail, allowing each valuation assumption to be “auditable.”
As a result, the auditors had zero questions regarding the valuation report or its assumptions, and the private equity firm’s management team avoided incurring a laundry list of follow-up questions – saving time and money.