Demystifying Valuation, Economic Damages + Forensic Accounting

ESOP case update

Last year I wrote an article that outlined several cases involving the Department of Labor and ESOP trustees. There have been some recent updates to these cases which again do not favor the trustees. Brundle v. Wilmington Trust In this case, Wilmington Trust (WT) was hired as an independent third-party trustee for a potential purchase …

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Incremental value process in mergers and acquisitions

Are you in the market to merge or acquire another company? Identifying four elements before the deal is complete can help make it a win-win for both parties. There are a handful of the problems that often arise in the mergers and acquisitions (“M&A”) process. To begin with, buyers tend to be overexuberant about the …

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Valuation case update: Estate of Streightoff vs Commissioner

In the case of Estate of Streightoff vs Commissioner, the IRS argued that the interest to be valued in a family limited partnership (FLP) was a limited partner interest, not an assignee interest. The Tax Court agreed with the IRS noting characteristics of the property transferred and admission requirements of the FLP. Case background Streightoff …

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Update on transaction multiples

You have probably heard valuation multiples being tossed around by owners and others regarding the value of businesses. The typical multiple referenced is a multiple of EBITDA which is defined as “Earnings Before Interest, Taxes, Depreciation and Amortization.” Owners sometimes overestimate the value of their business. Recent market data can be very instructive but must …

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Top 5 red flags of earnings management

Earnings management (“EM”) is the practice of earnings smoothing. Research shows there are three reasons why managers engage in EM. They include: optimal contract design, signaling and rational expectations. One example of an optimal contract design is when management’s compensation is tied to the earnings of the firm. Risk-averse managers will engage in EM to …

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Testifying experts: is technical knowledge enough?

It was after the lunch hour and I was testifying as a CPA expert on an economic damages case. The venue was a superior courthouse in Santa Ana, California. The day was a hot one and I was testifying at a jury trial. I had been retained by the plaintiff. My testimony was laced with …

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Should a CPA testifying expert be a client advocate?

Max was an experienced tax accountant. He had a small CPA firm whose members included him, a receptionist and two staff accountants. Max decided that he wanted to branch out into litigation support services. Before he did, he took courses on how to value a business and eventually got his Accredited in Business Valuation (ABV) …

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Protect your business: collusion and increased fraud losses

I recently read an article about fraud within the Massachusetts State Police (MSP). The author, a former MSP trooper, outlined an investigation by the U.S. Department of Justice (DOJ) and the Massachusetts Attorney General’s Office. The investigation involves a minimum of 46 troopers with the allegations including payroll fraud and conspiracy, among other federal violations. …

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Forensic accounting or forensic economics?

In a previous blog, I discussed the term “forensic accounting” and ultimately provided a very general definition: Forensic accounting is the application of specialized accounting, finance, economics and related knowledge and skills in a legal setting. After publishing that blog, I realized that I may have given short shrift to the term forensic economics. Upon …

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What is money laundering?

Crime is big business both domestically and across the globe and, as a result, money laundering activities are extensive. In fact, the United Nations Office of Drugs and Crime reports that “[t]he estimated amount of money laundered globally in one year is 2% – 5% of global GDP, or $800 – $2 trillion in current …

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