AICPA set to release draft valuation guide for GPs in mid-May

The American Institute of Certified Public Accountants is expected to release a draft valuation guide for private equity firms in mid-May.

The more than 600-page draft would help inform GPs as they come to their valuation conclusions, says David Larsen, a managing director at Duff & Phelps who specializes in valuation for alternative assets. Larsen is part of the AICPA task force formed in 2013 to establish a valuation guide that would serve private equity and venture capital firms.

While existing guidelines such as PEIGG, IPEV and AIMA focus on valuing private investments, the new AICPA PE/VC Valuation Guide will be rich with examples to help in exercising the judgments necessary in estimating fair value, Larsen says.

He notes that the new guide does not change existing accounting standards, such as the Financial Accounting Standards Board’s ASC Topic 820 or the IFRS Foundation’s IFRS 13, but should improve consistency in estimating fair value at each reporting date, generally quarterly.

Further, the guide is designed to help inform auditors and regulators as they consider market participant perspectives in determining fair value.

Applying the concepts articulated in the guide should increase reliability and rigor when estimating fair value, which in turn will greatly assist LPs which rely on the GP to provide a robust fair value-based net asset value that is used in the LP reporting and decision-making process, Larsen says.

Valuation methods vary by private equity firms, and one chief financial officer says she will keep an eye on the draft’s release and compare it to her firm’s existing processes.

“It will be interesting to see how the guidance deviates or tracks what we are already doing,” says Blinn Cirella, CFO at Saw Mill Capital, a mid-market private equity firm.

She adds that PE firms have had to establish their own valuation policies, and until know, Saw Mill hasn’t had solid guidance from AICPA. Saw Mill, like many other firms, has a written valuation policy that it provides to LPs. One concern, Cirella says, would be whether the current valuation policies will have to be modified based on the new guidance.

A May 2017 presentation by Irvine, California-based Globalview Advisors, which specializes in providing financial valuations and transaction advisory services, named the draft’s working title as “Valuation of Portfolio Company Investments of Venture Capital and Private Equity Funds and Other Investment Companies”, but its final title will be decided by AICPA.