James Hitchner will be presenting, “The Good, the Bad, and the Ugly of the Market Approach,” as well as moderating the “Battle Royale” panel at the 2016 AICPA AAML National Conference on Divorce.
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James R. Hitchner is a managing director with Financial Valuation Advisors, Inc. – a firm specializing in valuation, financial, and litigation/forensic services – and president of the Financial Consulting Group – the nation’s largest organization of business valuation and litigation services firms. He also founded Valuation Products and Services, a company devoted to BV education through its publications, webinars, and other resources. He has 37 years of professional experience, including 35 years of valuation experience and two years of experience in real estate development. He is editor in chief of Financial Valuation and Litigation Expert, a bi-monthly journal featuring views and tools from experts in the field, and editor in chief of the VPS Do You Know…, a monthly publication that answers questions about business valuation, litigation, and forensic/fraud services. www.finvaluation.com
Can you give us a sneak-peek at your presentation – “The Good, the Bad, and the Ugly of the Transactions Method of the Market Approach” – for the 2016 AICPA/AAML National Conference on Divorce?
I’m co-presenting that with Rob Levis. Part of the title also includes: primary method, corroborating method, rejected method, or stand-alone method – and because they are the four choices, and the only four choices, you have in actually applying the market approach. For the most part we’re going to talk about the transactions method and its reliability.
Rob has some viewpoints on that, and I do as well. We’re going to go through the various databases and will talk about the deficiencies, weaknesses, and some of the advantages of using the method – and some of the disadvantages. For the attorneys, we’re going to also go through identifying potential cross-examination questions when valuation analysts use the market approach.
Can you explain why this is crucial knowledge for anyone with a divorce practice – be it financial or legal?
Well, in an operating business … the primary method is often the income approach. And then most of us who do marital dissolution and valuation work will also attempt to use what I refer to as the transaction method of the market approach. And there are various databases and applications, and many analysts that apply the information incorrectly or don’t fully understand some of the pitfalls of applying and using the data, and how the data is collected. I think that will also be of great value to the attorneys, because this is an often-used method, and I think both the analysts and attorneys should be alerted to the strengths and weaknesses.
Is your presentation geared more towards legal or financial divorce professionals?
Both. I mean when I’m working with attorneys in the marital dissolution area or any type of litigation, and the expert on the other side – I don’t always like to use opposing expert – but if it is an expert on the other side, if they use the transaction method of the market approach, I need to be able to go through the analysis, find things that I think are right or wrong with it, and then explain that to the attorneys so that they can explore that further in a deposition and/or confront that expert if there are problems at trial in terms of the credibility of the analysis – that’s the transaction method of the market approach. So, I see it as a team effort in understanding this market approach method, attacking this market approach method (if applicable) and supporting this market approach method.
You’re also the moderator of a panel discussion entitled “Battle Royale”. What can a delegate expect to learn from attending this panel discussion?
Well, I’m moderating the session with Nancy Fannon, Jay Fishman, Chris Mercer, and Ron Seigneur. And all of us know each other and most of the time we agree on things, but we don’t agree on everything. It’s a panel that’s going to deal with hot topics and some of the more controversial areas in valuation. And like I said, we agree on many things but we don’t agree on all things. I think it would be useful for the participants to learn different points of view and also where the four of us may agree on the use of a certain methodology or the use of certain data.
We’re going to go over a variety of topics, including what do you do when the court doesn’t accept a methodology that you as an analyst [think] should be applied. We’ll be talking about business valuation standards and credentials. And more and more, we’re seeing analysts and attorneys evaluate opposing experts in terms of whether they have fully complied with BV standards, and so we’ll also go through some of the BV standards and credentials.
A very hot topic is valuation of pass-through entities, and whether you tax effect or not, and what you do after that. And then we always like to talk with a group of attorneys and CPAs about how to better work together, including preparation for depositions, our own depositions, our own trial testimony, and also how a CPA expert can assist the attorney in the cross examination of an opposing expert, whether a deposition or a trial testimony. And then all of us are pretty experienced in terms of the litigation setting and will offer our views on how to best present and support a valuation in a divorce setting.
Is Battle Royale geared to both legal and financial professionals?
I think all the topics will be of interest to the attorneys as well as the CPAs. And we’ll give some benchmarking in terms of what are some general parameters over the various topics… For example, one might ask: “Well, Hitchner, you did this complex model to do capitalization rate, can you give me some general idea of what the boundaries are?” And we can help with that with the obvious caveats that everything is based on facts and circumstances. So, there’s a variety of things we’re going to cover, and I think it will be of great interest to both attorneys and CPA valuation analysts.
What do you think sets the AICPA/AAML National Conference on Divorce apart from all of the other ones that are sponsored by legal and financial organizations?
Well, one of the largest areas for CPAs – forensic analysts and valuation analysts – is the divorce area. So, this is an opportunity on a national scale with two reputable organizations – the AAML and the AICPA – to have attorneys and CPAs mix it up. I learn an awful lot and I hope the attorneys learn as well by simply networking- attorneys and CPAs interacting during the sessions, breaks and lunch, and getting each other’s viewpoints. We all learn from each other. I learn from other CPAs, and CPAs learn from other attorneys. This is a rare event with two prestigious organizations; it combines both lawyers and CPAs working in the litigation or dispute-oriented marital dissolution area.
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