August 2008 Newsletter

Congratulations are Due

Courtney Bragg, with whom many of you have worked, received her MBA from the University of Texas during July. While most capably performing a very full workload for our clients, Courtney distinguished herself in the program and has been recognized as a Kozmetsky Scholar by UT for having a 4.0 grade point average throughout her MBA courses. Courtney continues to assist clients with business valuation and economic loss calculations. She is available by email at or 713-351-7140.

Ryan Stevens has joined us having just graduated as an MBA from the Thunderbird School of Global Management. Ryan has lived and studied in Argentina as well as Spain. Ryan will work with business valuation and economic loss assignments. He is available by email at or 713-351-7118.

News from the American Institute of Certified Public Accountants

The AICPA will soon offer another designation in addition to the Personal Financial Specialist (PFS), Accredited in Business Valuation (ABV) and Certified Information Technology Professional (CITP). The new credential will be Certified in Financial Forensics (CFF) and it will be available initially to CPAs who meet experience requirements.

As to conflicts of interest in forensic and valuation services, an update titled FVS Special Report 08-1 has been issued to the prior guidance (it remains advisory and not mandatory).

We would be glad to assist you in obtaining more information about these items.

Privilege Doesn't Apply In E-Discovery Case
Victor Stanley Inc. vs. Creative Pipe Inc. (Civil Action MJG 06- 2662)

A federal judge has ruled that attorney-client privilege doesn't protect 165 documents that were inadvertently released during the discovery phase of a patent dispute because the company failed to prove it took reasonable precautions to prevent disclosure.

The documents - which included several communications between defendant and its lawyers - were beyond the scope of the attorney-client privilege and work-product protection because they were voluntarily produced.

The defendant used a 70 term key word list to try and identify and cull privilege documents. However, only the first page of each hit was reviewed and the keyword search terms were noted by the court as "regrettably vague".

This case cites an important issue with the discovery process. Given the volume of information in a typical discovery case it is critical to have accurate and defendable search methodologies in place to prevent problems as the case progresses.


According to a release by AICPA in June, "Awareness is growing among US accountants that IFRS [International Financial Reporting Standards] is coming for public companies and most believe it will take three to five years to get ready." An International Federation of Accountants survey showed that 90% see convergence of IFRS and US GAAP as important to economic growth. Last year the SEC permitted the use of IFRS for foreign companies. This year it is exploring the option of extending that option to US companies.

A coordinated effort between IASB, which promulgates IFRS, and FASB, which promulgates US GAAP, has minimized many of the discrepancies between the two standards. However, noticeable differences remain (excerpted from AICPA):

  • IFRS does not permit LIFO as an inventory costing method.
  • IFRS uses a single-step method for impairment write-downs rather than the two-step method used in US GAAP, making write-downs more likely.
  • IFRS has a different probability threshold and measurement objective for contingencies.
  • IFRS does not permit curing debt covenant violations after year-end.
  • IFRS guidance regarding revenue recognition is less extensive than US GAAP and contains relatively little industry-specific instruction.

According to, shifting from US GAAP to IFRS boosted DaimlerChryslerís earnings by $819 million and earnings per share by 68 cents in the first quarter of 2007. Moreover, its struggling Chrysler divisionís losses were reduced from $1.5 billion to $682 million. DaimlerChrysler attributed the changes to retroactive pension adjustments.

Under US GAAP, the adjustments are distributed over the remaining service period, whereas under IFRS they are booked immediately in the income statement.

These discrepancies occur because IASB intentionally provides less detail and allows more interpretation so that countries with unique legal systems can easily adopt its standards. As a result, at around 9 inches, the US GAAP manuals are 4.5 times thicker than the IFRS manual. To date, almost 100 countries require, allow, or plan to converge with IFRS.

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