Hi, welcome to valuation podcast.com, a podcast and video series about all things related to business and valuation. My name is Melissa Gragg and I provide divorce mediation and valuation services in St. Louis Missouri. Today we'll discuss valuations for financial reporting with mark Xylella. Mark is a valuation expert in Georgia. The managing director of Xylella valuation advisors, which is an Atlanta evaluation and litigation consulting firm. Mark is also the chairman of the standards review board for the international valuation standards council. He also was the primary author of the education program of the AI CPA and the Royal Institute of chartered surveyors for the certified in entity and intangible asset credential. This is the C E I V, which I believe most valuation professionals are aware of. That goes towards certifying a valuation experts in valuation for financial reporting purposes. And it's a fairly new credential, but welcome mark. How are you today?
Mark Zyla:I'm doing well. Thank you for inviting me.
Melissa Gragg:Uh, well, this is an awesome topic and I think that it's actually an area that people may not completely understand. Um, but typically when they need this type of valuation, they are told by other advisors, accountants, um, attorneys and such. So if we get started right into it, um, why would a company need a valuation for financial reporting? Like what does, what do those words even mean to them?
Mark Zyla:Sure. It dates back to about 20 years or so ago when, um, we had the technology boom, when companies were buying one another and pain, you know, millions, millions, and billions of dollars for stuff. And under the old accounting rules, they put it into Goodwill. And so the counting standards center, the FASBI took a look at that and said, are they really buying Goodwill? Are they buying something? And you know, as you can imagine, they're buying something, they're buying technology, they're buying domain names are buying customer relationships and things like that. So the BAS we changed the accounting rules so that when one company buys another company, they have to identify those assets, what they actually bought and how much they paid for. And so, um, on their financial statements and our balance sheet, after the acquisition, they have to put the values of what they actually bought and what they pay for it. And they incorporate on there on the, the acquire corporates on their balance sheet.
Melissa Gragg:Okay. So I'm a company and I go by another company. Do I need to be a publicly held company? Can I be a privately held company? Do I need this for all purposes? And if I buy something,
Mark Zyla:Yeah, it's all purposes. So there's no big gap, a little gap if you're public or private, the same rules. However, there are some exceptions, the FASBI over the years have made for private companies if they decide to elect those exceptions.
Melissa Gragg:Okay. And you said another word that I think people kind of have an opinion about, but Goodwill, right? Give that, give it a little bit more. So let's say we buy a company and it's got assets of a million dollars. Okay. And we pay$2 million kind of walk me through where does that other million go?
Mark Zyla:Sure. Yeah. If you think about it, like it's more than just what shows up on the balance sheet. So it's more than just a working capital and the fixed assets. It's intangible assets, it's a workforce, it's the employees, it's intellectual know-how. So all those, um, uh, that additional value is for those, um, specific identified and tangible assets. Also, there's all, there's typically a piece left over, which falls into Goodwill, which is value of assets that typically isn't identified, but it might relate to the fact that they're, these assets are combined and they're in place. You don't have to go out and recreate a company or things along those lines that that may not be identified, but add value to the company.
Melissa Gragg:Well, and I think that that's, you know, is this, is this similar when we hear people talk about a purchase price allocation? Like, is this similar? Is this the same process?
Mark Zyla:Yeah. It's, it's, it's, it's the same concept, um, under the old accounting rules or, um, the used to be referred to as a purchase price allocation. Now, you know, it's preferred now to it as an acquisition method, basically a same concept, other it's that you have a business combination, you paid something for it. So you have to identify what you bought and specific assets and put it on your balance sheet.
Melissa Gragg:Oh, see that. I think that's fairly helpful. And the other thing about this process is that, you know, do business owners typically know that this is something that's required or when do they find out, when does somebody tell them? Cause they're getting all concerned about buying the company and, and, and, you know, incorporating that acquisition. When does this process come into play? Yeah.
Mark Zyla:If they made a lot of acquisitions, they probably have gone through the process previously. So they, they have an idea of what, what the process involves or what is needed. Um, if it's coming that, that doesn't make a lot of acquisitions, you know, oftentimes they may be aware of the concepts, but certainly before they go through their audit process, their auditors are gonna mention to them that they need to, um, identify what actions acquired and measured at fair value. And so they'll either do it themselves and then that's possible. Or if they don't have that expertise, they'll have retained an outside expert that specializes in that type of evaluation.
Melissa Gragg:And it kind of makes sense from a lot of perspectives because I think business owners will always say, well, yes, I have this, but like, what about my people? What about, you know, the other stuff? What about me? What about the, the name that I've built? You know, things like that. Um, what if there are patents and trademarks, is that something that can be dealt with within this valuation? Yeah.
Mark Zyla:Those are, would likely be considered identified intangible assets. So if it's adds value, if it could be separated and either sold by itself or conjunction with other assets that under the accounting standards, that it needs to be valued in a business combination.
Melissa Gragg:Hmm. This is good. So another area, I think I went ahead of myself, but that's okay. It was, it was good information. So another area that people I think kind of understand is if you've done valuations right. Is fair market value. Okay. And that's the value for a willing buyer, willing seller, but in this, there's actually a concept called fair value. And so what, how is that different? What does it mean? Is it even important?
Mark Zyla:Yeah, it's, it's important because it's the standard that's outlined in the accounting standards day, a CA 20. Um, and it's the, when the FASBI created, uh, the concept of, um, business combinations and accounting for business combinations and identifying the intangible assets and, and Goodwill, residual Goodwill, they, um, created a new definition of fair value. So that's how the valuation expert will look at measuring fair value. And one of the distinctive features of fair value within the definition is it's from a market participant standpoint. So it's T it's known as an exit notion, not an entrance notion. So it's interesting that to measure fair value, you measure it with the asset can be sold for not necessarily what you paid for it. So what you pay for it may not necessarily be fair value. It could be, but may not. So the fair, bit's important to follow that fair value standard at the end of the day, compared to fair market value, the concepts are somewhat similar, but the approach is different and how you get to fair value in financial pouring versus fair market value for tax purposes.
Melissa Gragg:And most people may understand, like if they look back at their financials, they may understand book value. So is fair value the same as book value?
Mark Zyla:No, it's, it's different. So, so book value typically is historical costs of assets that are either amortize or depreciate over time. Fair value is what you could sell those individual assets for an air curtain in the marketplace as of the measurement date. So it might, it may be include assets that in a business combination that typically are put on the books. So, you know, the, the tangible assets that we were speaking about earlier, typically internally generated a tangible assets don't show up on, on the, uh, acquires balance sheet, but just the, the acquired detachable assets show up
Melissa Gragg:Well, and that's, that's kind of where you come in and other valuation professionals come in, because if it were just what was on the books. And I think that, you know, people kind of throw around book value and these types of things, but essentially something could have been bought 20 years ago. It could have been fully depreciated. It could have been written off. And so w when you're coming in, you're trying to really see what is the value that could be that somebody else would buy this for not because you bought it 20 years ago for$3, and now it's worth a million dollars. Like we're trying, we're trying to build in what is that difference and how do you calculate it? Right.
Mark Zyla:I think a good way to look at it is just kind of, uh, you know, uh, uh, uh, summary way of looking at it is you look at the market to book ratio of the S and P 500, for example, you know, currently it's about three and a half or four to one. So what that saying is the markets identifying three or four times the value that's not showing up on the financial statements. And so it relates back to what we're speaking about, that the market's identifying both acquired intangible assets, but also internally generated intangible assets valuing it, but, but they're not showing up on the, on the books. So book value would certainly understate the value,
Melissa Gragg:And this is kind of a random side thought, but, um, is the reason why we're doing a lot of this type of valuation because more companies are doing asset sales as opposed to stock sales, or does that have anything to do with it?
Mark Zyla:No, it's, it's, it's relates to a business combination. So the legal structure, does it matter? The important thing to the accounting standard setters and regulators the sec is that they want better information, um, supply to investors. So if you're making acquisitions and, and paying millions, or, you know, in larger cases, billions of dollars, the, the FASBI in the S in the sec, want investors to know what you're paying for and how much you paid for how much you think those individual assets are worth and amortize it so that investors can utilize that information, um, on a going forward basis.
Melissa Gragg:Well, and you talked about some, and we briefly kind of got started on these intangible assets if you will. But I think that, you know, really a disconnect too, from business owners to like, what we do in the valuation world is like, well, how do you, how do you value them? How do you, how do you know what a trademark or a patent or any of these things are worth now, how do you look at it in the context of financial reporting, I think would be interesting as well.
Mark Zyla:Yeah. So as next, uh, uh, question the, um, if you think about intangible identify and tangible assets, it's specific to different sectors or different industries. Um, but there are some common ones, um, you know, things like technology, you know, you'd mentioned patents earlier. There might be proprietary technology, trade names, customer relationships, non-competition agreements, uh, but it can extend to things like domain names. Um, in, depending on the industry, it could be a wide variety of just different types of intangible assets. So it falls under the definition, if it can be sold either by itself or, um, or monetize in some way, not necessarily sold, but monetize in some way, either by itself or conjunction with other assets, then it's considered to have value. It needs to be measured at fair value. So what with the valuation profession has done is taking corporate finance theory and valuation practices for valuing businesses and modifying them to value specific identified and tangible assets. So over the last 20 years or so, the profession has created best practices on valuing non-compete agreements, on valuing proprietary technology, customer relationships. And also since intangible assets have limited lives compared to the assumption that business has a value in perpetuity, there are tech methods now to value, which the remaining useful life of those intangible assets, because that contributes directly to the, to its fair value.
Melissa Gragg:Right. And what I don't think people also understand is that you are looking individually at these separate kind of pieces, right. Separate pieces and valuing them separately. Right, right.
Mark Zyla:Yeah. Yeah. And, and, and your, their techniques, you know, to fit it in with the whole pie and the consideration is being paid, but it's taking total consideration, total value of what was acquired, and then carving it out into individual values for each of the individual assets.
Melissa Gragg:Now, a lot of times when people are talking about financial reporting and, and we know that, you know, there are specific terms that we talk about in the profession. Um, but a lot of times people get a little confused, so I'll get a startup company or somebody newer, and they'll be like, oh, I need evaluation. Or I need financial reporting, or I need this, but then they say a 4 0 9 a valuation because I'm dealing with compensate, you know, like w what does, is that the S you know, like, are they talking the right language? Or what, what are they really looking for in that space? Sure.
Mark Zyla:So in addition to just business combinations and identifying assets for financial reporting, there may be other reasons for fair value measurement of assets for other purposes, under the accounting standards that impact financial reporting. One is valuation of stock that's issued as compensation or equity interests that are issued compensation. So there's a tax reason for that to be valued. There's also financial reporting reasons for those to be valued. So there are, um, valuation techniques that early stage companies who issue say they issue opposites to employees, or they issue stock to a vendor, uh, in lieu of cash consideration under the accounting rules. They need to measure that at fair value and place that also in that code that flows through actually flows through the income statement. So rather than cash compensation, it's the equity compensation.
Melissa Gragg:So like, if I'm at a consultant and a startup contacts me, and we're, we're going to assume I'm not doing valuations. Right. Cause that's a little bit of a different issue, but, um, and I mean, you know, maybe I'm a doctor and I, and I sit on the executive board right. Then the startup company could say, well, we don't have a lot of cash. We don't have a lot of money, but we're going to give you stock. And so I think that most of the time we think, okay, just give them some stock who cares, but that's when it triggers the 4 0 9 a to say, okay, well, what was the value of that stock in lieu of compensation, right? That's
Mark Zyla:Right. And so for 4 0 9, 9, 8 purposes, they have to measure the fair market value of that consideration. And then for, um, or compensation and for financial reporting purposes under ASC seven, 18, they have to measure it fair value. And that goes through the income statement. And the, and those are really important because if a company, for example, leaves either acquired or eventually wants to exit through a public offering or, or, or through an acquisition by a SPAC, the, the security, the regulators are going to look closely at that because they want it to be at fair value. So they don't want you under, over, under reporting that compensation. So they're going to look at how you actually measure that value and look at it pretty closely.
Melissa Gragg:And these are co you know, like most evaluations that we do are complex valuations, but the calculations with the, within these types of reports, I feel like has a lot more assumptions involved and, and time and research and things like that. Um, would you agree that these are a little bit, you know, like you have traditional valuations and then you have kind of financial reporting valuations. Do you agree that the complexity is pretty significantly different?
Mark Zyla:Um, particularly in a sense that, uh, as I've mentioned, best practices have developed the last year 20 plus years that because it's for financial reporting purposes, that it's often used as audit evidence for what is being placed on the financial statements. So Jesus' audit evidence than the auditors, look at it and look at it closely to it. And so therefore the valuation of the work has to be auditable. So the outside party has to understand why, why it was done. The assumptions that were used in the process. Typically the process involves the auditor brings on evaluation specialists, specialists as part of the audit team. So there's some checks and balances and questions going back and forth between the valuation, the auditor, the audit partner, the client, and their outside valuation expert, just to make sure everybody's comfortable that it got to the right answer. Hm. Hm.
Melissa Gragg:Well, and, and in that, you know, part of what we talked about at the very beginning was this credential, right? And this you've been heavily involved in this, and this credential is the certified and entity and intangible asset credentialed the C E I V. But if we look at, in, in general, you know, is it necessary to work with somebody who has this credential because, and or what does that credential involve?
Mark Zyla:Sure. So the Genesis of this credential was concerns by regulators that there was valuation work that's being used as audit evidence that is being put on balance sheets and financial reporting for financial reporting purposes. And investors are relying on that information. So the regulators are looking at it and saying, how do we know this is right? How do we get comfortable that, that these people have the training, the education, that disciplinary mechanism, you know, if they mess up, how do we get comfortable with all of this? So the profession responded to those concerns by a couple of things, they created some work streams and under something that they refer to as a fair value, quality initiative, and eventually developed with what's now known as the CIB, the certified entity and tangible evaluation, along with that, they developed a mandatory performance framework that provides guidance to evaluation specialists on how much work needs to be done. So that in the public interest, if they're relying on the financial information, that is in part based on valuation outside valuations, that everyone's comfortable, that it's done in a best practice manner.
Melissa Gragg:Well, and essentially, uh, you know, I think that just to summarize is that there was, there was a lack of consistency and there was, you know, um, because a lot of this, you know, we, we, we joke in the industry that it's part art and science, you know? And so I think this credential was in it in order to, and because you're, you're reporting to the investors, so if you don't have some framework, right. Um, it kind of became the wild west. So I think that it was, um, uh, helpful, but are, can people provide this service without the credential?
Mark Zyla:Oh, absolutely. Yeah. So there, it's helpful if, if, uh, an individual has that, however, if a person that doesn't have it, it's perfectly fine to perform this work. There's a little bit different process, um, that they would go through with the auditors. Um, as far as the auditing kind of, um, uh, comfort level that the auditors have to get comfortable with with, uh, the person's expertise, but the, the, the work that we're doing under the mandatory performance framework, the best practice to become a best practice where it's mandatory, if you have a Civ, but still same standard, the best practices, um, of performing these valuations is promulgated by the ACPA. And, um, praised foundation for example, are the same. So, um, the CIB credential provides comfort that that person has been through some sort of rigor, but that doesn't necessarily prohibit anyone else from doing that work in a perfect example is management. It's not prohibited from management to do the work themselves, if they're qualified to do that comfortable and do that, um, and not retain an outside expert. And they may not necessarily have to have the CIB credential. However, they're going to have to follow the same as, since it's audit, they're have to have the same quality and level of, of review,
Melissa Gragg:Right? Well, and you mentioned a couple different times, this concept of mandatory performance framework. So is this like a guideline of, I need to spend 10 hours researching and two hours talking to people, or is it more loose and just like kind of a roadmap of how I should things to consider and such.
Mark Zyla:Yeah. So if you think about professional standards, there's professional standards related to ethics, just competent ethical behavior that, that, you know, we all follow right. There are technical standards. So if you have a credential from NAPFA or the AI CPA, or, or rigs, you have to follow their own technical standards, um, or IBS-C is another example of a set of technical standards, uh, IBS under IVC. And then there's PR there's performance, frameworks, and performance frameworks are not how to do something which falls under the technical standards. It's how much to do so the idea behind the mandatory performance framework is to assist in the audit process, because it provides a framework for valuation specialists, how much work do you have to do for it to be considered auditable? So that the process is smoother that the audit that management, first of all, is comfortable and they management takes responsibility for the work, but then it's, it's clear enough to the auditors that the cookie, they can follow the assumptions, the methodology and, and make it, uh, uh, conclusion is, is whether or not that that's reasonable for, for audit evidence.
Melissa Gragg:Well, and, and you, and we've talked a lot about the audit too. So typically when you're pulled in, you're going to be an outside valuation firm outside of the auditor, right. That's correct. Yeah. And, and when you come in, but talk to me a little bit, because we've talked about how much is involved in the actual evaluation, but there could be, you know, of the whole project. Um, sometimes that could be like 50% of the work. The other 50% could be talking to the auditors, working through the process. Do you see it kind of fall in like 50 50, or do you see 75, 25, but you know, like talk to us a little bit about how you have to prove up that audit or that, um, valuation to the auditors.
Mark Zyla:Yeah. So, so the process is typically, um, the outside specialist does their work, um, provides draft analysis to management work talks through it with management. So that management gets comfortable and management, um, is able to take responsibility for the assumptions and methodology. They're not the valuation specialists that they have to have enough basic understanding that they're comfortable with. They will take response responsibility for it when it comes time for the audit. Um, when the auditors look at the balance sheet, say, you know, okay, where are these numbers come from? They say, here, here's my, I retained an outside expert here, their qualifications here's their report. So the report goes to the, I team, the auditor looks at it, you know, generally, you know, they have some experience with outside bank working with management, outside valuation specialists, but they bring in their, uh, uh, valuation specialists on their own audit team who goes through. And typically they have a series of checklists where they go through, um, and compare the work to their checklist. And they may develop questions if there's something that's not clear from the outside experts report or schedules. And so they, they give those questions back to management for additional clarification. Some of the questions management can answer some of the questions go back to the outside experts. Sometimes you have conference calls and you walk through the issues and you get the auditor comfortable. Or sometimes the auditor say, look, we don't approach it that way. Um, but we did a shadow calculation. We did it the way we normally do it and it's come up the saying, so we're okay with it. We don't necessarily agree with that assumption or, or whatever. So it's a process of give and take. And so sometimes it takes two or three rounds of those questions to get the auditors comfortable. So it can be, time-consuming it, uh, at the end of the engagement, it's typically not 50%, but it's not 5%. It's a little bit, you know, somewhere in between, depending on the experience of the auditor and management, so on.
Melissa Gragg:Sure. But it is, it is defending your valuation to some internal auditors, um, that may have some questions and things like that. You briefly mentioned that the business owner would have to take ownership and some of the process, um, I think that what you were alluding to was the fact that we work with them for projections. We work with them for looking at the future a little bit. And so a lot of times we, as valuation people kind of provide a framework for some of that, but then we need the input from the owners to really solidify the assumptions. Right?
Mark Zyla:Yeah. Well, it's that, I mean, that's, that's a very important part of the process because the information that they provide is, is critical to, um, uh, you know, robust, you know, credible evaluation, but it's also for financial reporting purposes. It's also, um, important for management the business owner to understand that since it's going on their financial statements and the financial statements or their representation of the forms, a company that they have to take responsibility, even though they haven't hired an outside expert. So it's helpful for both the outside valuation expert in management to have constant communication, to make sure management is comfortable with these assumptions, you know, understands the methodology, um, ask critical questions. You perhaps do some sensitivities to see, um, you know, if they're comfortable with, with the process, the assumptions and the conclusions.
Melissa Gragg:Well, and since you obviously have been operating in this area for quite a long time and have significant knowledge, including, you know, helping with curriculum and helping teach, um, we, you know, this type of work to new credential holders, how do you see valuations have changed in this financial reporting arena?
Mark Zyla:Sure. A number of things are going on currently, um, from, uh, the accounting standard set or standpoint, um, they're looking at how, um, Goodwill is tested for impairment. So in it once the, um, the assets are measured at fair value and put on balance sheet, it doesn't stop. There are certain steps that management has to take to make sure that those values are still valid. So if, if they believe there's a purchase, a trigger event and accounting standards, they believe there's a triggering event that that value is no longer, um, um, reliable. Then they have to impair it. And there are various techniques that they have to do typically malls fair value measurements. So they'll measure for impairment. One of them important. One is Goodwill and so Goodwill, um, uh, it gets measured regularly at least once a year or more frequently if, uh, there's a triggering event. And so the extended setters are looking at the different tests that they've required to measure whether Goodwill's valid. So both the FASBI and international accounting standards boards are revisiting those standards. So that's one potential change. Another potential change is there's a hybrid system created from this acquisition method. And what I mean by that is in a business combination. If you're making acquisitions, the company that you acquired, you have to measure their stuff at fair value, but your stuff doesn't get measured fair. So we've got a hybrid of book add and, um, and fair value. And so that creates a disconnect. So there's still that piece, you know, talking about marketing, you still that piece, that gap. And so the accounting standard setters are thinking well, you know, since the economy's kind of shifting more to tech, you know, where they're seeing that being exacerbated, so maybe they do they're, they're considering projects to say, do we need to measure internally generated tangible assets? And if so, how what's that process? So that's maybe down the road, but they're at least talking about, about that. So that may be another change. Um, other changes are, um, things we're seeing yet at the IDC or ESG is becoming, uh, environmental, social and governance issues in that investing in evaluation are becoming more and more important. So as a profession, we're trying to figure out how do you measure those, those components, because it's not really self-evident. Um, so that's going to change financial reporting. We're seeing the Israelis ESG, the accounting standard setters are, are, um, looking at financial reporting requirements for ESG. Um, so that's going to be it a change. Um, so there are more and more valuation techniques that are being developed through fair value measurements that could be applied to other types of evaluations. So there's a lot that's going on in valuations for financial reporting that impact not only the financial reporting side of it, but also other types of valuations.
Melissa Gragg:Right. And we didn't even get into Goodwill impairment or anything like that because the, you know, uh, part of the reality of that is that there has to be something that happens. Can you give us just like a very small example of like a triggering event that maybe people would recognize and they'll be like, oh, okay. That's, that's what could happen
Mark Zyla:At that point. Okay. So yeah, I mean, just, uh, you know, uh, you know, within the last year, right, your, a hotel chain and this global global pandemic, right. You've made acquisitions of other chains you put in a Goodwill and also you're, you know, you have no customers. And so what does that do to your outlook? How does that change what you thought, you know, which you paid for and what you thought you were getting compared to what actually happened. So that may be, you know, extreme example, but that may be considered trigger event. And you would have to look at that and, and make some adjustments. So things like that, some of them are aren't as clear cut. Um, you know, maybe, um, you know, your stock price dropped, but your peers that, uh, haven't dropped, why did your stock drop? Is it temporary? Is it not temporary? Um, if it is then[inaudible] and you have to understand why it did then that may, may cause, uh, uh, uh, right off of Goodwill because you're
Melissa Gragg:Yeah. Is it temporary or not? Temporary would be the global question that we'd like about the pandemic. Right. Um, so one other area that I think is of interest because I do a fair amount of litigation, is that, can you do things in this process to proactively try to avoid litigation or issues with this valuation? Um, and what could be some of those that we could think about?
Mark Zyla:Yeah, so, so some of the things that we've seen were, were companies have gotten trouble, um, involved where they tried to shortcut, so they didn't follow these processes. And for whatever reason, their auditor may have been okay at the time with it. So don't, I guess proactively is understand that there are accounting standards that the regulators are heavily involved, not only in accounting standards, but heavily involved in, and the proper measurement of fair value and that there are best practices that have been designed by the profession. So, um, one way to, you know, just like everything in life, you know, follow the correct procedures. And it's also helpful. You have qualified quality outside experts. You have a qual quality, high quality audit team that understands the fair value measurements. So that are going to ask the tough questions to the outside expert that the outside expert has experience for measuring valuations, for financial reporting, have conversations, uh, with your outside experts, so that you understand and are comfortable with the work that they're doing. That the assumptions that are being made, that, um, that the conclusion is reasonable compared to your, your expectations. A lot of it's, you know, common sense kind of stuff, but, but if you don't do that, that, you know, we've seen companies get in trouble for, for doing that.
Melissa Gragg:Right. And, and I mean, there are some serious costs involved in this process, but the other idea is that you're purchasing a company like you're investing in the future and these types of valuations protect you and your company going forward. But I think that, you know, what, you've kind of implied and probably would never say, which I'm going to say is that, you know, in this space of financial reporting, having somebody who like I got my credential last week, um, I got my credential five years ago. I got my credential 10 years ago. It really is that you need significant experience or an experience team. Um, in my opinion, this is, this is the Melissa Greg opinion, but I think that this is very complex work and it is being watched by other governing bodies. And so you really do want a team that understands it because you as the business owner or even other types of consultants are not going to totally understand the process. Right. I mean, I've been through enough and I'm still like, wait, what does that did it, did it, did, you know, like it, cause it really is like a big puzzle, right? And you have to put all the pieces down before you can even see how it works together. Um, and so that's just a little bit, you know, Mark's not going to tell you that, but I'm going to tell you, you need somebody with significant experience in this space.
Mark Zyla:Yeah. Credentials helpful, but it's really at the end of the day experience and understand the best practices and have worked closely with outside auditors on a variety of occasions because it's, it's a unique type of a give and take checks, balances kind of system.
Melissa Gragg:Yeah. The credentials kind of a gold standard. You know, the, the credential, if, if you have other, if you have a professional or a team that actually gets the credential, that's even better, you know, layering on to experience I think is absolutely good, but that experience is pretty important. Um, and most people in this space kind of focus in this space, you know, they're not doing a whole bunch of different types of work. Um, they're kind of focused narrowly, not narrowly cause it's a, it's a big area. Um, but you did say one more thing that I want to bring up before we talk a little bit about your firm and how people can reach out to you. Um, cause we've been very efficient with all of this information. So, but you said something about ESG or environmental, social and governance, and it's kind of words that I understand, but I don't really know their impact. So, and you briefly talked about it, but can you tell me just a little bit more about what does this mean to my company?
Mark Zyla:Sure. Yeah. So, you know, as you could see from business, press popular, press even advertisements. Now there is clearly a trend towards businesses to have greater social responsibility. And so there's a debate, whether the constituency of businesses, just their shareholders maximize profits, we don't care what we do to them. You know, we're wrecking the world. We just want to maximize profits. Well, that's obviously changing, right? We're now it's like, okay, we've got a, you know, we all live in together place. We need to have be good corporate citizens. And so there are three broad areas that, that entails. One is environmental impact, you know, and, and we've heard about climate change, you know, what's our carbon footprint, for example, right. Another is social, right. Are we inclusive? Do we, uh, encourage diversity in our workforce? We encourage diversity on our boards, our, you know, our customers basically. Um, and then the last is governance. Do we have the proper, um, controls or, um, processes in place that we are good corporate citizens, we're not paying bribes to, uh, to gain businesses, you know, for is an extreme example. So that's become a focus where now we're seeing investment funds focus on ESG and some of the rating agencies like stares and pours, and those type of agencies have developed ESG social responsibility criteria to measure a company. So you just can't say, Hey, I'm, you know, I make electric cars. Um, um, I'm a good guy versus all the gas guzzlers. Well, maybe you are maybe aren't right. So we have to measure, um, measure your impact somehow. So there are rating agencies, so that's one thing and that's kind of starting. Um, but, but, but it's, it's, it's not quite there yet. The second aspect is the account, you know, what does it mean for financial reporting purposes? So the IASP their national accounting standards board is developing a sister board or companion board for just on sustainability issues. And so that the ESG impact is going to be reported on financial statements in some manner or through disclosures or somehow so that, um, investors can get a better idea of a company's social responsibility. They just can't tell it on their website, right. It's gotta be a nod. It's going to eventually look at it. So the big, the big audit firms are starting to now develop ESG expertise in auditing the claims, right. The expectations. And then the third area is where valuation people play in and the becoming involved in, in that's. Okay. We take those to other areas. What does it mean in valuation impact? Is there evidence that if a company is socially responsible, does that increase their value or does it decrease your value or how do we, how do we measure that on impact? And there are some academic studies that perhaps it may lower cost of capital. It may increase cash flows, but it which, you know, obviously both have impact on, on overall conclusion value. So we're looking to figure out a way how you actually measure the evaluation component ESG, because we're going to start seeing that going forward.
Melissa Gragg:Well, and I mean, I would imagine because of the pandemic, because you know, all of us have kind of sat back and taken stock of our life right. And said, okay, we need to do better. We need to be better. How are we going to do things different? Maybe not everybody did that, but I did that, you know? Um, and so I can see that this area is going to be very significant in the future. Like, uh, we might need to do another podcast on this mark because this is real it's, uh, it's kind of a little bit of a passion for me too, is how do we see and how do we be a part of, you know, companies starting to do things differently. And it's not about the profit and it's not about the bottom line, because quite frankly, we can all make a lot of profit doing certain things. It's how do we then give back some of it or do something productive. Right. And there shouldn't be value to that.
Mark Zyla:Yeah, absolutely. Yeah. Yeah. And in part of the ESG evaluation component to your point is what if we don't right. If we don't, then there may not be any value.
Melissa Gragg:Right, right. Absolutely
Mark Zyla:Happy to explore that further with
Melissa Gragg:You. Yeah. No, I think it would be good because in even just talking about how companies are going to change from this, because it's not only, you know, like companies don't necessarily just make actions that lower profit, right. They're not just going to go out and do it, but they have now an entire population and workforce that is requiring it and saying, you know what, I want some balance. I want to work from home. I want to do these things. You know, I want to see more diversity. I want to see more people that look like me. Right. Um, and, and why don't you have more women or minorities in the board level and the management level and things like that. So I think all of these topics are going to become, there may not be total valuation topics, but I think they are interesting to watch how the world's going to change. Um, so we have given a tremendous amount of information, helpful things for people to know. Um, this is not necessarily my specialty area. And so, um, if people have questions and comments or concerns, or, Hey, do I need this? Or, oh, maybe somebody, another professional did this wrong. Right. Um, how can they work with you? Tell us about your firm and we're going to put up some information about how they can contact you while you talk.
Mark Zyla:Sure. Yeah. We, um, zone evaluation, visors. We're based in Atlanta, but we do work, um, cross country. And then, you know, sometimes in other parts of the world, um, we have, uh, a person here in Atlanta that assists, but I'll say I have, uh, a team in Mumbai India. That is my support staff. Um, so that we see different types of work all over the world. But we, we primarily work. We would do a lot of workouts. You can imagine in finance reporting that we do, um, you know, some litigations of tax related work, work as well. But yeah, we work, um, primarily virtually, so, um, like most people these days and, um, but, uh, but it's working out really well.
Melissa Gragg:That's awesome. So, um, if people have some questions, do you typically, uh, you know, if they email you or call you, can they just ask you a few questions and then determine how to move forward? Is that a possibility?
Mark Zyla:Yeah. Yeah. Please do feel free to give me a call or email, be happy to talk to you to see if there's a fit or fortunately way we can help you.
Melissa Gragg:Cause these are big projects. I mean, these are time intensive projects, so it's not going to be just somebody, you know, oh, I think I need this. You know, it, it really does, you know, work with, uh, or, or research some of the practitioners so that you find somebody that's a pretty good fit for you. Okay. Well, this was awesome. Thank you so much, mark. And we're going to ask you back for that other, uh, topic that ESG. So we appreciate all your knowledge.
Speaker 3:All right. Thank you.