CrFA Valuation & Damages Calculation Flashcards

Which professional organization publishes standards for forensic accounting valuation services in the United States?

Answer: AICPA

The AICPA issues Statement on Standards for Valuation Services (SSVS No. 1), which governs valuation engagements performed by CPAs.

In a wrongful termination damages calculation, the mitigation period ends when:

Answer: The plaintiff finds comparable replacement employment

Once the plaintiff secures comparable employment at similar compensation, the lost wages stream is offset by the replacement earnings going forward.

A forensic accountant applying the excess earnings method to value goodwill would first:

Answer: Identify the fair rate of return on all tangible assets and subtract it from normalized earnings

The excess earnings method isolates goodwill by attributing a fair return to identifiable tangible assets and treating remaining earnings as attributable to intangible value.

When a forensic accountant discounts projected cash flows in a DCF analysis, the discount rate should reflect:

Answer: The weighted average cost of capital (WACC) appropriate for the subject company's risk profile

The WACC blends the after-tax cost of debt and the cost of equity weighted by capital structure, capturing the overall risk of the specific business being valued.

In a forensic context, 'economic obsolescence' when valuing a business or asset refers to:

Answer: A reduction in value caused by external factors such as market decline or regulatory change

Economic obsolescence arises from forces outside the business—such as increased competition, adverse legislation, or market contraction—that impair the asset's earning power.

A forensic accountant preparing a lost profits analysis should use which period as the damages measurement window?

Answer: The period from the date of the harmful act to the date losses are expected to cease or be remedied

The damages period spans from when the wrongful act caused harm through the point at which the plaintiff has, or reasonably could have, returned to the but-for financial position.