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Running head: FAITH INTEGRATION
Faith Integration
Stephanie Green
Liberty University
BUSI 534-B01
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FAITH INTEGRATION
Faith Integration
There are many different reasons for business valuations, but the expectations remain
similar. Some of the reasons vary from mergers and acquisitions (M&As) to liquidating the
business, but clients still expect that the valuations to be unbiased, honest, and reflective of an
accurate, fair market value of the business[ CITATION Bus14 \l 1033 ]. Throughout the business
valuation process, the Bible is integrated into several good practices and regulations that help a
valuation analyst perform their analysis well, such as in the accuracy of the data and in the
approaches and standards to valuation.
Accuracy of The Data
The Sarbanes-Oxley (SOX) Act added stricter regulations for financial reporting, which
is extremely important for valuation analysts[ CITATION Wil20 \l 1033 ]. The stricter
regulations help the valuation of a business to be accurate and reflective of the fair value of the
company, since several valuation approaches, such as the income approach and asset-based
approach, are dependent on the accuracy of the financial statements. If the financial statements
overstate the revenue or understate the liabilities, the financial states do not provide an accurate
reflection of how the company is performing. This can throw off an analyst’s valuation of the
company and cause the estimated fair market value to be under- or over-stated[ CITATION Fri11
\l 1033 ]. Proverbs 11:1 says, “A false balance is an abomination to the Lord, but a just weight is
his delight” (ESV). Just as a false balance displeases the Lord, it also can cause problems for
both the company and the valuation of the company, such as the Enron scandal.
Enron overstated its revenue and understated its liabilities. Its management falsified
accounts and hide any financial issues, and numerous of the management stole money. Its
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falsified and inaccurate financial statements made Enron appear to be going through a large,
profitable growth, which enticed many investors and shareholders. The severity of that situation
came to light in 2001 when many of Enron’s employees where charged and Enron filed for
bankruptcy. This scandal resulted in a wave of new regulations, such as the SOX Act, that
provided stricter regulations to curb any future issues[ CITATION Pet \l 1033 ]. Matthew 5:13
says, “You are the salt of the earth, but if salt has lost its taste, how shall its saltiness be restored?
It is no longer good for anything except to be thrown out and trampled under people’s feet”
(ESV). This verse is a perfect example of what happened to Enron after the scandal broke. Enron
lost the trust of its stakeholders and damaged its reputation. As Christians, we should learn from
both Enron and that verse. Our characters and choices define us, and once we betray that image,
we harm our reputation. Proverbs 22:1 says, “A good name is to be more desired than great
wealth, favor is better than silver and gold” (ESV).
Valuation Approaches
As stated earlier in this paper, there are three common valuation approaches to
determining the fair market value of a business: the income approach, the market approach, and
the asset-based approach. Valuation analysts must choose the most appropriate valuation
approach for the company being analyzed. The wrong valuation approach can cause an
inaccurate estimate of the fair market value[ CITATION Wha2 \l 1033 ]. For example, the market
approach is commonly used when a company wants to determine its fair market value in
comparison to its competitors. This approach can be misleading at times because it often uses the
information available for public companies that could have different characteristics or may not
have all of the financial data or private transactions available in comparison to other companies.
In addition, the market approach does not accurate valuate a company that is experiencing rapid
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growth. In the case of rapid growth, the discounted cash flow method under the income approach
would provide a more appropriate and accurate valuation of the company[ CITATION Val16 \l
1033 ]. Proverbs 16:11 says, “A just balance and scales are the Lord’s; all the weights in the bag
are his work” (ESV). As this verse implies, all factors and approaches are important in determine
the most accurate fair market value of the company. Therefore, the valuation approach must be
chosen based on the needs and goals of the company.
Standards of Valuation
While performing the valuation, analyst must adhere to the ethical and performance
standards set by the Uniform Standards of Professional Appraisal Practice (USPAP), which
contains 10 standards and is updated every 2 years. The standards are specifically targeting
valuations dealing with real estate, personal property, intangible assets, and
businesses[ CITATION Hit17 \l 1033 ]. The purpose of the USPAP was to set guidelines for all
appraisal and valuations. It has helped to decrease the chances of large variations in value
between valuation or appraisal companies and has helped to standardize the process. Proverbs
10:9 says, “He who walks with integrity walks securely, but he who perverts his ways will
become known” (ESV). As with the Enron example, it is important for valuation analysts to
maintain a fair and impartial view when performing the valuation analysis.
Oftentimes, companies will offer bribes for the valuation results to be altered, such as
lowing the fair market value so a potential buyer can bid less for the target company or vice-
versa. One example of this is the Maybank Kim Eng Securitites. One of its remisier was fined
$9,000 after pleading guilty to corruption. The remisier had bribed a valuation analyst with
$3,000 to increase the favorability of the valuation report for Maybank Kim Eng
Securities[ CITATION Gra17 \l 1033 ]. Hebrews 12:5 addresses this issue by saying, “And have
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you forgotten the exhortation that addresses you as sons? ‘My son, do not regard lightly the
discipline of the Lord, nor be weary when reproved by him’” (ESV). The reputation is highly
valued as a valuation analyst because if one is known for biased, inaccurate valuations, ethical
companies will not trust any valuations performed by that analyst. It is important for valuation
analysts to adhere to the USPAP guidelines and standards in order to be successful and provide
accurate valuations to companies.
Conclusion
As Christians, it is important that our values flow through into the business world, for
they will make us stand out as ethical, reputable, and fair, which is important in business
valuations. We have been provided with guidelines and standards throughout the Bible that align
with the regulations and standards set by USPAP and the SOX Act, both of which were created
after a scandal or incident. By following the guidance of the Bible, we can avoid any future
issues that do not yet have a law or regulation to prevent certain actions. This is extremely
important in business valuation because we need to remain bot reputable and fair as well as
ethical.
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References
Bondarenko, P. (n.d.). Enron Scandal. Retrieved from Britannica:
https://www.britannica.com/event/Enron-scandal
Business Valuation Expectations. (2014, September 30). Retrieved from The Valley Business
Broker: https://www.thevalleybusinessbroker.com/2014/09/30/business-valuation-
expectations/
Friedman, T., & Smith, M. (2011, October 10). Measuring the Business Value of Data Quality.
Retrieved from Gartner:
https://www.data.com/export/sites/data/common/assets/pdf/DS_Gartner.pdf
Hitchner, J. R. (2017). Financial Valuation: Applications and Models (4 ed.). Wiley.
Kenton, W. (2020, February 4). Sarbanes-Oxley (SOX) Act of 2002. Retrieved from
Investopedia: https://www.investopedia.com/terms/s/sarbanesoxleyact.asp
Leong, G. (2017, May 25). Remisier fined for bribing analyst over valuation report. Retrieved
from The Straits Times: https://www.straitstimes.com/business/companies-
markets/remisier-fined-for-bribing-analyst-over-valuation-report
Valuation Approach. (2016, June 24). Retrieved from Divestopedia:
https://www.divestopedia.com/definition/907/valuation-approach
What Company Valuation Method is Right for You? (n.d.). Retrieved from Generational Equity:
https://www.genequityco.com/insights/what-company-valuation-method-is-right-for-you
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