Valuation group set up by ICAEW

Good moves by ICAEW. I am sure more projects will come up and I shall be ever happy to hear that, read their comments, findings.

As regards valuation, after having applied the most reasonable valuation technique to value a firm, this firm collapsed due to unforseen external forces.

Has Professor Altman devised a way to use Z-score to value a firm under unstable, economic conditions?

This sounds to me like a service that the ICAEW should be providing as standard support to members. The ICAEW seems to be breaking itself up into smaller packages for which a charge on top of subscriptions is levied e.g. Tax Faculty and now the Valuation Support Service.

Altman's Z-score model weights five familiar accounting ratios, selected using discriminant analysis, to predict credit quality and, ultimately, bankruptcy. Altman has indeed conducted further research which has enhanced the use of the Z-score - essentially by mapping the Z-scores of companies to their bond rating equivalents (BRE). By combining the flexibility and ease of use of the Z-Score, as an internal credit model, with the extensive default histories of the external rating agencies, Altman has demonstrated how to predict the probability of default of a corporate bond over investment horizons stretching from 1 year to 10 years.

Although the above approach is but one of many tools used in making credit decisions, it enables an investor to more effectively scrutinize an issuer whose fundamentals appear sound but whose Z-Score and BRE indicate distress.

Altman stresses, however, that the Z-score model is not perfect and has high "Type II" errors - which occur when the model says a company is in distress but the company does not go bankrupt.

(Ref.: Altman, E.I., "Estimating Default Probabilities of Corporate Bonds over Various Investment Horizons", CFA Institute Conference Proceedings Quarterly, March 2006)

I agree with Mark Lee's summary, but from a different perspective. I'd be quite happy to pay for the tax or any other faculty provided that it was useful to me.

It's the basic subscription that I have problems with. From the perspective of a small practice, the institute does very little for me. It is perceived as relevant to big business and big firms. I don't give a hoot about international accounting standards and the like, or the integration of accountancy bodies, yet the institute spends millions.

It seems that every bit of help they give costs extra, with no reduction on the overall charge.

I certainly don't feel that the institue "represents" me in any way. There is some value in the brand at a personal level, but not at business level - we don't even have "Chartered Accountants" as a headline statement in the letterhead any more.