Artificial Intelligence for Audit, Forensic Accounting, and Valuation

CHAPTER 14Managing for Value and Valuation

THE ACCURACY, SPEED, AND TIMELINESS of valuation are important considerations in modern business. In 2019 Kraft Heinz company took a $1.2 billion impairment charge to account for the decline in value of its brands. Of the $1.2 billion, over $740 million was attributed to the reduction in value and about $474 million to the market perceived risk in its valuation. Taking the impairment charge shows that the existing and prevailing conditions in the marketplace and the investor expectations are driving the accounting adjustments. Valuation is becoming dynamic. From a machine learning perspective, we can ask the following questions:

• How is the value created in companies?
• How is value creation related to valuation?
• How does fraud impact value creation?
• How do we improve the accuracy, speed, and timeliness of valuation?
• Can machine learning be deployed to determine dynamic and accurate valuation of assets that do not provide active market (trading) information?

In this chapter we will first develop a general framework of business as a value creation entity. Using that framework, we will develop a conceptual model of how value gets destroyed in companies. The first part of the chapter will focus on areas where forensic accountants can develop new capabilities to identify shareholder value losses. The second part will focus on valuation.

INFINITY CYCLE

In this book we take the position that value destruction via intentional or negligent ...