Fair Value Reporting

Business Commercial Valuation
E
state, Trust, Gift, ESOP, Financial, 409a, IP/Patent, M&A
Forensic Economics, Bankruptcy
Infrastructure Capital & Industrial Assets

Commercial RE Appraisal & Cost Segregation


            213-251-2400        

 
email: david@myaacg.com
 
David Hahn, CVA, ASA, MAFF, CM&AA, CCIM, MBA

Fair Value for Financial Reporting

 We will produce your valuation report in compliance with FAS 141 (purchase price allocation for business combinations), FAS 142 (reporting of acquired goodwill and other intangible assets such as copyrights and patents), and FAS 157 (fair value reporting). Our reports will help you aggressively defend any challenge by regulating authorities.

PURCHASE PRICE ALLOCATION

Purchase price allocation is required for both financial accounting and income tax purposes.
Engaging a qualified appraisal consultant and tax consultant to perform an asset evaluation
upon business sales enables the most accurate allocation.

Typical components involved are:
• Tangible capital assets (land, building, equipment)
• Proprietary Information and Systems
• Non-compete covenants
• Goodwill
• Customer Lists
• Staff
• Contracts
• Records
• Inventory

In addition, we can assist clients with potential property purchases. Utilizing our extensive
appraisal and valuation experience, our consultants provide objective guidance to allow the most
cost effective property acquisition strategy.

Asset Allocation is the process of assigning fair values to all major assets and liabilities of an
enterprise, either following a merger or acquisition (for the restated or opening balance sheet) or
in the process of "impairment" testing. Included in these assets can be tangible
(machinery and equipment, real property) and intangible assets (customers, technology, trade names, intellectual property, goodwill, other intangibles).

In June 2001, the Financial Accounting Standards Board (FASB) issued its final statement regarding
the accounting for purchased assets (SFAS 141) and testing for goodwill impairment (SFAS 142).
For all transactions closed after June 30, 2001, SFAS 141 eliminates pooling-of-interests in favor of the purchase accounting method. Under SFAS 141, acquired goodwill must be stated at its fair value
and is to be identified separately from other identifiable intangible assets, the fair value of which is
recognized and stated separately. Other identifiable intangible assets include assets of a contractual
nature or assets that can be separated from the goodwill of a business, such as marketing-related,
customer-related, or technology-based intangible assets.

As of calendar year 2009, the FASB adopted and implemented material changes to SFAS 141
(new SFAS 141R), specifically in regard to contingent consideration, in-process research and
development, “defensive” assets, transaction costs, and even the definition of a business.

SFAS 142 - Goodwill and Other Intangible Assets - requires that both upon the initial adoption of 142,
and on an annual basis, all existing "reporting units" (as defined in the standards) with recorded
intangible assets are required to perform a valuation test for possible impairment of those assets.
If the test indicates possible impairment, then further analysis of the value of these assets is
required, which typically involves an analysis similar to a purchase price allocation.

 Purchase Price Allocation Services
(SFAS 141R - Business Combinations)

Assigning fair values to the tangible and intangible assets and liabilities of a newly acquired business enterprise requires the skills of qualified valuation professionals. We, in conjunction with its partners,
offers a complete, one stop package. Each of our partners are experts in their field and can produce
credible and defensible analyses, in a timely manner, at an efficient cost.

Goodwill Impairment Testing
(SFAS 142 - Goodwill and Other Intangible Assets)

In June 2001, the FASB also issued its final statements regarding the testing for booked assets'
continuing value over time (impairment testing). The ruling states that goodwill and other intangible assets with non-determinable lives are non-amortizable. SFAS 142 requires that both upon the initial adoption of the standard, and on an annual basis (if not more frequent), all existing reporting units with booked intangible assets are required to perform valuation tests for possible impairment of those assets (Step I). If those tests indicate possible impairment, then further analysis of the value of these assets is required (Step II).

Step I compares the fair value of a reporting unit with its carrying amount (accounting value).
If the fair value of a reporting unit is greater than its carrying amount (including recorded goodwill),
then no impairment is deemed to exist. If the reporting unit's carrying amount (including recorded
goodwill) is greater than its fair value, then an analysis of the amount of this impairment must be
conducted (Step II).

Step II compares the implied fair value of the goodwill of the reporting unit with the carrying amount
of that goodwill. SFAS states that "the fair value of goodwill can be measured only as a residual and
cannot be measured directly," therefore, in Step II, an analysis similar to that conducted in a business combination (SFAS 141R) is generally performed. Essentially, in order to determine the implied fair
value of the goodwill, all assets must be valued and where appropriate, identified long-lived assets
would be adjusted downward to their fair value. If the carrying amount of a reporting unit's goodwill
exceeds the implied fair value of that goodwill, then a goodwill impairment loss must be recognized
for an amount equal to that excess. The adjusted carrying amount of goodwill will be its new accounting basis.

Fair Value Reporting SFAS 157 Valuation Services

We can help organizations comply with FASB Statement 157 fair value accounting standards related to financial assets and liabilities.

Under FAS 157, the fair value of the asset or liability is equal to the exit price, not necessarily the value on the mark to market statement from the financial institution providing the statement. We adjust periodic mark to market values to incorporate nonperformance risk as required under FAS 157. Our team will analyze the underlying instrument and determine the methodology to be used to adjust the market value for non-performance risk. We will work closely with your auditing firm to verify that the asset or liability is classified correctly (level 1, 2 or 3) and to confirm that the methodology is consistent with the current practice for similar entities.

WHAT IS SFAS 157?

SFAS 157 is the Financial Accounting Standards Statement No. 157, Fair Value Measurement; an accounting disclosure and valuation requirement implemented in 2008 by the Financial Accounting Standards Board (FASB). At its heart, FAS 157 redefines the “fair value” accounting of financial instruments as, “. . . the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.”

While the Statement is complex, the intention is to increase consistency and comparability among fair value estimates used in financial reporting.

Website Builder