Financial Reporting Valuation Services

Transcription

1 Financial Reporting Valuation Services 1

2 Financial Reporting Valuation Services COMPLEXITY REQUIRES EXPERIENCE Marshall & Stevens, Incorporated has been a credible resource for corporate executives in need of valuations for compliance with financial reporting standards, both domestic and international. Through regular dialogue with audit firms across the country as well as participation in accounting and valuation industry task forces, committees and conferences, our valuation professionals keep up-to-date on the latest standards and interpretations while providing cost-effective solutions for our clients. Each valuation, that requires audit review, begins with a discussion with the client s audit firm in order to make sure our team, our client and the audit firm are working together for the best, most efficient process and results for the client. The financial, real estate and equipment valuation specialists at Marshall & Stevens work as a team to provide a single, integrated solution for clients with needs for multi-disciplinary valuations and assignments with assets around the world. 2

3 Financial Reporting Valuation Services Valuation of Debt and Equity Securities(ASC 320) Testing for Impairment of Goodwill (ASC 350) and Long-Lived Assets (ASC 360) Valuation of Deferred Compensation- Stock Options and Stock Grants (ASC 718) Purchase Price Allocations(ASC 805) Valuation of Financial Instruments(ASC 815) Fair Value Analyses(ASC 820) Valuations for Fresh Start Accounting(ASC 852) 3

4 Key Financial Reporting Valuation Topics 1. Valuation of Debt and Equity Securities: ASC 320 Investments in debt securities, equity securities, common stock of subsidiaries, partnerships, unincorporated joint ventures, limited liability companies, and securitized financial assets. Accounting for financial instruments is a priority of the FASB. Previous standards have focused on disclosures of fair value. ASC 320 focuses, however, on accounting matters as well as disclosures. Our professionals understand the quantitative components of debt and equity analysis to adhere to FASB guidelines as well as provide adequate documentation for audit firms and the IRS. 2. Testing for Impairment of Goodwill: ASC 350 Testing for Impairment of Long-Lived Assets: ASC 360 Marshall & Stevens has performed impairment tests for clients in a variety of industries. These impairments have ranged from the millions to over one billion dollars. Experience in this arena has provided our professionals the tools to work with clients and their auditors to achieve their goals. 4

5 Key Financial Reporting Valuation Topics Simplified Accounting For Private Companies* Goodwill: Accounting Standards Update ( ASU ) , Intangibles-Goodwill and Other (Topic 350): Accounting for Goodwill. This ASU simplifies and reduces the accounting for goodwill for private companies. The effects of electing this alternative accounting method include: Amortizing goodwill over a period not to exceed 10 years rather than not amortizing goodwill. Testing goodwill for impairment only when there is a triggering event instead of testing it every year. Testing goodwill for impairment at either the entity level or the reporting unit level. Testing and measuring goodwill for impairment by comparing the fair value of the entity (or reporting unit) to its carrying amount instead of performing the traditional two-step impairment test. *A key drawback to adopting this simplified private company standard is that a retrospective purchase price allocation (reallocation) and restatement may be required if the business is sold to a party that does not use the simplified standard. 5

6 Key Financial Reporting Valuation Topics 3. Valuation of Stock Options and Stock Grants: ASC 718 Thevaluationofoptionsandgrantsarekeyforbothfinancialandtax reporting purposes (IRC 409A). A supportable valuation requires an accurate and thorough appraisal of the underlying enterprise. Once the enterprise is properly valued, each tranche of stock must also be valued before proceeding to determine the value of the options or grants. 4. Purchase Price Allocations: ASC 805 Changes to the definition of Business Combinations and of Fair Value, bargain purchase allocation rules, and the requirement to value IPR&D, contingent payments and liabilities, etc., create significant challenges to CFOs. The allocation of value to acquired assets and liabilities greatly impacts EPS and the potential for impairment of the assets and goodwill. Engaging a firm with a proficiency in business combinations, as well as the in-house capability to value intangible and tangible assets (real estate and equipment), can save acquirers time and expense including reducing thetimeandfeerequiredinanauditreview. Please see the additional discussion in the subsequent section. 6

7 Key Financial Reporting Valuation Topics 5. Valuation of Financial Instruments: ASC 815 Derivatives, debentures, warrants, interest rate swaps, currency hedges, commodities contracts, and auction-rate securities. The recent fair value reporting requirements have greatly impacted financial statements. Auditors are looking for proficiency as well as auditable reports for these analyses. Our professionals understand the analyses required for different asset classes and different situations as well as the support and documentation required by auditfirmsandtheirs. 6. Fair Value Analyses: ASC 820 Fair Value, as defined under ASC 820, ( price that would be received to sell an asset or paid to transfer a liability ) differs from the Fair Market Value definition (...exchange between a willing buyer and a willing seller ) in that it is considered more of an exit price.thesellermaysay, Iwouldneversellmyassetorbusinessfor that price, but what the seller would do is not considered in this premiseofvalue.thepriceabuyerwouldpayiswhatmatters. 7

8 Key Financial Reporting Valuation Topics Fair Value is the premise of value for financial reporting assignments including, but not limited to, the valuation of stock, financial instruments, purchase price allocations, impairment analyses. Fair Value also determines the value of equity in enterprises such as private equity and venture capital portfolio investments. 7. Fresh Start Accounting Valuations: ASC 852 Financial reporting requirements associated with an emergence from Chapter 11 of the Bankruptcy Code include the restatement of the company s balance sheet in accordance with ASC 852. A valuation of the assets and liabilities, as of the date of the emergence from bankruptcy, is required for the opening day balance sheet. 8

9 Purchase Price Allocation 9

10 Purchase Price Allocation FASB ASC 805 HOW CAN FASB ASC 805 AFFECT YOUR FINANCIAL REPORTING? Fair Value (FV) determinations by Marshall & Stevens make an essential difference in financial reporting. How you allocate the purchase price, how much you assign to each category of identifiable assets, and how much goes into non-amortizable goodwill can determine whether future earnings from the acquisition are accretive. Inasmuch as most buyers want any acquisition to be accretive, the allocation is extremely important. As acquisitions become more complicated and purchase price allocation requirements are increasingly important in financial and tax reporting, Marshall & Stevens experienced professionals and audit firm relationships bring maximum value for transactions, large or small. From the valuation of IPR&D, contingent payments, liabilities, the correct application of the Fair Value standard, the bargain purchase allocation rules, and other significant issues that impact EPS, Marshall & Stevens is your reliable and efficient partner to value your next acquisition. 10

11 Purchase Price Allocation FASB ASC 805 What is Purchase Price Allocation? The basic concept of this requirement is that the purchase price, including the valuation of contingent consideration and assumption of debt, has to be allocated over the acquired assets and liabilities. By definition, the difference between the value of the asset and liabilities and the total purchase price is designated as goodwill. The allocation exercise requires a determination by a valuation specialist of the Fair Value of the tangible and intangible assets and liabilities acquired. Allocation Services Include Valuations of: Intangible Assets Customer Lists, Contracts and Relationships Trademarks, Trade Names, Patents, Software, and IPR&D Contingent Liabilities Real Estate Leases Real Estate Owned Land Site Improvements Tenant Improvements Real Estate Intangibles Machinery& Equipment, Furniture, Fixtures and Vehicles 11

12 Purchase Price Allocation FASB ASC 805 Current Environment Acquisition accounting and valuation under FASB ASC Business Combinations has changed dramatically since the original implementation of SFAS 141, including: 1. Traditional asset purchases may be categorized as business combinations if the assets being acquired are capable of being conducted and managed as a business (a potential return to investors, lower costs or other economic benefit); 2. Bargain purchases must include a valuation of all assets and liabilities without downward adjustment to meet the purchase price; 3. Acquired IPR&D are valued and capitalized (internally developed IPR&D continues to be expensed); 4. Contingent liabilities are valued, capitalized and included in the purchase price(i.e., warranties, earn-outs, lawsuits, environmental); 5. The valuation date for acquisition accounting purposes will now be the date the transaction closed, not the date the deal is announced or the agreement is signed; 6. Transaction-related costs (banking/advisory, legal, accounting, valuation), are expensed as incurred, not capitalized as part of the purchase price; 12

13 Purchase Price Allocation FASB ASC Simplified Accounting for Private Companies*: Certain Intangible Assets. Accounting Standards Update (ASU) , Business Combinations (Topic 805): Accounting for Identifiable Intangible Assets in a Business Combination, provides an accounting alternative for private companies related to the identifiable intangible assets recognized in the accounting for a business combination. Under the ASU, a private company may choose to not separately recognize the certain intangible assets in the accounting for a business combination: (a) intangible assets that would otherwise arise from non-compete agreements(nca); or (b) customer-related intangible(cri) assets that cannot be separately sold or licensed. The value of these intangible assets is effectively subsumed into goodwill. *A key drawback to adopting this simplified private company standard is that a retrospective purchase price allocation (reallocation) and restatement may be required if the business is sold to a party that does not use the simplified standard. 13

14 Company Overview Established in 1932, Marshall & Stevens is a recognized leader in valuation, serving business owners, managers, boards and trusted advisors thought the world. We assist our clients with planning, due diligence, negotiation and reporting issues related to their mergers, acquisitions, divestitures, financing, insurance placement and tax-related transactions. Our in-house specialists provide a full complement of valuation-related services, from transaction advisory and opinion letters to the valuation of businesses and business assets, both tangible and intangible. 14

15 Contact us For more information please contact us. Financial Reporting Darleen Armour, ASA John F. Spude, ASA Director 601 South Figueroa Street, Suite 2301 Los Angeles, CA Executive Managing Director and Principal 125 South Wacker Drive, Suite 850 Chicago, IL , ext James Sieman, ASA Matthew R. West, ASA Director and Principal 201 North Franklin Street, Suite 3405 Tampa, FL Managing Director 125 South Wacker Drive, Suite 850 Chicago, IL , ext

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