Valuation Methods, Approaches, and Analysis

Valuation Discounts for Estate and Gift Taxes

One purpose of fixing a value on an interest in a closely held business is to determine gift and estate tax liability. CPAs called upon to provide such valuations know that this can be a painstaking task. It is not an exact science but an educated estimate when, as often

Concerns From an Auditor's Standpoint

Editor's note: This is a sidebar to "Valuations for Financial Reporting in Today's Market," May 09. Having never done a valuation, I have an alternative view from the valuation panel participants since I am from the audit and accounting side. I have been working with Dixon Hughes PLLC’s valuation group,

Valuations for Financial Reporting in Today's Market

The current economic environment has presented unprecedented circumstances for members of the business valuation profession. Those who perform valuations for financial reporting are grappling with issues surrounding impairment, market capitalization versus fair value determinations, reasonable rates of return, and active versus distressed and inactive markets, to name a few. The

FASB Updates Fair Value Guidance

Editor's note: This is a sidebar to "Valuations for Financial Reporting in Today's Market," May 09. At its April 2 meeting, FASB voted to release three new pieces of guidance to address concerns over the application of fair value accounting standards in current market conditions. As a result, FASB said

Virtual Business Valuation Round Table: Definitions

Editor's note: This is a Web-exclusive sidebar for "Valuations for Financial Reporting in Today's Market," May 09. The following definitions from the International Glossary of Business Valuation Terms or Glossary of Additional Terms may help readers who are not active business valuation analysts. Standard of Value—the identification of the type

Additional Comments From the Business Valuation Virtual Round Table

The JofA hosted a virtual round-table discussion with valuation professionals from the financial reporting sector to gauge how they are handling critical valuation issues in today’s climate and what their outlook is for the near future. Excerpts from that discussion were published in the JofA’s May 2009 issue (see “Valuations

Social Insurance, Historical Cost Exposure Drafts Available for Comment

The Federal Accounting Standards Advisory Board (FASAB) is seeking comment on two exposure drafts, Social Insurance Accounting, Revised and Estimating the Historical Cost of General Property, Plant, and Equipment—Amending Statements of Federal Financial Accounting Standards 6 and 23. The Social Insurance proposal addresses challenges associated with incorporating estimates of future

Price Tags on Technology: No Simple Solutions

In today’s increasingly technology-driven economy, CPA/ABVs face an arduous task in putting a price on technology-based intellectual property. Even with examples like Google’s search engine, Apple’s iPod, or Microsoft’s Windows platform, where established markets exist and discrete revenue streams can be tied to a specific technology, determining value apart from

Suggested Guidelines for How to Implement SSVS1 in Your BV Practice

Follow these 10 recommendations to integrate Statement on Standards for Valuation Services no. 1, Valuation of a Business, Business Ownership Interest, Security, or Intangible Asset, into your business valuation practice. These guidelines are presented as optional suggestions to members to facilitate the adoption of the SSVS1 professional guidance into the

50 Examples of When to Apply SSVS1

SSVS1 applies to any AICPA member who performs “an engagement to estimate value.” According to the statement, any member who performs such an engagement is called a valuation analyst . The statement applies to any engagement to estimate value when the valuation analyst (1) “applies valuation approaches and valuation methods”

How Reasonable Is Your Royalty?

EXECUTIVE SUMMARY In recent years, focus has shifted to the increased value of intangible assets. As such, competition, sometimes unlawful, has resulted in extensive litigation and/or negotiation between parties for the use of intangibles. Methodologies to quantify a reasonable royalty are consistent with general valuation approaches–market (other licenses), income (profitability),

Are Your ESO Values on Target?

EXECUTIVE SUMMARY Employee stock options (ESOs) more closely resemble warrants than traditional options in that they result in the issuance of additional shares of stock. Like warrants, ESOs impact stock values because they are dilutive. To determine the value of ESOs for a closely held company, first determine the fair

Allocating Value Among Different Classes of Equity

EXECUTIVE SUMMARY It is essential for board members, executive officers, CFOs, auditors and private equity investors to comprehend option-pricing models used to determine the per-share values of common and preferred shares. The AICPA Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation , describes three methods of allocating value

ESOARS: A Flawed Product

Steven Balsam’s article (“ A Bid for Fair Value,” Sept. 07, page 42) fails to discuss an evaluation of the suitability of Zions ESOARS performed, at the request of the Council of Institutional Investors, by noted valuation expert Stephen A. Ross and his colleagues at Compensation Valuation Inc. (“CVI Report”).

The Finer Points of Fair Value

EXECUTIVE SUMMARY To adopt FASB Statement no. 159, companies must comply with the requirements of Statement no. 157, Fair Value Measurements . Companies and their auditors must consider whether the use of fair value option accounting reflects a “substance over form” decision by management rather than an effort to gain

Refining Fair Value Measurement

EXECUTIVE SUMMARY FASB Statement no. 157 defines fair value 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.” The standard does not require fair values to be used in any situations

Building Long-Term Value

EXECUTIVE SUMMARY To maximize the long-term financial performance and value of a business, CPAs should help management focus on two key components of value creation: revenue growth and achieving a return on invested capital (ROIC) in excess of the weighted average cost of capital (WACC). A lower WACC creates higher

AICPA Introduces Its New Valuation Standard

Business valuation is an integral part of a number of CPA practice areas and many groups within the AICPA will be affected by the standard, AICPA Statement on Standards for Valuation Services no. 1, Valuation of a Business, Business Ownership Interest, Security, or Intangible Asset. The Business Valuation Standards Writing

Pension Protection Act Changes Valuations for Tax Purposes

EXECUTIVE SUMMARY The Pension Protection Act of 2006 changed tax valuation matters that affect how appraisals of non-cash contributions are considered by the IRS. The IRS now has greater authority to impose penalties on appraisers who value property at an amount that the IRS later disputes. The penalties create new

Professional Guidance in Business Valuation: Applying SSVS1

EXECUTIVE SUMMARY CPAs perform valuation services for numerous purposes, including transactions, financings, taxation planning and compliance, intergenerational wealth transfer, ownership transition, financial accounting, bankruptcy, management information, and planning and litigation support . SSVS1 applies to all members and is effective for engagements to estimate value accepted after Jan. 1, 2008.