Fair Value Measurements for Business Combinations and Impairment Testing
Overview:
In an ever more complex economic environment, comptrollers, auditors, CPAs, finance executives and other related practitioners face considerable challenges when applying accounting standards related to fair value, business combinations and impairment testing. To avoid potential pitfalls, practitioners and preparers must need to be in the know with respect to the most significant issues regarding fair value measurements for business combinations and impairment testing. In this two-hour live webcast, panel members will offer a refresher and critical updates of these accounting rules. They will discuss: Fair Value Measurements (ASC 820/SFAS 157), Business Combinations and the Acquisition Method of Accounting, ASC 805 (SFAS 141R) and Impairment Testing Tips, ASC 350 and 360 (SFAS 142 and 144).
Agenda:
Moderator:
Vinay Torani, Managing Director,
Duff & Phelps, LLC
SEGMENT 1:
Linda MacDonald, Senior Managing Director,
FTI Consulting
- Interaction Bus Comb + FV, and some considerations discussed when FASB developing the FV guidance at FASB
- Driver = market participant assumptions
- highest and best use approach for assets not going to use + defensive assets
Highlight some areas of focus by SEC
- Disclosures about things like customer relationships, contingent consideration…
FASB/FAF 141R post implementation review (now complete)
- Issues identified
FASB/FAF 157 post implementation review (in process) - Issues to be identified, but a focus of the review is on application of guidance in bus comb situation + reliance on the outside valuation specialist
Possibility of future standard setting activities to respond to the reviews
In the interim, private company relief re: FV
SEGMENT 2:
Gunther Hofmann, CFA, AVA, Vice President,
The Brenner Group
- General Overview:
It may be helpful to provide attendees with a general overview of a purchase price allocation and then dive into some specific topics.
Within that framework, we could focus on the following:
Assets and Liabilities- Types
An acquirer should recognize the identifiable assets acquired and the liabilities assumed on the acquisition date if they meet the definitions of assets and liabilities. Practitioners involved in accounting for Business Combinations need to know the main principles and specifics of the assets identification process.
- Grouping of Intangible Assets acquired
Some intangible assets are recognized only in conjunction with other assets, as they cannot be disposed of individually, but only in a group. Aggregating multiple intangible asset categories that may have different attributes and economic characteristics into a single intangible asset is a common issue when measuring the Fair Value of Intangible Assets.
- Determining the Useful Life of Intangible Assets
Measuring assets based on the expected use by a market participant rather than an entity’s own intended use presents a number of accounting challenges, particularly from a post-acquisition perspective, including the assessment of useful life. Failing to properly assess the economic life of an asset is a common issue when measuring the Fair Value of Intangible Assets. - Valuation Approaches
It might be helpful to present a general overview of the different valuation approaches to set the stage for some more in-depth discussion of some of specific approaches later (such as the distributor approach put forward by VRC).
- Types
- Other Topics of Current Relevance
- Higest and Best Use Assumption
Accounting standards require the valuation of acquired assets at its highest and best use, which may not necessarily be the intended use of the acquirer. This dichotomy often leads to confusion in the preparation of the valuation.
- Market Participant Theory
U.S. GAAP requires the consideration of market participant assumptions in measuring the fair value of assets acquired and liabilities assumed in a business combination. This theory is one of the most important but often ignored by practitioners in the accounting for Business Combinations. Practitioners and preparers must know Market Participant assumptions and be able to identify and analyze possible Market Participant synergies versus Entity specific characteristics.
- Consideration transferred
The consideration transferred in a transaction may include cash, other assets, contingent consideration, a subsidiary or a business of the acquirer transferred to the seller, common or preferred equity instruments, options, warrants, and member interests of mutual entities. Measuring and recognizing consideration transferred is no doubt challenging task. Recognizing contingent consideration at fair value presents even more valuation challenges. It is an area for which there is limited practical experience and guidance. Specialists performing Purchase Price Allocations should be familiar with these issues.
- WACC / WARA / IRR Testing
The Internal Rate of Return (IRR) is derived by equating the Projected Financial Information (PFI) on a present-value basis to the consideration transferred, assuming the consideration transferred represents fair value. While accounting for Business Combinations, practitioners and preparers must understand the relationship between the IRR and the Weighted Average Cost of Capital (WACC), the existence of synergies, and the basis of the forecast. Understanding the difference between IRR and WACC provides valuable information about the economics of the transaction and the motivation behind the transaction. It often will help distinguish between market participant and entity-specific synergies and determine the amount of synergies reflected in the consideration transferred.
Selecting discount rates on intangible assets that are not within a reasonable range of the WACC and/or IRR is a common issue when measuring the Fair Value of Intangible Assets. Companies should assess the overall reasonableness of the discount rate assigned to each asset by generally reconciling the discount rates assigned to the individual assets, on a fair-value-weighted basis, to the WACC of the acquiree or the IRR of the transaction. This reconciliation is often referred to as a “weighted average return on assets” analysis (WARA). Practitioners and preparers should be able to test the reasonableness of the discount rates applied to the individual assets by calculating WARA.
- Higest and Best Use Assumption
SEGMENT 3:
P.J. Patel, CFA, Managing Director ,
Valuation Research Corporation
- Introduction/Overview of the valuations of assets and liabilities for business combinations
- Emerging/evolving valuation issues
- Inventory
- Customer assets
- IPR&D
- Deferred revenue
- Continent consideration
- Other current issues
- Re-acquired rights – exclusion to the FV principle
- Remaining useful life
- Auditor/PCAOB scrutiny
SEGMENT 4:
Ryan Gandre, Director,
Stout Risius Ross, Inc.
- Impairment Testing
- Impairment testing order (ASC 350 vs. ASC 360)
- Testing at the enterprise value vs. equity level of value
- Consideration of Control Premiums (a/k/a Market Participant Acquisition Premiums)
- Taxable (asset) vs. non-taxable (stock) deal structure considerations
- “Step 0″ impairment testing best practices
SEGMENT 5:
Adam Newman, Principal,
GHP Horwath, P.C.
- Auditing Fair Value Measurements
- Relevant Auditing Standards and Guidance (Public vs. Private Companies)
- Practical Guidance for Pleasing the Auditors
- Top Fair Value Auditor Issues Arising from PCAOB Inspections
Who Should Attend:
- CPAs
- Auditors
- Comptrollers
- CEOs
- CFOs & Finance teams
- Attorneys With Related Practice Areas
- Valuation Practitioners
- Prepares and Users/Analysts
- Finance Directors
- Finance Executives
- Other Interested Professionals
Vinay Torani is a managing director in the Morristown office of financial advisory and investment banking firm Duff & Phelps, …
Linda MacDonald is a senior managing director in the FTI Consulting Forensic and Litigation Consulting practice and is based in …
Mr. Hofmann has extensive experience in global corporate finance including corporate securities valuation, mergers, acquisitions, private placements, and venture capital. …
Mr. Patel is a Managing Director with VRC and specializes in the valuation of businesses, assets and liabilities for financial …
Ryan Gandre is a Director in the Valuation & Financial Opinions Group at Stout Risius Ross, Inc. (SRR). Mr. Gandre …
Mr. Newman is a Principal in the Forensic and Litigation Consulting and Valuation and Corporate Finance practices of GHP Horwath, …
Course Level:
Intermediate
Advance Preparation:
Print and review course materials
Method of Presentation:
On-demand Webcast (CLE)
Prerequisite:
NONE
Course Code:
134474
NASBA Field of Study:
Accounting
Total Credits:
2.0 CLE
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SPEAKERS' FIRMS:
About Duff & Phelps, LLC
As a leading global financial advisory and investment banking firm, Duff & Phelps leverages analytical skills, market expertise and independence to help clients make sound decisions. The firm advises clients in the areas of valuation, M&A and transactions, restructuring, alternative assets, disputes and taxation – with more than 1,000 employees serving clients from offices in North America, Europe and Asia. For more information, visit www.duffandphelps.com.
Investment banking services in the United States are provided by Duff & Phelps Securities, LLC; Pagemill Partners; and GCP Securities, LLC. Member FINRA/SIPC. Transaction opinions are provided by Duff & Phelps, LLC. M&A advisory and capital raising services in the United Kingdom and Germany are provided by Duff & Phelps Securities Ltd., which is authorized and regulated by the Financial Conduct Authority.
About FTI Consulting
FTI Consulting, Inc. is a global business advisory firm dedicated to helping organizations protect and enhance enterprise value in an increasingly complex legal, regulatory and economic environment. With more than 3,800 employees located in 24 countries, FTI Consulting professionals work closely with clients to anticipate, illuminate and overcome complex business challenges in areas such as investigations, litigation, mergers and acquisitions, regulatory issues, reputation management, strategic communications and restructuring. More information can be found at www.fticonsulting.com.
About The Brenner Group
With 25 years of experience, The Brenner Group is one of the technology community’s leading specialized finance and accounting services firms. Their core offerings include interim financial management, restructuring services, business valuations, and financial advisory. Since 1987 more than 2,000 companies have trusted The Brenner Group with their finance and accounting needs. They’re the leading provider of interim and outsourced financial management for venture capital portfolio companies. The firm has a senior staff of experienced interim CFOs and interim Controllers. Their team can also provide outsourced accounting and finance for the venture capital and private equity firms themselves. The Brenner Group is a premier advisor to financially distressed companies that need restructuring assistance. Their professionals are experts in guiding companies through bankruptcies, liquidations, and wind downs, asset sales of IP or technology assets. The Brenner Group is one of the primary business valuation firms supporting compliance with the IRC 409A, FAS 123R / ASC 718, FAS 141R / ASC 805, and FAS 142 / ASC 350 as well as valuation issues involving litigation and gifts and donations of securities. As well as financial advisory services including financing and merger and acquisition.
About Valuation Research Corporation
Valuation Research Corporation (VRC) is an independent firm that has been providing valuations to the U.S. and international business communities for more than 38 years. VRC’s services include financial opinions with respect to valuation, solvency, capital adequacy and fairness in connection with mergers, acquisitions, divestitures, leveraged buyouts, recapitalizations, financings, and financial and tax reporting matters. VRC’s clients range from Fortune 500 companies to privately-held organizations. Its client base is derived from companies in a broad range of industries. In addition, VRC has long-standing relationships with commercial lenders, investment banking firms, private equity firms, law firms and accounting firms nationwide. VRC has locations in Boston, Chicago, Cincinnati, Milwaukee, New York, Pittsburgh, Princeton, San Francisco, and Tampa; as well as international affiliates in Argentina, Australia, Brazil, Canada, China, France, Germany, Luxembourg, Mexico, Spain, and the United Kingdom
About Stout Risius Ross, Inc.
Stout Risius Ross, Inc. (SRR) is a global financial advisory firm specializing in Investment Banking, Valuation & Financial Opinions, and Dispute Advisory & Forensic Services. SRR serves a range of clients from Fortune 500 corporations to privately held companies in numerous industries around the world – from Argentina to Vietnam. SRR’s clients and their advisors rely on the firm’s premier expertise, deep industry knowledge, and unparalleled responsiveness on complex financial matters. The firm has offices in Atlanta, Chicago, Cleveland, Dallas, Detroit, Houston, Los Angeles, New York, and Washington, D.C. For more information, visit www.SRR.com.
About GHP Horwath, P.C.
As a member firm of Crowe Horwath International, GHP Horwath P.C.’s experienced professionals provide a wide range of services to both private and public companies nationwide and globally, including audit and accounting; personal, corporate, and estate tax planning and compliance; litigation support; business valuation; and personal financial planning, such as investment advising, retirement and estate planning, asset allocation and insurance consulting.
Crowe Horwath’s global network of more than 150 independent accounting and management consulting firms operate from 671 offices around the world. By aligning with Crowe Horwath International, the GHP Horwath staff maintains access to international resources and is able to provide pertinent information to clients who are seeking to expand into new markets or are coping with unfamiliar issues affected by local laws and customs.