Ensuring Accurate Valuations with Real-World Testing One of the key assumptions valuation professionals must make is about a company’s capital structure. This article explores factors valuation professionals should consider as they arrive at the debt and equity used to value the entity. Business valuation and financial modeling involve navigating a wide range of assumptions, and for the resulting values produced by these models to be truly meaningful, these assumptions need to be well-grounded. One of the key assumptions valuation professionals must make is about a company’s capital structure. This term refers to the specific mix of debt and equity a…
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Part I of IV This is the first article of a four-part series. This initial article summarizes the generally accepted property appraisal approaches and methods that appraisers typically consider in a bankruptcy-related assignment. This discussion also describes the property appraisal synthesis and conclusion process. Due to the litigious nature of a bankruptcy proceeding, bankruptcy-related property appraisals are often subject to a rigorous contrarian review. Therefore, this discussion summarizes what the parties-in-interest (and their legal counsel) and the appraiser should know about an effective (i.e., persuasive) bankruptcy-related property appraisal report. Introduction After adjusting to the initial pandemic-related disequilibrium, many industry segments…
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Implementing the Practicability Exception under ASC 2016-01 An adverse economic consequence of COVID-19 that has made headlines is the significant impairment charges business entities have taken related to their non-financial assets, such as intangible assets and goodwill. Less notable has been the pandemic’s similar effect on an entity’s financial assets, including equity securities without readily determinable fair values. Fair value for these types of equity investments is measured in accordance with FASB Accounting Standards Update (ASU) 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01), which is codified within ASC 321, Investments in…
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Accounting Challenges and Judgments Topic 606 of the FASB’s Accounting Standards Codification (ASC 606) dictates the timing and amount of revenue companies recognize for a given transaction. ASC 606 requires companies to identify performance obligations in contracts with customers and allocate the transaction price among those performance obligations. Revenue is recognized when control of an asset is transferred to the customer. For many transactions, revenue recognition is a complex reporting exercise that requires careful application of judgment to contractual provisions and assumptions about market conditions. This article illustrates some of the complicated revenue recognition questions that can arise for vaccine…
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With the effective date for the new IFRS lease accounting standard fast approaching, companies are wading through a number of challenging issues related to lease identification, data extraction, and software implementation. To read the full article in Financial Management, click: Lessons from Lease Accounting Implementation.
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The challenges associated with FASB’s new revenue recognition standard have been substantial for many companies, but at least they’re gaining valuable data and process improvements as a result of the implementation. To read the full article in the Journal of Accountancy, click: Finding Value in Revenue Recognition Implementation.
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FASB addressed two lessor implementation issues and clarified an exemption for lessors and lessees from a certain interim disclosure requirement associated with adopting the board’s new lease accounting standard. To read the full article in the Journal of Accountancy, click: New FASB Standard Clarifies Lease Accounting Issues.
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Bargain Purchase Transactions This article summarizes the fair value measurement guidance and financial accounting considerations in business combinations—and specifically, in bargain purchase transactions. This discussion also describes the principles of acquisition accounting as they relate to fair value measurement. And, this discussion describes many of the valuation analyst considerations regarding the fair value measurement for a bargain purchase transaction.
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Under the new FASB rules, financial statement preparers are provided an option to reclassify stranded tax effects within accumulated other comprehensive income in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded. To read the full article in the Journal of Accountancy, click: FASB Addresses Stranded Income Tax Effects of New Tax Law.
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FASB issued technical corrections and improvements to its financial instruments standard on recognition and measurement of financial assets and liabilities that was originally issued in 2016. To read the full article in the Journal of Accountancy, click: FASB Issues Technical Corrections to Financial Instruments Standard.
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Overview—Putting it on the Balance Sheet In February 2016, the FASB issued Accounting Standards Update (ASU) 2016-02, Leases (Topic 842). The existing standard has been criticized because its bright line classification criteria enabled entities to structure leases in such a way as to avoid putting them on the balance sheet. The new standard aims to improve and simplify the financial reporting for leases and create a model that provides for faithful representation of leasing transactions for both lessees and lessors. This article summarizes the change.
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The implementation effort surrounding FASB’s new revenue recognition standard is nearing an end for many companies; the deadline for compliance for public companies is the beginning of 2018. Despite the years of preparation, certain aspects of compliance, particularly the complex disclosure requirements, are being left to the final hours. Some companies are playing catch-up, scrambling to have their disclosures in place as the deadline approaches. To read the full article in the Journal of Accountancy, click: Last-Minute Revenue Recognition Implementation Tips.
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FASB and the International Accounting Standards Board designed their converged revenue recognition standard to enhance comparability across industries. But the standard has presented different implementation challenges to the various business sectors. Ken Tysiac, Journal of Accountancy editorial director, explains. To read the full article in the Journal of Accountancy, click: How Revenue Recognition Changes are Affecting Preparers Like GE, Microsoft.
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Practical Applications in Unimpeachable Neutrality Expert witnesses in the fields of forensic accounting, matrimonial litigation, and business valuation must possess a thorough understanding of the applicable standards, case law, evidentiary rules, and regulations specific to each engagement to effectively help the court understand the facts and evidence. The already daunting task of interpreting these rules becomes increasingly fleeting when those parameters act as moving targets whose relevance or obsolescence may be subject to change in an instant based upon legal decisions, newly promulgated standards, or pronouncements. This third article from the unimpeachable neutrality series, discusses 10 time tested and unimpeachable…
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The FASB is conducting early stage research about developing an accounting standard for digital currency and the technology that underpins it. With the use of digital currency increasing, proponents say inconsistent accounting practices are becoming a problem. To read the full article in Thomson Reuters, click: Bitcoin Seeks Recognition from U.S. GAAP.
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New rules from the FASB regarding how entities will have to measure certain equity investments may lead to increased earnings volatility and additional fair value complexities. Lucas Parris, senior member of Mercer Capital’s Financial Reporting Valuation Group, discusses five things to know about the new rules and some questions to consider. To read the full article in Mercer Capital’s Financial Reporting Blog, click: 5 Things to Know about Fair Value and Equity Investments. This article is republished from Mercer Capital’s Financial Reporting Blog. It is reprinted with permission. To subscribe to the blog, visit: http://mercercapital.com/category/financialreportingblog/.
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The focus of this post is not to comprehensively explain the new revenue recognition standard. Instead, we examine one public company’s experience with the transition (Workday) and then highlight a few areas that may be of interest to analysts, finance managers, and interested onlookers from a valuation perspective. To read the full article in Mercer Capital’s Financial Reporting Blog, click: Revenue Recognition: What’s an Analyst to Do? This article is republished from Mercer Capital’s Financial Reporting Blog. It is reprinted with permission. To subscribe to the blog, visit: http://mercercapital.com/category/financialreportingblog/.
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2016’s 10 most popular posts from Mercer Capital’s Financial Reporting Blog. 2016 proved to be an interesting year, both in terms of developments in financial reporting and the range of topics covered on this blog. We’ve enjoyed sharing our thoughts in this forum over the last three years and look forward to new challenges and opportunities in 2017. To read the full article in Mercer Capital’s Financial Reporting Blog, click: Financial Reporting Blog: Best of 2016. This article is republished from Mercer Capital’s Financial Reporting Blog. It is reprinted with permission. To subscribe to the blog, visit: http://mercercapital.com/category/financialreportingblog/.
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The New Revenue Recognition Standard and Accounting for Licenses Wiley author, Joanne Flood, looks at how the new revenue standard affects reporting of licensing revenue. Copyright Wiley, 2016. To be published in February 2017 in the book: Wiley Revenue Recognition plus Website: Understanding and Implementing the New Standard (Wiley Regulatory Reporting).
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Goodwill—should it be amortized or not? That is one of the questions the FASB has wrestled with over the last few years. Lucas Parris, senior member of Mercer Capital’s Financial Reporting Valuation Group, takes us through the changes to this system that are in the works, as the FASB Board made a few tentative decisions regarding the accounting for goodwill impairment for public and private entities. To read the full article in Mercer Capital’s Financial Reporting Blog, click: FASB Muses on Goodwill Impairments. This article is republished from Mercer Capital’s Financial Reporting Blog. It is reprinted with permission. To subscribe…