and the Process for the Valuation of a Closely Held Business (Part 1 of 2) Assessing shareholder value for either publicly held or privately held companies are two sides of the same coin. The U.S. capital markets have undergone significant changes in the past several years. This development in turn has had an impact on how these two types of companies are valued. Valuing public companies can be rather straightforward; valuing a closely held or private company is more challenging. In this series, the author will explore some of the methodologies available for valuing a closely held—or private—business.
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Evolving Accounting Standards for CPAs Wiley author Joanne Flood reviews three significant Accounting Standards Updates (ASU). First, she reviews ASU 2014–08, issued in April 2014. This ASU focuses on Reporting [for] Discontinued Operations. This ASU changes the criteria for determining which disposals can be presented as discontinued operations. In the remaining portion of the article, she summarizes changes brought about by ASU 2014–10, Elimination of Certain Financial Reporting Requirements, including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation, and ASU 2014–15, Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern.
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A Principle-Based Model Revenue Recognition Wiley author Joanne Flood looks at how the converged revenue standard affects companies reporting under U.S. GAAP.
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The Financial Accounting Standards Board (FASB) has issued two standards updates with the intention of simplifying the measurement of inventory and eliminating the requirement for extraordinary items. Inventory (Topic 330): Simplifying the Measurement of Inventory would eliminate existing requirements to consider the replacement cost of inventory and the net realizable value of inventory less an approximately normal profit margin. This change is intended to reduce the cost and complexity of the subsequent measurement of inventory and increase consistency. Income Statement—Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items would remove the…
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More than a decade in the making, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) have released a converged standard on revenue recognition. Titled, “Revenue from Contracts with Customers”, the standard is designed to enhance the process of revenue reporting and improve comparability in financial statements among corporations using IFRS and U.S. GAAP. The standard also impacts the sale of nonfinancial assets to noncustomers, such as real estate. In an in-depth interview with Accounting Today, FASB member, Marc Siegel expanded on this example, stating, “Even though you might not be a home builder and…
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FASB has voted to endorse a GAAP alternative to exempt private company lessees from a requirement to consolidate variable interest entities (VIE) in common control leasing arrangements. Initiated by the Private Company Council (PCC), the exemption would be allowed under specific conditions including: Private company lessee and the lessor entity are under common control Private company holds a leasing arrangement with the lessor entity All activity between entities is substantially related to the leasing activity between the lessor and private company Obligations of the lessor that are being guaranteed or collateralized by the private company could, at the inception of…
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In an article titled, “PCC to Ask FASB to Endorse First Private Company GAAP Exceptions”, under the subhead, “Business combinations”, the Journal of Accountancy reveals that the Private Company Council (PCC) approved a proposal to FASB that would allow a private company to elect to amortize goodwill acquired in a business combination on a straight line basis over 10 years or less. The proposal is conditional on the fact that an entity can prove that another useful life is more fitting based on demonstrable facts. The proposal also contains simplification of the impairment test for goodwill. [button link=”http://journalofaccountancy.com/News/20138826.htm” color=”silver”] View…
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I built an Excel file with a valuation model using Warren Buffett’s measure of “owner’s earnings.” In an interesting spin on valuation, analysts at AquaResearch applied what they call “Buffett-style, owner’s earnings” valuation calculations to the US Bancorp (USB) company stock in a DCF style approach. The author supports his review with a link to an excel file which completely lays out Warren Buffett’s valuation theory, that eschews traditional models relying on GAAP and/or price-to-earnings ratios. The analysis does require viewers to “register” at the site, but it’s free and absolutely worth a look at how the number shake out.…
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Professional accounting valuation accrediting standards for effective litigation In this second part of his four-part series, Mark Shirley, CPA/ABV, CVA, MAFF, CFE, focuses on complicated professional standards. Here, the article examines AICPA’s Code of Professional Conduct and Statement on Standards for Consulting Services (SSCS), which sets forth the scope and limitations of practice. While the AICPA has not promulgated litigation reporting standards, it has incorporated a judicial exception in SSVS and issued at least two non-authoritative Consulting Services Practice Aids addressing effective litigation services.
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The FASB and IASB Don’t Seem to Be Open to Reconsidering Basic Assumptions Behind the “Right-of-Use” Asset. Here’s Why They Should. The attempt to find a single lease accounting model based on recognition of a right-of-use asset has faltered, assert two professionals in Grant Thornton LLP’s National Professional Standards Group. In a new white paper, they suggest a control-based model as an alternative:
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The accounting rulemakers said they are seeking more feedback about whether groups of companies could phase in IFRS and how investors are dealing with the two sets of accounting rules currently existing in the United States. Emily Chasen at WSJ CFO Report writes [trial subscription required] that accounting rulemakers in the U.S. and abroad are calling for collaboration even as U.S. regulators have so far refused to take a clear position on whether they should adopt international accounting rules. But that lack of guidance makes the timing and nature of such cooperation uncertain, the heads of the U.S. and international accounting…
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IFRS Foundation Trustee: Don’t Wave White Flag on Cooperation Global accounting standard setters acknowledge that completion of the convergence projects is unlikely to happen in the near term, but progress can still be made to closely align International Financial Reporting Standards and U.S. GAAP, the Journal of Accountancy reports. Here’s more:
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Implications of the SEC IFRS Work Plan for Private and Public Issuers; How Slow Adoption May Rewrite GAAP Grant Thornton Audit Services has published a 16-page report providing background and context on IFRS in the United States. The report explores how market forces press the issue, cover SEC final report highlights and reaction to the report, summarizes how some companies are preparing for IFRS today, and offers a set of action steps required to put together a logical, cost-efficient readiness plan:
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Different Standards of Value Apply to Different Sort of Intellectual Property Valuations. Here’s Why it Matters—and How to Figure Which Standards Apply. Robert Reilly explains how different sorts of intellectual property (patents, trademarks, copyrights, and trade secret) valuations have different objectives depending on their varying purposed. It’s critical to understand those objectives in order to define the elements of a valuation assignment and choose the right standards of value.
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Study: More Deals Occur in Countries That Follow Similar Financial-Reporting Standards At CFO.com Kathleen Hoffelder reports that dissimilar national accounting standards and the lack of adherence to international financial reporting rules seem to be a major deterrent to companies eyeing targets beyond their borders, according to a recent academic study. Moreover, cross-border acquisitions by companies of target firms in countries with similar accounting strictures tend to relieve CFOs and other senior executives of financial and administrative burdens, says Shawn Huang, assistant professor at the University of Arkansas and one of the survey’s authors, along with Jere Francis, a professor at…
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Infosys, the Indian IT Services Giant, Has Assigned a Value to Its Entire Workforce Since 2008. Here’s Why European and American Companies Don’t Yet Formally Value Employees—and Why They Should! Recognizing the value of employees in company accounts makes a compelling business case and reflects the realities of 21st century business, argues Leon Kaye in the Guardian.
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New private company council includes FASB, but in reduced role, The Journal of Accountancy explains. “This announcement is excellent news for small businesses that have been concerned about the future of US GAAP particularly in relation to an international move toward IFRS,” adds Editor Gail Perry at AccountingWeb. Emily Chasan at the Wall Street Journal reports: The Financial Accounting Foundation’s Board of Trustees voted Wednesday to establish a new Private Company Council that will create exceptions and modifications to U.S. accounting rules as they apply to private companies. The board, which oversees the U.S. Financial Accounting Standards Board, said…
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No Parties After IFRS Adoption in Canada When measuring the costs of IFRS implementation, there are the not-at-all trivial costs of changing accounting methods. But there are also opportunity costs of spending time becoming IFRS compliant that you could have spent doing something other things. “The greater cost has really been the diversion of intellectual capital during this time period from doing more productive pursuits than the IFRS conversion,” opines a vice president at Canadian Tire. At CFO Journal Emily Chasen reports that IFRS adoption by our neighbors to the north has been anything but easy: If U.S. regulators want to get a…