Financial Reporting Valuations

07May2020

COVID-19 Valuation Considerations Presented by Josette Ferrer and Terry Lloyd

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Josette Ferrer and Terry Lloyd, Managing Director at Finance Scholars Group, collaborated on a presentation for the Financial Executives International SF Bay Area chapter on May 7, 2020 – “Will COVID-19 Impairment Go Viral?”. Josette and Terry covered the following during their presentation:
  • The impact of COVID-19 on different valuation situations and needs
  • The effect of COVID-19 on the economy, recovery prospects, industries, and impairments (including a review of selected, announced Q1 2020 impairments)
  • Valuation-specific considerations in the new COVID-19 world
  • Impairment guidance and processes
  • Review of an impairment case study
21Mar2019

Part II of “Beyond the Valuation Black Box” Series Presented by Josette Ferrer

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As part of Clairent’s “Beyond the Valuation Black Box” series, Josette Ferrer covered a detailed case study for a valuation related to a pre-IPO company as part of a presentation to the Financial Executives International SF Bay Area chapter in March 2019. Josette’s presentation covered the following, including relevant details for the specific case study:
  • Background on relevant tax and financial reporting guidance associated with the project, as well as audit/SEC review considerations
  • Review of business valuation methodologies
  • General best practices related to all valuations
  • Specific pre-IPO valuation considerations – including timing of valuation reports, relevant changes in methodologies over time, and consistency of assumptions
  • A focus on the application of the market approach. This included: (i) the guideline public company method – including development of rationale and support for selected multiples (including a detailed comparison matrix for the subject company vs. the comps); (ii) the guideline transactions method; and (iii) a review of pricing associated with recent IPOs.
26Jan2017

FASB Simplifies Goodwill Impairment Testing

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On January 26, 2017, the FASB issued guidance to simplify the accounting for goodwill impairment. The guidance removes Step 2 of the goodwill impairment test – which required a hypothetical purchase price allocation (involving the need to determine the fair value of individual assets and liabilities of a reporting unit to calculate goodwill impairment). Under the new guidance, goodwill impairment is calculated as the amount by which a reporting unit’s carrying value exceeds its fair value (not to exceed the carrying amount of goodwill). The revised guidance is more similar to IFRS, which also has a single-step goodwill impairment test.

All other goodwill impairment guidance will generally remain unchanged – including the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary.

With regard to timing associated with the revised guidance:

  • SEC filers are required to adopt the new standard for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019.
  • All other entities, including not-for-profits, that are adopting the guidance should do so for their annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2021.
  • Early adoption is permitted for any impairment tests (interim or annual) performed after January 1, 2017.
The changes are contained in Accounting Standards Update (“ASU”) No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. Click here for a copy of the ASU.

18May2016

Josette Ferrer Discusses Audit Reviews at American Society of Appraisers Event

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On May 18, 2016, “The Pitfalls of Audit Review” was the second event of a three part series sponsored by the Northern California Chapter of the American Society of Appraisers.  Josette collaborated with James Walling, Principal of Accretive Strategies Group, to cover best practices related to performing valuations for audit review.  The topics which Josette focused on included purchase price allocations, impairment, and 409A / equity grant valuations.
12May2016

FASB Drafts Formal Proposal to Simplify Goodwill Impairment

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On May 12, 2016, the FASB drafted a formal proposal to eliminate Step Two of the current goodwill impairment test – which requires a hypothetical purchase price allocation to calculate impairment loss. Under the proposal (which addressed discussions at prior FASB meetings), goodwill impairment loss would instead by measured by the amount by which a reporting unit’s fair value is lower than its carrying value. Per the proposal, all other goodwill impairment guidance would remain unchanged.
08Jan2016

FASB Makes Proposal to Simplify Goodwill Impairment Accounting

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At the January 6, 2016 Board Meeting of the FASB, the Board reaffirmed its earlier decision to simplify goodwill impairment accounting and directed the staff to draft a proposal. Under the proposal, an entity would record an impairment charge based on Step One in the current two-step impairment test.

  • If a reporting unit’s carrying value exceeds its fair value, the entity would record an impairment charge to goodwill equal to the difference between the two amounts.
  • The proposal would eliminate today’s requirement to calculate goodwill impairment by comparing the fair value of goodwill (as estimated by performing a hypothetical application of a purchase price allocation under Accounting Standards Codification Topic 805) with its carrying value.
20Jan2014

ASU Simplifies Goodwill Reporting for Private Companies

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On January 16, 2014, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") 2014-02, Intangibles—Goodwill and Other (Topic 350): Accounting for Goodwill. This ASU introduced an accounting alternative for private companies that simplifies the accounting for goodwill. The effects of a private company electing the ASU as its accounting policy for goodwill include the following:
  • Amortization of goodwill. The ASU allows private companies to amortize goodwill on a straight-line basis over ten years or over a shorter period (if the company demonstrates that another useful life is more appropriate).
  • Frequency of the test for impairment. Under the ASU, private companies are required to test for impairment only when there is a triggering event instead of testing it every year.
  • Method of impairment testing
      Private companies can choose to test goodwill for impairment at either the entity or reporting unit level (instead of having to test goodwill at the reporting unit level).
      The ASU eliminates Step 2 of the goodwill impairment test. If Step 1 of the test indicates impairment, the amount of impairment would be measured by calculating the difference between the carrying amount of the entity (or reporting unit) and its fair value. A Step 2 hypothetical purchase price allocation is no longer required.
  • Other provisions. If ASU 2014-02 is elected, all aspects of it must be elected. In other words, a private company cannot elect to apply the impairment guidance and not elect to apply the amortization guidance.
  • Timing. While the ASU is not effective until annual periods beginning after December 15, 2014, and interim periods within annual periods beginning after December 15, 2015, early adoption is permitted. Private companies may elect the accounting alternative to account for goodwill in their 2013 financial statements as long as those statements have not yet been made available for issuance.
  • Click here for a copy of the ASU.
14Jun2013

FASB Votes to Endorse PCC Proposed Alternatives

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On June 10, 2013, the FASB voted to endorse three proposals of the Private Company Council ("PCC"). Two of these proposals impact the valuation and related accounting implications associated with business combinations and goodwill impairment:
  • PCC Issue 13-01A, Accounting for Identifiable Assets in a Business Combination, would permit a private company to:
      Recognize intangible assets in a business combination for only those that arise from noncancellable contractual terms or other legal rights.
      Determine the recognized value of an intangible asset with a noncancellable term without taking into consideration potential contractual renewals.
  • PCC Issue 13-01B, Accounting for Goodwill Subsequent to a Business Combination, would allow a private company to:
      Amortize goodwill over the lesser of: (a) the useful life of the primary asset acquired in the business combination that gave rise to the goodwill and (b) ten years.
      Test goodwill for impairment only when a triggering event occurs.
      Test goodwill at the entity level rather than at the reporting unit level.
      Utilize a single step quantitative test for goodwill – with goodwill impairment equal to the excess of a company's carrying amount over its fair value.
The next step is for the FASB to issue Exposure Drafts for public comment by the end of June 2013. The expectation is that the comment period for the proposals will end in the latter half of August 2013 to facilitate discussion of the proposals at the PCC's meeting on October 1, 2013.
19Feb2013

Josette Ferrer Speaks on Fair Value Updates at IMA Technical Meeting

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In February 2013, a Wall Street Journal article discussed the "value riddle" and increasing scrutiny by the SEC and Public Company Accounting Oversight Board ("PCAOB") around fair value issues. In Josette's presentation to the Peninsula-Palo Alto chapter of the Institute of Management Accountants ("IMA"), she discussed developments around the increasing documentation required around fair value, including sharing details from several recent projects on real-life fair value applications.
27Aug2012

Josette Ferrer Invited to Speak at IMA Controllership Forum

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On August 27, 2012, Josette spoke on valuation issues related to long-lived asset impairment at the Fall Controllership Forum training held by the Institute of Management Accountants ("IMA"), Peninsula-Palo Alto Chapter. Josette's presentation covered guidance related to long-lived asset impairment as detailed in Accounting Standards Codification Topic 360, Accounting for the Impairment or Disposal of Long-Lived Assets, auditor review considerations, case studies related to a variety of industries and assets, and sample SEC comments and issues.