Valuation /
Transaction Consulting /
Real Estate Advisory /
Fixed Asset Management
Outline of Contents
PCAOB and Audit Issues
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4
Addi5onal Valua5on Support
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5
Ongoing Evolu5on of US Financial Repor5ng
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6
Intangibles Valua5ons and Financial Repor5ng
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7
Impairment Tes5ng
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8
IFRS Complex Accoun5ng Issues
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10
Business Enterprise and Equity Valua5ons
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11
Valua5ons for Tax Repor5ng
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14
Ques5ons
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15
American Appraisal
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16
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Trending Topics – PCAOB and Audit Issues
For FY 2011, PCAOB found fault with a significant number of public
company audits inspected.
Involves eight major US audit firms
Error rates ranged from 22.6% to 61.5% Relates to documentaAon
PCAOB sees deficiencies in the valua5on process with respect to:
Share-‐based payments Fair value measurements
Business combinaAons and impairment of intangible assets
PCAOB sees “limited improvements” in its review of 2012 and 2013
inspec5on results.
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Trending Topics – Addi5onal Valua5on Support
§ As a result of PCAOB’s increased scruAny, auditors now require valuaAon
firms and client management to provide greater support for:
• Impairment TesAng – Tax vs. Stock Deal
• AVriAon Rates – Customers
• ConAngent ConsideraAon
• Control Premium
• Finite vs. Indefinite-‐Lived Assets
• DeterminaAon of Primary Asset
Q4 2012 • PCC and FAF began creaAng financial reporAng alternaAves for private companies. Q1 2013 Q2 2013 • AICPA released “Financial ReporAng Framework for Small-‐ and Medium-‐Sized EnAAes.” • PCC proposed several changes to private company accounAng for business combinaAons & impairment tesAng. Q3 2013 Q4 2013 • FASB officially endorsed PCC’s proposed changes for private company impairment tesAng. • FASB issued an exposure drac to reduce the complexity of development-‐ stage enAty financial reporAng.
Trending Topics – Ongoing Evolu5on of US Financial Repor5ng
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Trending Topics – Intangibles Valua5ons and Financial Repor5ng
§ In June 2013, PCC proposed several changes to GAAP for private company
accounAng.
• The changes exempt private companies from needing to separately
recognize certain intangible assets acquired in a business combinaAon.
• They only need to recognize intangibles arising from noncancelable
contractual terms or from other legal rights.
§ In November 2013, FASB issued an exposure drac to reduce the complexity
of development-‐stage enAty financial reporAng. The following GAAP requirements were eliminated:
• Need to present incepAon-‐to-‐date informaAon on the statements of
income, cash flows, and shareholders’ equity
• Need to label the financial statements as those of a development-‐stage
enAty.
• Need to disclose a descripAon of the development-‐stage acAviAes in
which the enAty is engaged
• Need to disclose in the first year in which the enAty is no longer a
development-‐stage enAty that in prior years it had been in the development stage
Trending Topics – Impairment Tes5ng Part 1
§ In October 2013, PCC sent several proposed changes on GAAP for private
company accounAng to FASB for endorsement.
• The changes allow for amorAzaAon of goodwill and a simplified goodwill
impairment tesAng model.
• Step 2 of the goodwill impairment test would be eliminated, and private
companies could measure goodwill impairment using Step 1 only.
• In addiAon, goodwill would be:
-‐ Tested for impairment only when a triggering event occurs
-‐ Tested for impairment at the enAty level as compared to the
reporAng unit level
-‐ AmorAzed over the life of the primary asset (typically < 10 years)
§ In November 2013, FASB officially endorsed proposed changes to goodwill
impairment tesAng. Changes were incorporated into GAAP in January 2014 and will become effecAve for private company reporAng in December 2014.
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Trending Topics – Impairment Tes5ng Part 2
§ Cause of impairment tesAng differences around the world (GAAP vs IFRS)
§ FASB’s issuance of “step zero” qualitaAve assessment did introduce an
element of a principles-‐based approach under US GAAP.
§ IASB and FASB are conAnuing their decade-‐long work to converge IFRS and
US GAAP.
§ Converging goodwill impairment accounAng does not appear to be a near-‐
term project.
US GAAP
IFRS
Rules-Based Accounting Approach
vs.
Principles-Based AccountingApproach Goodwill tested for impairment via
two-step fair value test One-step goodwill impairment test, has both a fair value aspect
Trending Topics – IFRS Complex Accoun5ng Issues
Fair Value
• IFRS 13, effecAve January 1, 2013,
addresses inconsistencies in the determinaAon and disclosure of fair value measurements under current IFRS.
Control
• Under IFRS 10, to determine control,
enAAes are required to make a detailed assessment based on substance,
instead of whether or not an investor has a majority of equity holding in an investee.
Business Combina5ons
• IFRS 3 – revised in 2008. Requires the
idenAficaAon of the acquirer, measuring the consideraAon
transferred, the assets acquired and the liabiliAes assumed, and calculaAng
goodwill and any noncontrolling interests
Impairment
• Standard IAS 36 focuses on the term
“recoverable amount.” Requires
enAAes to recognize an impairment loss to the extent that the carrying amount of a business enAty or asset exceeds that enAty’s or asset’s recoverable amount.
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Trending Topics – Business Enterprise and Equity Valua5ons
What is Control Premium?
Strategic Value
Controlling Interest Value
Marketable Minority Interest Value
Strategic Premium
Premium For Control
Discount for Lack of Marketability
Minority Interest Discount Ocen
Trending Topics – Business Enterprise and Equity Valua5ons
Recent News
§ In April 2013, the Appraisal FoundaAon issued a discussion drac on the
measurement and applicaAon of Market ParAcipant AcquisiAon Premiums
(“MPAPs”), commonly referred to as “control premiums.” Some conclusions from this drac are as follows:
§ Best pracAces include expressing as well as applying the MPAP in the context of a
TIC foundaAon.
§ Exclusive reliance on observed premium data from completed transacAons
provides insufficient support for a concluded MPAP.
§ MPAPs should be supported by reference to either enhanced cash flows or a
lower required return from a market parAcipant’s perspecAve.
§ Benefits will not in all instances be reliably idenAfiable, in such cases resulAng in
either no, or a small, premium.
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Trending Topics – Business Enterprise and Equity Valua5ons
Evolu5on of Views on Appropriate Control Premium to Apply
Old Way
New Way
Terminology: Control Premium Terminology: MPAP
Methodology: Avg. Historical TransacAons Methodology: QuanAfy Synergy Methodology: Use Mergermarket,
Bloomberg, Capital IQ as sources for transacAons
Methodology: Calculate value of the enterprise assuming market parAcipant discount rate and levels of growth/
profitability.
Drawbacks of Historical Transac5on Data
Available data on past transacAons can be limited
Market condiAons at the Ame of a transacAon can have substanAal influence on control premiums (e.g., business cycle, compeAAve environment, scarcity of the asset).
Trending Topics – Valua5ons for Tax Repor5ng
§ In November 2013, the AICPA issued a white paper on Sec. 6695A of the Internal
Revenue Code.
§ The IRS was given new responsibiliAes to ensure the quality of appraisals and
appraisers who provided informaAon in support of a taxpayer’s federal tax filings:
§ The IRS imposes penalAes on appraisals that lead to substanAal and gross
valuaAon misstatements on returns.
§ The AICPA and three other major business appraiser organizaAons are recognized
by the IRS as having generally accepted appraisal standards.
§ The IRS Appraisal Review Process is a formal system whereby the IRS reviews
appraisals that have been idenAfied as problemaAc. IRS examiners ocen request the assistance of valuaAon experts to analyze an appraisal.
§ The IRS’s Office of Professional Responsibility may take acAon against an
appraiser and the appraiser’s firm for violaAng professional standards.
§ AutomaAc IRS audits can be triggered when the same firm conducts tax and
valuaAon on behalf of a client.
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Professional Qualifica5ons
Chun is a manager for the New York financial valuaAon pracAce.
Chun parAcipates in the valuaAon of business enterprises and intangible assets. His assignments have involved due diligence, industry research, comparaAve financial analysis of public and private
companies and discounted cash flows. These valuaAon engagements have been for tax planning, financial reporAng and purchase price allocaAon.
Chun has served various industries such as beverages, confecAonery, defense, gics and novelty,
healthcare, music recording and publishing, pharmaceuAcals, power generaAon, socware and specialty chemicals.
Chun joined American Appraisal as a consultant in 2007; he was promoted to senior consultant in 2010 and to his current posiAon in early 2012. Previously, he worked in the Real Estate Investment Trust (REIT) industry for New Plan Excel Realty Trust.
Educa5on
§ New York University, Stern School of Business, Bachelor of Science -‐ Finance and InternaAonal
Business
Professional Affilia5ons
§ CFA InsAtute, Chartered Financial Analyst DesignaAon
Chun Tao, CFA
Manager, Financial ValuaAon PracAce Contact InformaAon Phone: +1 646 227 6239 ctao@american-‐appraisal.com Office Address 1500 Broadway Suite 2401
New York, New York 10036 United States
Professional Qualifica5ons
Carlo is a director for the financial valuaAon pracAce. He conducts financial valuaAons including valuaAons of securiAes, intangible assets, and business valuaAons. He has performed numerous valuaAons of public and private businesses; intangible assets such as patents, unpatented technology, contracts, licenses, copyrights, computer socware, franchises, noncompeAAon agreements and customer relaAonships; and financial assets such as inventory. The purposes of these valuaAons and financial advisory services include, in part, mergers and acquisiAons, divesAtures, financing, strategic planning, shareholder buy/sell agreements, corporate restructuring, dispute resoluAon, purchase price allocaAon, goodwill and asset impairment and other tax and financial reporAng consideraAons.
Carlo has completed appraisals for purposes including purchase price allocaAons, mergers and acquisiAons, management planning, federal and mulAnaAonal corporate tax planning, estate and gic taxaAon, accounAng and tax reporAng, liAgaAon support, and bankruptcy. Much of his work has been for financial reporAng purposes; however, he also has performed tax-‐related assignments in connecAon with the valuaAon of closely held securiAes and in accordance with guidance provided in IRC § 482, IRC § 382, IRC § 1060 and IRC § 409A.
Carlo joined American Appraisal in 1988.
Educa5on
§ Drexel University, Master of Business AdministraAon -‐ Finance
§ Drexel University, Bachelor of Science -‐ Business AdministraAon
Professional Affilia5ons
§ American Society of Appraisers, Accredited Senior Appraiser: Business ValuaAon
§ CFA InsAtute, Chartered Financial Analyst
Carlo A. Carpino, CFA, ASA
Vice President & Director, Financial ValuaAon PracAce Contact InformaAon Phone: +1 646 227 6224 ccarpino@american-‐appraisal.com Office Address 1500 Broadway Suite 2401
New York, New York United States 10036 Trending T opics in V aluations
Professional Qualifica5ons
Sandy is a managing director of business development for New Jersey, New York and eastern
Pennsylvania. She provides valuaAon counseling to major public and private corporaAons, banks and law and accounAng firms. She assists clients in resolving valuaAon issues for a wide range of purposes including possible purchase/sale, mergers, federal income tax, financial reporAng, property tax, insurance, estate planning and other purposes.
Sandy joined American Appraisal in 1988. She has been in her current posiAon for 15 years. In addiAon, she serves on the adjunct faculty of a local community college. Prior to joining American Appraisal, she spent several years with a private investment counseling firm and with Procter & Gamble.
Educa5on
§ The College of New Jersey, Bachelor of Science – Business
§ Temple University, Fox School of Business and Management
Sandra L. Sours
Vice President & Managing Director Contact InformaAon Phone: +1 215 504 0203 ssours@american-‐appraisal.com Office Address
650 College Road East Suite 1500
Princeton, New Jersey 08540 United States
Profile of American Appraisal
Unparalleled Valua5on Experience
§ A pioneer in formal valuaAon concepts and procedures and a leader in the profession since 1896
§ Culture of client focus – annually serving over 4,000 clients and constantly adapAng to their
evolving needs
§ Diversified valuaAon consulAng services in business valuaAon, real estate valuaAon, machinery
and equipment valuaAon, fixed asset management, insurance soluAons and transacAon consulAng
§ AcAve involvement with the valuaAon profession’s standard-‐sewng organizaAons throughout
the world
§ SubstanAal diversified industry experAse
§ Exemplary reputaAon and credibility with clients, regulatory agencies and third-‐party reviewers
Global Reach
§ Our integrated, employee-‐owned global plaxorm and entrepreneurial culture facilitate
responsive and nimble client service
§ More than 900 employees operaAng from offices strategically located in 24 countries in the
Americas, Europe, the Middle East and Asia-‐Pacific
§ Resident managing directors and consultants in every country assuring familiarity with local
market forces, cultural norms and relevant local regulaAons and standards
Complete Independence
§ ValuaAon and related advisory services are our only business
§ Unencumbered by conflicts of interest that may accompany certain professional service offerings
§ Independence provides greater objecAvity and promotes disAncAve client service
§ Significant commitment to and ongoing investment in knowledge management, corporate
governance and risk management
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Global Footprint
American Appraisal thinks globally but has the ability to act locally.
We are the world’s only truly glocal valuaAon firm™, comprising over 900 employees who operate from major financial centers located throughout the Americas, Europe, the Middle East and Asia-‐ Pacific. Brazil Sao Paulo Canada Montreal Toronto Vancouver China Beijing Guangzhou Hong Kong Shanghai Shenzhen Czech Republic Prague France Paris Germany Berlin Frankfurt Greece Athens Hungary Budapest India Bangalore Mumbai New Delhi Italy Bari Bologna Milan Padua Pesaro Rome Turin Japan Tokyo Kazakhstan Netherlands RoVerdam Poland Warsaw Portugal Lisbon Porto Russia Moscow St. Petersburg Singapore Singapore Spain Barcelona Bilbao Madrid Taiwan Taipei Ukraine Kiev United Arab Emirates Abu Dhabi United Kingdom London United States Atlanta Boston CharloVe Chicago (2) Dallas Denver Detroit Houston Los Angeles Milwaukee New York Philadelphia
Valua5on Consul5ng Services
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American Appraisal provides experAse in all classificaAons of tangible and intangible assets. Our service porxolio focuses on four key competencies:
Transac5on Consul5ng § Purchase Price AllocaAon § Corporate Finance Advisory § Fairness Opinions § Solvency Opinions
Real Estate Valua5on Advisory
§ Collateral Financing § Porxolio Review § Property Tax
§ Purchase, Sale or Lease § Fair Rental Analysis § Cost SegregaAon § LiAgaAon Support § Research and Analysis
Fixed Asset Management &
Insurance § Fixed Asset Inventory
and ReconciliaAon § Property Insurance
Appraisal
§ Fixed Asset Outsourcing Valua5on § Business Enterprise § Intangible Assets § Financial Instruments § Real Estate § Machinery and Equipment § Financial ReporAng § Tax ReporAng § Bankruptcy and Restructuring § Dispute ResoluAon
We welcome this opportunity to work with you.
Thank you for considering
American Appraisal.
