Business Combinations with SFAS 141 R, 157, and 160: A Guide to Financial Reporting
It has been rushed into print to clarify the process under the newly revised SFAS 141R, and will enable any preparer to document the appropriate financial reporting measurement clearly and concisely and apply FASB’s interpretations to specific facts and circumstances.
Business Combinations with SFAS 141R, 157, and 160 also includes a SFAS 157 flowchart, a checklist for implementing the standard, a SFAS 157 worksheet, supplemental checklists for intangible assets, and insight from FASB’s Valuation Resource Group discussing some 35 areas of discussion. It will be an invaluable tool for any preparer.
Michael J. Mard, CPA/ABV, ASA.
Steven D. Hyden, CPA/ABV, ASA.
Edward W. Trott.
Philosophy of Fair Value.
Fair Value Philosophy.
Convergence with IFRS.
Use of Valuation Specialists by Accountants and Auditors.
Fair Value and SFAS 157.
Fair Value Definition.
Principal (or Most Advantageous) Market.
Highest and Best Use and Valuation Premise.
Applicability to Liabilities.
Entry Price Versus Exit Price.
Valuation Techniques: Market, Income, and Cost Approaches.
Examples of Present Value Techniques.
Inputs: Observable and Unobservable.
Fair Value Hierarchy.
Inputs Based on Bid and Ask Prices.
Events Subsequent to a Quoted Price.
Securities Owned as an Asset and Blockage Discounts.
Subsequent Guidance about SFAS 157.
Preparer’s Guidance Flowchart of SFAS 157.
Overview and Objective.
Statement 141R and IFRS 3 (as revised).
Statement of 141R Reduces the Volume of US GAAP.
Expanded Scope of Applying the Acquisition Method.
Transactions Not Covered by 141R.
The Acquisition Method.
Identifying the Acquirer.
Determining the Acquisition Date.
Recognition and Measurement.
Postcombination Expenses (Restructuring or Exit Activities).
Determining What Is Part of a Business Combination.
Preexisting Relationships or Arrangement.
Hidden Acquisition Costs.
Classifying or Designating Assets and Liabilities.
Examples of Acquired Assets and Assumed Liabilities Initially Recognized at Fair Value.
Recording Assets and Liabilities at SFAS 157 Fair Value Differs from Guidance in SFAS 141.
Exceptions to the Recognition or Measurement Principles.
Assets/Liabilities Arising from Contingencies.
Acquirer Obtains a Reacquired Right.
Share-Based Payment Awards.
Assets Held for Sale.
Income Taxes, Tax Uncertainties, and Tax Valuation Allowance.
Additional Specific Guidance.
Intangible Assets Not Recognized by Acquiree.
Research and Development Assets.
Assets an Acquirer Does Not Plan to Use or Sell.
Recording the Consideration Transferred to Acquire the Acquiree, Including Contingent Consideration.
Calculation of Goodwill and Recording Noncontrolling Interest in the Acquiree.
Goodwill Calculation in a 100% Acquisition.
Goodwill Calculation in a Full Acquisition (Acquirer Has an Existing Investment).
Calculation of Goodwill in a Partial Acquisition and Recording Noncontrolling Interest.
Gain from a Bargain Purchase.
The Measurement Period for Recording a Business Combination.
Disclosures about a Business Combination.
Selected Disclosure Requirements.
Effective Date and Transition.
Other Guidance in Statement 141R.
Subsequent Guidance about SFAS 141R.
Statement 160 and Noncontrolling Interest.
Objective and Scope.
Transactions that Change the Parent’s Ownership Interest in a Subsidiary.
Purchase of Noncontrolling Interest (Minority Interest).
Reduction in Parent Ownership Interest.
Deconsolidation of a Subsidiary.
Classification of Noncontrolling Interest.
Changes to the Balance Sheet.
Changes to the Income Statement.
Additional Points about Noncontrolling Interest.
Disclosures about Noncontrolling Interests.
Selected Disclosure Requirements.
Effective Date and Transition.
Subsequent Guidance about SFAS 160.
Comparing SFAS 141 with SFAS 141R.
(New) SFAS 141R.
(Old) SFAS 141.
Case Study: Determining the Value of Goodwill and Other Intangible Assets in a Business Combination.
Consideration and Calculation of the Total of Intangible Assets and Goodwill.
Identifying Intangible Assets.
Remaining Useful Life Analysis.
Business Enterprise Analysis.
Discounted Cash Flow Method.
Valuation of Tangible Assets.
Land and Building.
Machinery and Equipment.
Organization Cost and Existing Goodwill.
Summary of Values.
Valuation of Intangible Assets.
Rates of Return.
Discount Rate for Amortization Benefit.
Technology (Existing and In-process) and Customer Relationships.
The Multiperiod Excess Earnings Method.
In-Process Research and Development.
Valuation of Goodwill.
Weighted Average Return on Assets.
Case Study Accounting Entry.
Abbreviated Sample Worksheet.
Sample Balance Sheet.
Case Study Exhibits.
Other Discussion Issues.
FASB’s Valuation Resource Group.
Issue No. 2008-19 – Impact of Valuing Contingent Liabilities under FAS 141(R) – Gross Versus Net Analysis.
Issue No. 2008-18 – Fair Value of a Noncontrolling Interest and a Previously held Equity Interest.
Issue No. 2008-17 – Identification and Allocation of Market Participant Synergies.
Issue No. 2008-16 – Fair Value of Accounts Receivable, Account Payable, and Other Accrued Liabilities.
Issue No. 2008-15 – Allocation of In-use Valuation to Individual Unit of Account.
Issue No. 2008-14 – Fair Value Measurement of Liabilities Under FAS 157.
Issue No. 2008-13 – Observable Versus Unobservable Inputs.
Issue No. 2008-12 – Fair Value Disclosures.
Issue No. 2008-11 – IASB Expert Advisory Panel White Paper.
Issue No. 2008-10 – Contingent Liabilities.
Issue No. 2008-9 – Employee Benefit Plans.
Issue No. 2008-8 – Determining Whether a Discount Should be Applied for a Restriction on Sale.
Issue No. 2008-7 – Observable versus Unobservable Fair Value Measurements in the Current Credit Environment.
Issue No 2008-6 – Allocation of Portfolio-based Credit Adjustments for Hedge Effectiveness Testing.
Issue No. 2008-5 – Fair Value of Inventory.
Issue No. 2008-4 – Meaning of Legally Permissible in Assessing Highest and Best Use.
Issue No. 2008-3 – Valuation of Intangible Assets Using “Current Replacement Cost”.
Issue No. 2008-2 – Customer Relationships.
Issue No. 2008-1 – Accounting for Assets that the Acquirer Does Not Intend to Use or Intends to Use in a Way Other than its Highest and Best Use.
Issue No. 2007-16 – Use of Net Asset Value in Fund of Funds Investments.
Issue No. 2007-15 – Accounting for Held to Maturity Debt Instruments.
Issue No. 2007-14 – Pension Plan Disclosures.
Issue No. 2007-13 – Accounting for Transaction Costs in Determining the Fair Value of an Investment.
Issue No. 2007-12 (to Be Discussed with Issue No. 11) – Adjustments to Level 2 Inputs (Related to Definition of Significant).
Issue No. 2007-11 (to Be Discussed with Issue No. 12) – Definition of Significant.
Issue No. 2007-10 – Fair Value of Asset Acquired Through the Highest Bid in Auction.
Issue No. 2007-9 – Highest and Best Use Land Example.
Issue No. 2007-8 – Fair Value of a Liability with Third-Party Guarantees.
Issue No. 2007-7 – Assets without Markets.
Issue No. 2007-6 – Defensive Value: Accounting Impact of Using Marketplace Participant Assumptions to Measure the Fair Value of an Asset That the Combined Entity Does Not Intend to Use or Sell.
Issue No. 2007-5 – Determination of Principal Market.
Issue No. 2007-4 – Elements of Consideration for Determination of “Active Market”.
Issue No. 2007-3 – How to Factor Liquidity into Fair Value Measures.
Issue No. 2007-2 – Unit of Account Decomposition of an Asset.
Issue No. 2007-1 – Fair Value of Mortgage Loans.
Other Implementation Aids.
Fair Value Measurement Checklist.
Preparer’s Conclusions Worksheet.
Acquiree Management Interview – Operations.
Acquiree Management Interview – Financial Review.
Data Request Related to Intangible Assets Acquired.
Procedures for the Valuation of Intangible Assets.
After an honorable discharge from the Navy, Mr. Mard returned to college and earned his bachelor’s and master’s degrees from the University of South Florida in Tampa. Mr. Mard started his career with KPMG, was in public auditing for two years, then operational and internal auditing for eight years before becoming the supervising senior auditor for the Kemper Group of Insurance Companies. For the last 25 years, Mr. Mard has been a business appraiser with a broad range of experience from small companies to billion-dollar companies, both private and public.
He is president of The Financial Valuation Group of Florida, Inc., a firm specializing in business valuation, intangible assets, intellectual property, commercial damages and expert testimony. Mr. Mard is widely written and is lead or coauthor on seven books, including books on SFASs 141, 142 and 157. Mr. Mard has testified in court approximately 100 times. He is a CPA, an Accredited Senior Appraiser (ASA) with the American Society of Appraisers, and is Accredited in Business Valuation (ABV) by the American Society of Public Accountants. He can be reached at email@example.com.
Steven D. Hyden, CPA/ABV, ASA is chief operating officer of The Financial Valuation Group of Florida, Inc. in Tampa, a financial advisory services firm specializing in valuation and litigation services. Mr. Hyden is also managing director of Hyden Capital, Inc., an affiliate providing merger and acquisition advisory services.
Mr. Hyden has coauthored and taught numerous valuation courses, was a guest expert for an AICPA Continuing Professional Education video course series, and worked with the FASB on its project, “Disclosure About Intangible Assets.” He served on the American Society of Appraisers Business Valuation Subcommittee - Valuation Issues in Financial Reporting, and is a member of the Appraisal Issues Task Force. Mr. Hyden is a coauthor of four books, including books on SFASs 141, 142 and 157.
Mr. Hyden has been a full-time business appraiser and expert witness for over 20 years, specializing in intangible assets, including intellectual property. He has developed analyses that have been reviewed and accepted by the Securities and Exchange Commission, major accounting firms, the IRS, and the courts.
Mr. Hyden has a bachelor’s degree in Marketing from Syracuse University and a MBA in accounting from Pace University in New York. He is a CPA, an Accredited Senior Appraiser (ASA) with the American Society of Appraisers and is Accredited in Business Valuation (ABV) by the American Society of Certified Public Accountants. He can be reached at firstname.lastname@example.org.
Edward W. Trott, CPA, was appointed to the Financial Accounting Standards Board (FASB) effective October 1, 1999, and was reappointed to a second five-year term in 2004. He left the Board on June 30, 2007. Formerly a partner of KPMG LLP, Mr. Trott began his career with the firm in 1968 in Greensboro, North Carolina, and also worked in the firm’s Tampa and national offices during his career. He headed the Accounting Group in the firm’s national office from 1992 to 1999.
Mr. Trott is a former member of the FASB’s Emerging Issues Task Force (EITF) and the Financial Reporting Committee of the Institute of Management Accountants. He has served as a member of the FASB’s Advisory Council (FASAC) and as a member of the American Institute of CPAs’ Accounting Standards Executive Committee (AcSEC).
Mr. Trott earned a bachelor’s degree from the University of North Carolina and an MBA from the University of Texas.
-James A. McNulty, CFO, BioDelivery Sciences International, Inc.
"FASB guidance is not very explicit in telling accountants how to make fair value measurements leaving interpretation up to preparers, auditors, and valuation specialists. In this text, the authors –a former FASB board member and two valuation specialists -- give firms their interpretations of FASB literature of how to make these sorts of measurements to comply with U.S. GAAP."
— Michael A. Crain, Former chairman, AICPA Business Valuation Committee