Corporations rely on Financial Intelligence for a complete solution when applying SFAS based fair value accounting rules.

Fair Value Accounting

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The Financial Accounting Standards Board (FASB) recently issued several Statements that have a pervasive impact on accounting and reporting practices related to mergers, acquisitions and other transactions. Among other things, these Statements introduce new accounting concepts and valuation complexities that will likely affect the planning and execution, as well as the accounting and disclosures, for key transactions. They may also generate greater earnings volatility for many corporations. These new Statements include:

  • Statement of Financial Accounting Standards (SFAS) 157: Introduces
    new accounting concepts and valuation complexities and provides
    new guidance on how fair value should be measured when such
    measures are required.
  • SFAS 141 (Business Combinations): Requires the use of purchase
    accounting for mergers and acquisitions. Commencing in 2009, SFAS
    141R also requires the use of fair value accounting for these
    transactions. Because SFAS 157 requires that fair values be based
    on market participant assumptions rather than on company-specific
    assumptions, these new rules dramatically increase the risk and
    complexity of accounting for an acquisition.
  • SFAS 142: Requires the periodic testing for goodwill impairment
    based on fair value. This potentially results in significant
    unplanned expenses related to the write-down of goodwill and other
    intangibles.
  • SFAS 159: Provides companies with an irrevocable option for
    measuring certain financial assets and financial liabilities at
    fair value that historically have been measured using historical
    accounting.
  • SFAS 160: Changes the accounting and reporting for minority
    interests, now presented as noncontrolling interests (NCI) and
    classifies them as a component of equity. This new consolidation
    method will significantly change the accounting for transactions
    with minority-interest holders as well as key operating metrics
    and financial ratios.

These new rules dramatically increase the risk and complexity of accounting and reporting related acquisitions and other transactions that require the use of fair value accounting. They may also dramatically increase the volatility of future operating metrics due to increased amortization, depreciation, or future impairment charges.

Corporations rely on Financial Intelligence for a complete solution when applying these new fair value accounting rules. Because we are experts in both accounting and valuation, we are able guide our clients through these issues with confidence, prepare the necessary valuations thoroughly and ensure that they survive potential rigorous scrutiny from auditors and regulatory agencies—the first time. In each case, we work closely with management (and auditors and/or counsel when appropriate) to determine the proper accounting treatment. We also prepare position papers to document our conclusions thoroughly.

Beyond accounting theory and related position papers, we provide clients with detailed financial analyses to explain the impact of accounting and valuation decisions on both historical and prospective financial results.

Our proven experience in solving extremely complex and diverse revenue recognition issues allows us to resolve issues and form defensible conclusions; document conclusions to satisfy demanding audit situations; and draft disclosures and complete the SEC filings quickly.