July 17, 2013 | Issue #130-2

FASB eases goodwill impairment testing under
new proposal

The number of goodwill impairment calculations for private companies will be reduced—and the method will be made simpler—under a new proposal from the Financial Accounting Standards Board. Also, private companies would be allowed to amortize goodwill.

The proposal is derived from the FASB’s Private Company Council (PCC) Issue No. 13-01B, Accounting for Goodwill Subsequent to a Business Combination. It is one of three newly released proposed Accounting Standards Updates (ASUs) designed to simplify and reduce the cost of private company financial reporting.

Three key points: There would be fewer goodwill impairment calculations because of three provisions in the proposed ASU: (1) impairment testing would only need to be done upon the occurrence of a triggering event; (2) impairment would be assessed at the entity level rather than at the reporting-unit level; and (3) goodwill could be amortized over a short useful life (not to exceed 10 years).

Under a simplified method, the proposed ASU would eliminate the complicated Step 2 of the goodwill impairment test under current U.S. GAAP in ASC 350-20. Instead, private companies would measure goodwill impairment using Step 1 (the excess of the entity’s carrying amount over its fair value).

If a private company elects to use the alternative accounting for goodwill, it must prospectively apply the proposed ASU to all existing goodwill and any new goodwill resulting from future business combinations.

The other two proposals contain alternative approaches to account for intangible assets acquired in a business combination and certain types of interest rate swaps. Comments on the three proposals are due by August 23. During the exposure period, the FASB staff will consider whether the proposals should be extended to public companies or not-for-profit organizations.

IASB roundup: Meeting agenda, investor
short-termism, credit losses

Here are several items of interest to valuation experts regarding the International Accounting Standards Board.

The IASB meeting in London on July 23-25 will include joint sessions with the FASB on financial instruments (classification and measurement and impairment) and revenue recognition. IASB-only sessions will also include these topics, plus sessions on rate regulation and post-implementation review of IFRS 3 and IFRS for SMEs.

The IASB has submitted a response to the European Commission (EC) concerning the green paper, Long-Term Financing of the European Economy. The EC posed a question regarding a possible relationship between the use of fair value accounting principles and short-termism in investor behavior. In its response, the IASB says it does not believe that fair value accounting principles have of themselves led to short-termism in investment behavior.

Deloitte has issued a comment letter on the IASB’s Exposure Draft, ED/2013/3, Financial Instruments: Expected Credit Losses. Deloitte has a “number of concerns about the proposed impairment model and suggests an alternate approach using an absolute assessment of credit quality which would avoid accounting anomalies when similar economics of financial assets are measured differently.”

New book on buy-sell agreements sparks promo idea

A new Kindle book, Buy-Sell Agreements for Baby Boomer Business Owners, by Z. Christopher Mercer (Mercer Capital), has triggered a great low-cost promotional idea. On the Amazon listing, a reader says he “ordered over 80 copies of the book to be sent as gifts to clients and business associates.” This facilitates follow-up calls to talk about buy-sell agreements and transition planning.

Valuation angle: A buy-sell agreement—if crafted properly—can function as an important valuation document. If a triggering event occurs, the agreement should contain a valuation mechanism that provides for a value that partners/shareholders/investors agree is reasonable. Sounds simple, but this is not clearly understood—especially among baby boomers.

The new book focuses on valuation and improving the valuation mechanism of new and existing buy-sell agreements, with particular emphasis on the concerns of baby boomers. You’ll get an overview of what buy-sell agreements are supposed to do and how they should work. Mercer, a business appraiser and businessman, also gives his recommendation for the type of buy-sell agreement pricing mechanism that he believes is best for most successful closely held businesses. As a bonus, readers of this book have free access to Mercer's Buy-Sell Agreement Review Checklist and the Shareholder Promissory Note Checklist.

At a low introductory price of $2.99 (soon to be $9.99), this book is perfect for your business-owner clients as well as attorneys.

Free marketing tools: To help you develop business in this area, the Mercer Capital website has put together a marketing program you can use, including sample emails that can be used as is or adapted to suit your own needs.

Preview of the August issue of Business Valuation Update

Here’s what’s coming in the next issue:

TAF BV Roundtable: BV Profession at the Crossroads. A 19-member panel of leading valuators, regulators, and auditors discussed and debated key issues on valuation qualifications, standards, and oversight at The Appraisal Foundation Business Valuation Roundtable II.

Dealing With Data Limitations in Customer Survival Curves Plans (Darren S. Cordier, CFA).The valuation of customer relationships requires an understanding of customer survival behavior, but bad data can corrupt the analysis and lead to erroneous conclusions.

Valuing Shareholder Loans in Divorce: Debt or Equity? (Christine Baker, CPA/ABV/CFF). No divorce case law on this issue means we must look elsewhere for factors that courts examine in deciding whether an advance of funds from an owner should be treated as a bona fide debt or as contributed capital.

Winery Valuations: Six Questions to Ask When Analyzing Operations and Cash Flows (Christopher Meineke, CPA/ABV). There are many issues to consider before taking on a winery valuation engagement. Plus, there’s a valuation angle that can trigger big tax savings.

To read these articles—plus a digest of the latest court cases—see the August issue of Business Valuation Update (subscription required).

Rod Burkert joins BVU editorial advisory board

Business Valuation Update has earned its acclaim in the profession in large part due to the ongoing efforts and contributions of its editorial board members.

BVU is pleased to announce that Rod Burkert has joined its editorial board. Rod, who holds CPA/ABV and CVA credentials, is the founder of Burkert Valuation Advisors LLC, a business valuation and litigation support firm. His assignments focus primarily on income/gift/estate matters, specializing in closely held companies and private investment partnerships. He also provides report review and project consulting services to assist attorneys and other practitioners with their engagements.

Rod’s addition to the board will help to maintain BVU’s tradition of keeping its fingers on the pulse of industry developments and ensuring that every monthly issue is the top-notch publication readers expect to receive.

Congratulations, Rod!

Valuation in the new economy

In the wake of economic turmoil and regulatory reform, BVR has some CPE events geared to bring your skills and techniques up to speed with the changing times.

In BVR’s July 18 webinar, Community Bank Valuation: What's Happened Since the Great Recession, experts Dwight Larsen and Matthew Becker (both BankValue Advisory Services) will address how the great recession and its current recovery have affected and will affect the value and valuations of community banks.

“The days of stable equity risk premiums are behind us,” says Dr. Aswath Damodaran (Stern School of Business, New York University). After years of economic turmoil, equity risks must be related to events and fundamentals, and checked between markets to ensure their accuracy. Dr. Damodaran will expand on this topic on July 28 in Equity Risk Premiums: Looking Back, Looking Forward. Attendees of this program may hear the most thoughtful and insightful guidance on valuations in the new economy yet.

Amid healthcare reform, hospitals are acquiring medical practices more than ever. Part 7 of BVR’s 2013 Online Symposium on Healthcare Valuation features Lori Foley and Tynan Olechny (both PYA GatesMoore) on the methods and procedures that every appraiser should know when Benchmarking Medical Practice Performance. From the selection of data through the application of benchmarking methods and their analysis, Foley and Olechny will address the classic considerations and emerging trends of practice benchmarking.

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