Fair Value Measurement: Practical Guidance and Implementation(Wiley Corporate F&A)

Get up to date on the latest FASB, SEC, and AICPA guidelines and best practices Fair Value Measurement provides hands-on guidance and the latest best practices for measuring fair value in financial reporting. The Financial Accounting Standards Board (FASB), the U.S. Securities and Exchange Commission (SEC), and the American Institute of CPAs (AICPA) have all updated their guidelines for practitioners, and this book details the changes from a practical perspective. This new third edition includes a discussion on Private Company Council accounting alternatives for business combinations and impairment testing, with a detailed example of the Market Participant Acquisition Premium (MPAP), including European and Asian examples and expanded discussion of IFRS. Fair value measurement guidelines continue to evolve, and this comprehensive reference provides a valuable, up-to-date resource for preparers, auditors, and valuation specialists. Adopt the best practices for implementing the FASB's Topic 820 Learn the latest reporting requirements for fair value measurements Understand accounting alternatives for business combinations Examine the details of MPAP in Europe and Asia Applying fair value measurements to financial statements requires a move away from rules-based standards and toward application of professional judgment. This controversial shift has led to a reliance on valuation specialists, who face their own challenges in applying Topic 820 amidst an economic downturn and recovery, leading to an ever evolving set of best practices. Practitioners must stay up to date, and be aware of the changes as they occur. Fair Value Measurement provides the most recent information and a practical approach to this area of financial reporting.

Table of Contents:
Preface xiii Acknowledgments xix Chapter 1: The History and Evolution of Fair Value Accounting 1 Why the Trend Toward Fair Value Accounting? 2 History and Evolution of Fair Value 5 Fair Value Accounting and the Economic Crisis 12 The FASB and IASB Convergence Project 17 The Future of Fair Value Measurement 23 Fair Value Quality Initiative for Valuation Specialists 24 Conclusion 26 Notes 26 Appendix 1A: The Mandatory Performance Framework 31 Performance Requirements 31 Conclusion 33 Notes 46 Chapter 2: Fair Value Measurement Standards and Concepts 47 FASB ASC 820, Fair Value Measurement 48 Disclosures 67 Fair Value Option 70 Standards in the Valuation Profession and Fair Value Measurements 77 Conclusion 79 Notes 80 Appendix 2A: Taxes and Fair Value Measurements 81 Summary of Changes under 2017 TCJA 81 Chapter 3: Business Combinations 85 Mergers and Acquisitions 86 Accounting Standards for Business Combinations—A Brief History 88 ASC 805, Business Combinations 90 Other Business Combination Highlights 95 Subsequent Accounting for Goodwill and Other Intangible Assets 99 Conclusion 100 Notes 101 Chapter 4: The Nature of Goodwill and Intangible Assets 103 History of Intangible Assets 104 Intellectual Property 105 Economic Basis of Intangible Assets 106 Identification of Intangible Assets 106 Useful Life of an Intangible Asset 111 Intangible Assets and Economic Risk 112 Goodwill 112 Economic Balance Sheet 114 Conclusion 116 Notes 117 Chapter 5: Impairment 119 Evolution of Impairment Testing 120 Applicable FASB Guidance for Impairment Testing 122 Accounting for the Impairment of Long-Lived Assets 123 Goodwill Impairment Testing—Public Companies 125 Goodwill Impairment—One-Step Impairment Loss 138 Testing Other Indefinite-Lived Intangible Assets for Impairment 139 Amortization of Goodwill 139 Conclusion 140 Notes 140 Appendix 5A: Example of a Qualitative Impairment Analysis—PlanTrust, Inc. 143 Financial Accounting Standards Board ASC 350, Intangibles—Goodwill and Other 143 PlanTrust, Inc. 144 Notes 159 Chapter 6: The Cost Approach 161 The Cost Approach under FASB ASC 820, Fair Value Measurement 162 Economic Foundation for the Cost Approach 164 Cost versus Price versus Fair Value 164 The Role of Expected Economic Benefits in the Cost Approach 166 Reproduction Cost versus Replacement Cost 167 Components of Cost 168 Obsolescence 169 The Relationships Among Cost, Obsolescence, and Value 170 Physical Deterioration 171 Functional (Technological) Obsolescence 172 Economic (External) Obsolescence 173 Applying the Cost Approach 174 Taxes Under the Cost Approach 178 Limitations of the Cost Approach 179 Conclusion 179 Notes 180 Chapter 7: The Market Approach 183 Applying the Market Approach When Measuring the Fair Value of an Entity or a Reporting Unit of an Entity 184 Conclusion 213 Notes 213 Chapter 8: The Income Approach 215 Introduction 215 Discounted Cash Flow Method 216 Multiperiod Excess Earnings Method 223 FASB Concepts Statement 7 239 Rates of Return Under the Income Approach 244 The Income Increment/Cost Decrement Method 245 Profit Split Method 246 Build-Out, or Greenfield, Method 251 Weighted Average Cost of Capital Calculation 251 Conclusion 258 Notes 259 Chapter 9: Advanced Valuation Methods for Measuring the Fair Value of Intangible Assets 261 Introduction 261 Limitations of Traditional Valuation Methods 261 Real Options 263 Using Option Pricing Methodologies to Value Intangible Assets 266 Black-Scholes Option Pricing Model 269 Binomial or Lattice Models 272 Monte Carlo Simulation 277 Decision Tree Analysis 280 Conclusion 281 Notes 281 Chapter 10: Measuring the Remaining Useful Life of Intangible Assets in Financial Reporting 283 FASB Guidance on Determining the Remaining Useful Life 283 Considerations in Measuring Useful Lives of Intangible Assets 285 Practical Guidance for Estimating and Modeling the Useful Life 289 Conclusion 295 Notes 295 Chapter 11: Fair Value Measurement for Alternative Investments 297 Introduction 297 Investments in Certain Entities That Calculated Net Asset Value per Share 299 AICPA Technical Practice Aid 300 AICPA Guidance for Determining the Fair Value of Investment 301 AICPA Accounting and Valuation Guide, Valuation of Portfolio Company Investments of Venture Capital and Private Equity Funds and Other Investment Companies 305 International Private Equity and Venture Capital Valuation Guidelines 306 Common Valuation Methodologies of Measuring the Fair Value of the Fund’s Investment Portfolio 307 Conclusion 308 Notes 308 Chapter 12: Contingent Consideration 311 Contingent Consideration: Earn-outs in Business Combinations 311 Accounting for Contingent Consideration 312 Conclusion 324 Notes 324 Appendix 12A: Measuring the Fair Value of a Nonfinancial Contingent Liability—Example of a Loan Guarantee 327 The Jordan Lee Fund Guarantee of Townsend Farm Development, LLC 328 Notes 334 Chapter 13: Auditing Fair Value Measurement 335 Auditing Standards 336 The Audit Process 338 Evolution of Audit Standards for Fair Value Measurements and Disclosures 342 Auditing Standard 2501, Auditing Accounting Estimates, Including Fair Value Measurements 344 Auditing Standards for Auditor’s Use of the Work of Specialists 349 Proposed International Standard on Quality Management 1 354 Practical Guidance for Auditors 354 PCAOB Staff Audit Practice Alert No. 9, Assessing and Responding to Risk in the Current Economic Environment 356 AICPA Nonauthoritative Guidance 358 The Appraisal Foundation 359 Conclusion 359 Notes 360 Appendix 13A: Auditing Fair Value Measurement in a Business Combination 363 Auditor Questions 363 General 363 Income Approach 364 Cost Approach 366 Market Approach—General 367 Appendix 13B: Auditing Fair Value Measurement in a Goodwill Impairment Test 369 General 369 Income Approach 370 WACC 371 The Market Approach 372 Chapter 14: Fair Value Measurement Case Study 373 Learning Objectives 373 Business Background and Facts—Dynamic Analytic Systems, Inc. 374 Notes 406 Appendix 14A: Suggested Case Study Solutions 407 Note 437 Appendix 14B: Model Fair Value Measurements Curriculum 439 Acknowledgments 439 AICPA Staff 440 About Us 440 Preface 440 Model Fair Value Measurement Curriculum 440 Appendices and Examples 448 Note 451 Glossary of International Business Valuation Terms 453 Bibliography 463 About the Author 475 Index 477

About the Author :
MARK L. ZYLA is a Managing Director of Zyla Valuation Advisors, LLC. an Atlanta, Georgia based valuation and litigation consultancy firm. He is a Certified Public Accountant, Accredited in Business Valuation (CPA/ABV), Certified in Financial Forensics (CFF) by the American Institute of Certified Public Accountants (AICPA), a Chartered Financial Analyst (CFA), and an Accredited Senior Appraiser with the American Society of Appraisers certified in Business Valuation (ASA). Mark is the Chairman of the Standards Review Board of the International Valuation Standards Council (IVSC) and has served on the AICPA's Forensic and Valuation Services Executive Committee. Mark was inducted into the AICPA Business Valuation Hall of Fame in 2013.