Fair Value Measurement, 3rd Edition

Book description

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

  1. Cover
  2. Preface
    1. NOTES
  3. Acknowledgments
  4. 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
    3. FAIR VALUE ACCOUNTING AND THE ECONOMIC CRISIS
    4. THE FASB AND IASB CONVERGENCE PROJECT
    5. THE FUTURE OF FAIR VALUE MEASUREMENT
    6. FAIR VALUE QUALITY INITIATIVE FOR VALUATION SPECIALISTS
    7. CONCLUSION
    8. NOTES
  5. APPENDIX 1A: The Mandatory Performance Framework
    1. PERFORMANCE REQUIREMENTS
    2. CONCLUSION
    3. NOTES
  6. CHAPTER 2: Fair Value Measurement Standards and Concepts
    1. FASBASC 820, FAIR VALUE MEASUREMENT
    2. DISCLOSURES
    3. FAIR VALUE OPTION
    4. STANDARDS IN THE VALUATION PROFESSION AND FAIR VALUE MEASUREMENTS
    5. CONCLUSION
    6. NOTES
  7. APPENDIX 2A: Taxes and Fair Value Measurements
    1. SUMMARY OF CHANGES UNDER 2017 TCJA
  8. CHAPTER 3: Business Combinations
    1. MERGERS AND ACQUISITIONS
    2. ACCOUNTING STANDARDS FOR BUSINESS COMBINATIONS—A BRIEF HISTORY
    3. ASC 805, BUSINESS COMBINATIONS
    4. OTHER BUSINESS COMBINATION HIGHLIGHTS
    5. SUBSEQUENT ACCOUNTING FOR GOODWILL AND OTHER INTANGIBLE ASSETS
    6. CONCLUSION
    7. NOTES
  9. CHAPTER 4: The Nature of Goodwill and Intangible Assets
    1. HISTORY OF INTANGIBLE ASSETS
    2. INTELLECTUAL PROPERTY
    3. ECONOMIC BASIS OF INTANGIBLE ASSETS
    4. IDENTIFICATION OF INTANGIBLE ASSETS
    5. USEFUL LIFE OF AN INTANGIBLE ASSET
    6. INTANGIBLE ASSETS AND ECONOMIC RISK
    7. GOODWILL
    8. ECONOMIC BALANCE SHEET
    9. CONCLUSION
    10. NOTES
  10. CHAPTER 5: Impairment
    1. EVOLUTION OF IMPAIRMENT TESTING
    2. APPLICABLE FASB GUIDANCE FOR IMPAIRMENT TESTING
    3. ACCOUNTING FOR THE IMPAIRMENT OF LONG‐LIVED ASSETS
    4. GOODWILL IMPAIRMENT TESTING—PUBLIC COMPANIES
    5. GOODWILL IMPAIRMENT—ONE‐STEP IMPAIRMENT LOSS
    6. TESTING OTHER INDEFINITE‐LIVED INTANGIBLE ASSETS FOR IMPAIRMENT
    7. AMORTIZATION OF GOODWILL
    8. CONCLUSION
    9. NOTES
  11. APPENDIX 5A: Example of a Qualitative Impairment Analysis—PlanTrust, Inc.
    1. FINANCIAL ACCOUNTING STANDARDS BOARD ASC 350, INTANGIBLES—GOODWILL AND OTHER
    2. PLANTRUST, INC.
    3. NOTES
  12. CHAPTER 6: The Cost Approach1
    1. THE COST APPROACH UNDER FASB ASC 820, FAIR VALUE MEASUREMENT
    2. ECONOMIC FOUNDATION FOR THE COST APPROACH
    3. COST VERSUS PRICE VERSUS FAIR VALUE
    4. THE ROLE OF EXPECTED ECONOMIC BENEFITS IN THE COST APPROACH
    5. REPRODUCTION COST VERSUS REPLACEMENT COST
    6. COMPONENTS OF COST
    7. OBSOLESCENCE
    8. THE RELATIONSHIPS AMONG COST, OBSOLESCENCE, AND VALUE
    9. PHYSICAL DETERIORATION
    10. FUNCTIONAL (TECHNOLOGICAL) OBSOLESCENCE
    11. ECONOMIC (EXTERNAL) OBSOLESCENCE
    12. APPLYING THE COST APPROACH
    13. TAXES UNDER THE COST APPROACH
    14. LIMITATIONS OF THE COST APPROACH
    15. CONCLUSION
    16. NOTES
  13. CHAPTER 7: The Market Approach
    1. APPLYING THE MARKET APPROACH WHEN MEASURING THE FAIR VALUE OF AN ENTITY OR A REPORTING UNIT OF AN ENTITY
    2. CONCLUSION
    3. NOTES
  14. CHAPTER 8: The Income Approach
    1. INTRODUCTION
    2. DISCOUNTED CASH FLOW METHOD
    3. MULTIPERIOD EXCESS EARNINGS METHOD
    4. FASB CONCEPTS STATEMENT 7
    5. RATES OF RETURN UNDER THE INCOME APPROACH
    6. THE INCOME INCREMENT/COST DECREMENT METHOD
    7. PROFIT SPLIT METHOD
    8. BUILD‐OUT, OR GREENFIELD, METHOD
    9. WEIGHTED AVERAGE COST OF CAPITAL CALCULATION
    10. CONCLUSION
    11. NOTES
  15. CHAPTER 9: Advanced Valuation Methods for Measuring the Fair Value of Intangible Assets
    1. INTRODUCTION
    2. LIMITATIONS OF TRADITIONAL VALUATION METHODS
    3. REAL OPTIONS
    4. USING OPTION PRICING METHODOLOGIES TO VALUE INTANGIBLE ASSETS
    5. BLACK‐SCHOLES OPTION PRICING MODEL
    6. BINOMIAL OR LATTICE MODELS
    7. MONTE CARLO SIMULATION
    8. DECISION TREE ANALYSIS
    9. CONCLUSION
    10. NOTES
  16. CHAPTER 10: Measuring the Remaining Useful Life of Intangible Assets in Financial Reporting
    1. FASB GUIDANCE ON DETERMINING THE REMAINING USEFUL LIFE
    2. CONSIDERATIONS IN MEASURING USEFUL LIVES OF INTANGIBLE ASSETS
    3. PRACTICAL GUIDANCE FOR ESTIMATING AND MODELING THE USEFUL LIFE
    4. CONCLUSION
    5. NOTES
  17. CHAPTER 11: Fair Value Measurement for Alternative Investments
    1. INTRODUCTION
    2. INVESTMENTS IN CERTAIN ENTITIES THAT CALCULATED NET ASSET VALUE PER SHARE
    3. AICPA TECHNICAL PRACTICE AID
    4. AICPA GUIDANCE FOR DETERMINING THE FAIR VALUE OF INVESTMENT
    5. AICPA ACCOUNTING AND VALUATION GUIDE, VALUATION OF PORTFOLIO COMPANY INVESTMENTS OF VENTURE CAPITAL AND PRIVATE EQUITY FUNDS AND OTHER INVESTMENT COMPANIES
    6. INTERNATIONAL PRIVATE EQUITY AND VENTURE CAPITAL VALUATION GUIDELINES
    7. COMMON VALUATION METHODOLOGIES OF MEASURING THE FAIR VALUE OF THE FUND'S INVESTMENT PORTFOLIO
    8. CONCLUSION
    9. NOTES
  18. CHAPTER 12: Contingent Consideration
    1. CONTINGENT CONSIDERATION: EARN‐OUTS IN BUSINESS COMBINATIONS
    2. ACCOUNTING FOR CONTINGENT CONSIDERATION
    3. CONCLUSION
    4. NOTES
  19. APPENDIX 12A: Measuring the Fair Value of a Nonfinancial Contingent Liability— Example of a Loan Guarantee
    1. THE JORDAN LEE FUND GUARANTEE OF TOWNSEND FARM DEVELOPMENT, LLC
    2. NOTES
  20. CHAPTER 13: Auditing Fair Value Measurement
    1. AUDITING STANDARDS
    2. THE AUDIT PROCESS
    3. EVOLUTION OF AUDIT STANDARDS FOR FAIR VALUE MEASUREMENTS AND DISCLOSURES
    4. AUDITING STANDARD 2501, AUDITING ACCOUNTING ESTIMATES, INCLUDING FAIR VALUE MEASUREMENTS
    5. AUDITING STANDARDS FOR AUDITOR'S USE OF THE WORK OF SPECIALISTS
    6. PROPOSED INTERNATIONAL STANDARD ON QUALITY MANAGEMENT 1
    7. PRACTICAL GUIDANCE FOR AUDITORS
    8. PCAOB STAFF AUDIT PRACTICE ALERT NO. 9, ASSESSING AND RESPONDING TO RISK IN THE CURRENT ECONOMIC ENVIRONMENT
    9. AICPA NONAUTHORITATIVE GUIDANCE
    10. THE APPRAISAL FOUNDATION
    11. CONCLUSION
    12. NOTES
  21. APPENDIX 13A: Auditing Fair Value Measurement in a Business Combination
    1. AUDITOR QUESTIONS
    2. GENERAL
    3. INCOME APPROACH
    4. COST APPROACH
    5. MARKET APPROACH—GENERAL
  22. APPENDIX 13B: Auditing Fair Value Measurement in a Goodwill Impairment Test
    1. GENERAL
    2. INCOME APPROACH
    3. WACC
    4. THE MARKET APPROACH
  23. CHAPTER 14: Fair Value Measurement Case Study1
    1. LEARNING OBJECTIVES
    2. BUSINESS BACKGROUND AND FACTS—DYNAMIC ANALYTIC SYSTEMS, INC.
    3. NOTES
  24. APPENDIX 14A: Suggested Case Study Solutions
    1. NOTE
  25. APPENDIX 14B: Model Fair Value Measurements Curriculum
    1. ACKNOWLEDGMENTS
    2. AICPA STAFF
    3. ABOUT US
    4. PREFACE
    5. MODEL FAIR VALUE MEASUREMENT CURRICULUM
    6. APPENDICES AND EXAMPLES
    7. NOTE
  26. Glossary of International Business Valuation Terms
    1. A
    2. B
    3. C
    4. D
    5. E
    6. F
    7. G
    8. I
    9. K
    10. L
    11. M
    12. N
    13. O
    14. P
    15. R
    16. S
    17. T
    18. U
    19. V
    20. W
  27. Bibliography
  28. About the Author
  29. Index
  30. End User License Agreement

Product information

  • Title: Fair Value Measurement, 3rd Edition
  • Author(s): Mark L. Zyla
  • Release date: January 2020
  • Publisher(s): Wiley
  • ISBN: 9781119191230