Recent trends in fair value measurement for financial
reporting are changing the valuation
profession in a variety of ways, according to Accounting Today.
These trends would include the concerns expressed by the
Securities and Exchange Commission about valuation professionals who measure
fair value for public companies, the alternative fair value measurement
standards for private companies provided by the Private Company Council, the increasing
internationalization of the valuation profession and valuation standards as a
consequence of cross-border mergers and acquisitions and the development of
best practices by the valuation profession for fair value measurement in
financial reporting. In a 2011 speech to an American Institute of CPAs (AICPA) conference,
the SEC’s then-deputy chief accountant, Paul Beswick, expressed concern that,
unlike the accounting profession, the fragmented nature of the valuation
profession has given the profession a “lack of unified identity.” Beswick said
the lack of consistency of qualifications and experience of valuation
specialists performing valuations for financial reporting resulted in a lack of
analytical consistency in the valuation work product.
“There should be, similar to other professions, a single set
of qualifications with respect to education level and work experience, a
continuing education curriculum, standards of practice and ethics, and a code of
conduct,” Beswick said.
As a result of Beswick suggestion, the AICPA, the American
Society of Appraisers, the Royal Institute of Chartered Surveyors and the
Appraisal Foundation, along with the valuation practice leaders of several
international accounting firms, began formal discussions to address the
concerns of the SEC.
The discussions have resulted in a suggested framework for
providing common qualifications, oversight, performance requirements and
governance of valuation specialists assisting in valuations in financial
reporting.
The AICPA and the Appraisal Foundation have formed working
groups to address various aspects of fair value measurement for financial
reporting purposes. The AICPA recently issued accounting and valuation guides
on the fair value measurement of equity issued as compensation, testing
goodwill for impairment, and the financial reporting treatment of technology
under development. The AICPA also is working on a guide for best practices in
business combinations. Top of Form
The AICPA recently announced that its Governing Council had
approved the development of two new credentials, one for those who provide fair
value measurements for business and intangible assets, and another for those
who provide valuation of financial instruments. Other valuation professional
organizations are expected to provide similar credentials.
The Private Company Council, an advisory group to the
Financial Accounting Standards Board (FASB), has proposed two alternatives for
private companies that impact the fair value measurement of business
combinations and the testing of goodwill for impairment. Both proposals have
been endorsed by FASB.
Private companies can elect to report under the alternative
standards, or they can continue to report under previous standards. The
alternatives are designed to reduce “the cost and complexity” of measuring fair
value for private companies. The first alternative codified under Accounting
Standards Updates 2014-02 allows goodwill to be amortized for up to 10 years.
Goodwill only would be tested for impairment if a triggering event occurs.
Furthermore, the impairment test is a one-step test.
The second private company alternative relates to identified
intangible assets that are recognized in a business combination. Under ASU 2014-18,
a private company making an acquisition would continue to recognize identified
intangible assets acquired as part of the acquisition. However, two specific
intangible assets — customer relationships (unless the relationships can be
monetized in some manner) and non-competition agreements — would not be
recognized. Any value that would have been associated with these two assets
would likely fall to goodwill.
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