Winter 2008


Focus on Management Information and Strategic Planning Insights

Editor for This Issue: John C. Ramirez

Management Information Insights

What Financial Advisers Need to Know About SFAS No. 157 Fair Value Measurements
John C. Ramirez and Robert F. Reilly
ESOP financial advisers rely on employer corporation financial statements for stock valuation, feasibility analysis, fairness opinion, and other purposes. Therefore, ESOP financial advisers should be aware of the basis for the preparation of the sponsor company financial statements. The Financial Accounting Standards Board recently issued SFAS No. 157, Fair Value Measurements. This FASB statement provides a new definition of fair value and significant valuation professional guidance with regard to the measurement of fair value. Financial advisers should be aware of how this Statement does (and does not) affect employer corporation financial statements. And, financial advisers (and other parties who rely on ESOP sponsor company financial statements) should know when fair value measurements should be (and should not be) used for ESOP stock valuation purposes.

Implications of SFAS No. 143, Accounting for Asset Retirement Obligations, on Tangible Asset Cost Approach Valuation Analyses
S. Scott Cobb and Marko Beric
Valuation analysts using the cost approach to estimate the value of a company’s tangible assets should be familiar with the provisions of Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 addresses the accounting for (1) tangible long-lived asset retirement obligations and (2) the associated tangible asset retirement costs. This discussion will: (1) summarize the provisions of SFAS No. 143, (2) summarize the application of the cost approach to tangible asset valuation, and (3) address the SFAS No. 143–related factors that the valuation analyst should consider when applying the cost approach to estimate tangible asset values.

Strategic Planning Insights

ESOP Planning Opportunities—Staying on the “Cutting Edge”
Louis H. Diamond, CPA, Esq.
An employee stock ownership plan (ESOP) ownership structure provides both (1) personal financial planning opportunities (to the selling shareholders and the ESOP participants) and (2) corporate planning opportunities (to the employer corporation). This discussion summarizes numerous “cutting edge” planning opportunities related to ESOP employer corporation stock purchase, financing, and ownership transactions.

Professional Standards in Management Information and Strategic Planning Engagements
Curtis R. Kimball and Robert F. Reilly
It is often quite obvious that the AICPA Statement on Standards for Valuation Services (the “Statement”) applies to a valuation engagement performed for transaction, taxation, financing, ESOP, bankruptcy, and litigation purposes. In these engagements, the valuation analyst issues a formal valuation report that is typically relied upon by a third party. It is not quite so obvious that the statement applies to a valuation engagement performed for management information and strategic planning purposes. The valuation report is typically informal, and the report is typically not relied on by anyone other than the client. This discussion summarizes numerous types of strategic planning valuation engagements where the Statement professional guidance does apply.

Intellectual Property Planning Insights

Intellectual Property Management Information Considerations
Robert P. Schweihs and Katherine A. Gilbert
Intangible assets (and particularly intellectual property assets) offer numerous strategic planning opportunities to their owners and/or operators. However, in order to exploit these strategic planning opportunities, the owner/operators (and their professional advisers) need to have a sufficient understanding of (1) what is (and what is not) an intangible asset and (2) what factors contribute to the value (or transfer price or economic damages) of an intangible asset. With a particular focus on intellectual property analysis, this discussion summarizes the management information considerations related to intangible assets.

Intellectual Property Intercompany Transfer Price Planning Considerations
Robert F. Reilly and Chip Brown
A multinational corporation often has numerous strategic planning opportunities with regard to the ownership and operation of its intellectual property (IP). For example, the multinational corporation could develop and own the IP in one country and then use (operate) the IP in another country. In such instances, the multinational corporation should establish a reasonable intercompany transfer price related to the hypothetical license between the related party IP owner/licensor and the related party IP operator/licensee. This discussion summarizes the procedural guidance provided by the Internal Revenue Code Section 482 Regulations with regard to the calculation of a fair, arm’s-length price for the intercompany transfer of IP between related-party controlled taxpayers.

Professional Standards and Practices Insights

The Financial Adviser and the AICPA Statement on Standards for Valuation Services
Cory R. Chiovari and Robert F. Reilly
Financial advisers perform business and stock valuations for numerous purposes. These purposes include: ESOP formation employer stock purchase analysis, estimating the employer stock redemption prices for ESOP participants who retire or terminate employment, fair value and financial accounting compliance, divestiture and corporate restructuring analysis, merger and acquisition transaction fairness and solvency analysis, not-for-profit entity private inurement analysis, intergenerational wealth transfer planning, gift and estate tax planning and compliance, income tax deduction substantiation, creating and implementing buy/sell agreement provisions, bankruptcy and reorganization analysis, shareholder oppression and shareholder rights litigation, and other commercial litigation matters. This discussion summarizes the new AICPA professional standards related to the valuation of businesses, securities, and intangible assets.

PPA 2006 Valuation Qualification and Valuation Analyst Penalty Issues
Marko Beric and Robert F. Reilly
Valuation analysts who practice in the tax-related arena should be familiar with the valuation provisions of the Pension Protection Act of 2006 (PPA). The PPA provides new statutory definitions of the terms “qualified appraisal” and “qualified appraiser” for Internal Revenue Code Section 170 charitable contribution purposes. Related to all taxation matters (income, gift, and estate), the PPA (1) provides expanded authority to the Service to sanction valuation analysts and (2) adds additional penalties to analysts for valuation misstatements related to tax returns or claimed tax refunds. In addition, Internal Revenue Service Notice 2006-96 provides PPA implementation guidance related to (1) analyst’s appraisal credential requirements and (2) analyst compliance with “generally accepted appraisal standards.”