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.
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 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.
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.”