Transcript Fair Value Measurement

Appraisal Institute Annual Meeting
Valuation for Financial Reporting
July 2013
Panelists
Eric B. Garfield, MAI, CCIM –
Bob Dietrich, MAI, CRE –
David Swanson, MAI –
Louis Yorey, MAI Kyle Redfearn, MAI -
WTAS LLC
Navigant
Deloitte
PwC
CBRE
Generally Accepted Accounting Principles
Eric B. Garfield, MAI, CCIM – WTAS LLC
GAAP and the need for Valuations:
AICPA Statements on Auditing Standards (SAS) 101, Paragraph 4 “Management is responsible for making the fair value measurements and
disclosure included in the financial statements.”
Paragraph 39 – “The auditor should test the data used to develop the fair value
measurements and disclosures and evaluate whether the fair value
measurements have been properly determined from such data.”
--Auditor’s Role: Determine whether the company’s valuation expert’s opinion
is “reasonable.”
International Financial Reporting Standards
Eric B. Garfield, MAI – WTAS LLC
IFRS and the need for Valuations:
1. Single-set of accounting standards to stream-line process (in theory);
2. Goodwill may be subject to ANNUAL impairment testing (requiring annual
valuations);
3. Assets “Marked to Market” as a result of annual valuations.
Application of VFR
VFR is covered under the following Financial Accounting Standards
Board (FASB) Standards:
Statement of Financial Accounting Standards (SFAS) 141R: Business Combinations
(Accounting Standards Codification (“ASC”) 805: Business Combinations)
(Revised December 2007);
SFAS 157 (ASC 820): Fair Value Measurement (ASC 820: Fair Value Measurement and
Disclosure) (Nov. 15, 2007 (Nov. 15, 2008 for Tangible Asset’s);
SFAS 142 (ASC 350): Goodwill and Other Intangible Assets (ASC 350: Intangible –
Goodwill and Other) (June 2001); and
SFAS 144 (ASC 360): Accounting for the Impairment or Disposal of Long-Lived
Assets (ASC 360: Property, Plant, and Equipment (August 2001).
Definition of Fair Value
-- “The Price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participant at the
measurement date.” (ASC 820 formerly known as SFAS 157).
--“The amount at which an asset (or liability) could be bought (or incurred) or
sold (or settled) in a current transaction between willing parties, that is, other
than in a forced or liquidation sale.” (ASC 350)
Orderly Transaction and Price: SFAS 157 (ASC 820) clarifies that an orderly
transaction assumes exposure to the market for a period of time which is
“usual and customary” for similar assets (or liabilities) and which is not a
forced liquidation or distressed sale.
Market Participants are: Independent, Knowledgeable, Reasonable, With
Means, Are Willing and Motivated.
SFAS 157 (ASC 820) further states that Fair Value assumes the acquired asset
will be used at its Highest and Best Use.
Highest and Best Use & Value In Use
H&BU - “The physically possible, legally permissible, and financially feasible at
the measurement date. In broad terms, highest and best use refers to the use
of an asset by market participants that would maximize the value of the asset
or the group of assets within which the asset would be used. Highest and best
use is determined based on the use of the asset by market participants, even if
the intended use of the asset by the reporting entity is different.” (ASC 820)
SFAS 157 (ASC 820) recognizes that there is a difference in value between an
in-use and in-exchange premise and provides guidance on how to determine
which value premise is appropriate under the prevailing circumstances.
Highest and Best Use & Value In Use
What is Value In Combination?
Louis Yorey, MAI - PwC
Highest and Best Use & Value In Use
In-exchange (as utilized in SFAS 157 (ASC 820)): A value assigned to an asset
assuming that the asset is sold as on a stand-alone basis and independent of
the other assets in its group.
In–use (as utilized in SFAS 157 (ASC 820)): A value assigned to an asset
assuming that the asset is sold as part of an on-going operation and assumes
the asset is sold and consequently operated with the other assets in its group.
If the asset would provide maximum value to a market participant in
combination with other assets (i.e., its H&BU is to be used as part of an
on-going operation), then an in-use premise should be utilized.
If the asset would provide maximum value to a market participant as a
standalone asset (i.e., its H&BU is to be sold on a standalone basis and
removed), due to a lack of income support or for any other reason, then
an in-exchange premise should be used.
Appraisal Report Format for VFR
David Swanson, MAI – Deloitte
1.
2.
3.
4.
5.
6.
Oral Report?
Schedules / Letter of Value Summary?
BPO?
Restricted Use?
Summary Narrative?
Self-Contained?
VFR Appraisal Review
Kyle Redfearn, MAI - CBRE
1. Who are the Intended Users?
2. What is the Intended Use?
3. Do the Intended Users perform an Appraisal Review of your work?
4. Are the Intended Users “Competent” to review VFR Appraisals?
5. What report format does CBRE use for VFR?
Sample
Questionnaire
For take-home
study:
Douglas R. Kreieser, ASA, MRICS,
Valuation Strategies, May/June
2009
Audit Review Red Flags
1.
2.
3.
4.
5.
6.
Valuations that stray from USPAP;
Inconsistencies, Type-os, Grammatical Errors;
Valuation conclusions that deviate too much from historical accounting records;
Improper Definition of Value;
Improper treatment of Obsolescence;
“Trending and Bending” without an empirical basis; and
7.Lack of Cooperation.
What is AI Doing to Prepare Us?
Terry Dunkin, MAI – Dunkin Advisors (AI Past President)
1. What is the history of AI and VFR training / preparedness?
2. How can we increase our competency for VFR work?
3. What training is available now? Future?
When will IFRS and GAAP Converge?
1. Will they converge?
2. When?
3. How will the convergence affect the demand for valuations?
Questions & Answers
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