The Professional′s Guide to Fair Value – The Future of Financial Reporting

Preface xi
<p>Acknowledgments xv</p>
<p>Chapter 1: Significance of Value 1</p>
<p>Business Uses for Valuation 2</p>
<p>Mergers and Acquisitions 2</p>
<p>Financial Reporting 3</p>
<p>Investment Bankers versus Valuators 8</p>
<p>Valuation Requirements 8</p>
<p>Litigation Risks 9</p>
<p>Ten Commandments of Valuation 10</p>
<p>Chapter 2: Fair Value Concept 13</p>
<p>Relevant Pronouncements 14</p>
<p>Definitions 14</p>
<p>Market Participants 15</p>
<p>Fair Value Accounting 16</p>
<p>Revaluation under IFRS 16</p>
<p>Other Types of Value 17</p>
<p>Valuation Principles 19</p>
<p>Reporting and Cash–Generating Units 20</p>
<p>Chapter 3: Fair Value Framework 21</p>
<p>Stage 1: Determine the Unit of Account 22</p>
<p>Stage 2: Evaluate the Premise of Value 24</p>
<p>Stage 3: Assess the Principal Market 29</p>
<p>Stage 4: Establish the Most Advantageous Market 30</p>
<p>Stage 5: Select Appropriate Valuation Methods 33</p>
<p>Stage 6: Estimate Fair Value Conclusions 37</p>
<p>Chapter 4: Taming the Future 41</p>
<p>Definitions 42</p>
<p>Effect of Market Participants Assumptions 43</p>
<p>Scenario Analysis 45</p>
<p>Scenario Implications 49</p>
<p>Chapter 5: Projecting What Is to Come 53</p>
<p>Base the Future on the Past 54</p>
<p>The Truth Is in the Parts 56</p>
<p>Avoid Unnecessary Risks 59</p>
<p>Garbage In, Garbage Out 63</p>
<p>Believable and Likely Conclusions 66</p>
<p>Quality of Earnings 67</p>
<p>Conclusion 68</p>
<p>Chapter 6: The Market Approach to Fair Value 69</p>
<p>Nature of Markets 70</p>
<p>Classifying Assets 72</p>
<p>Comparable Transactions 74</p>
<p>Guideline Entities 76</p>
<p>Guideline Entities Example 79</p>
<p>Licensed Asset Example 82</p>
<p>Conclusion 84</p>
<p>Chapter 7: The Cost Approach to Fair Value 85</p>
<p>Current Replacement Cost 85</p>
<p>Deductions 87</p>
<p>Integrating the Factors 90</p>
<p>Residual Value 92</p>
<p>Useful Lives 92</p>
<p>Valuing Intangible Assets by the Cost Approach 97</p>
<p>Conclusion 103</p>
<p>Chapter 8: The Income Approach to Fair Value 105</p>
<p>Capitalization Methods 106</p>
<p>Income Approach Discounting 110</p>
<p>Terminal Amounts 115</p>
<p>Application to Intangible Assets 116</p>
<p>Chapter 9: Sources of Value Profits 121</p>
<p>Structure of Businesses 121</p>
<p>Innovation 122</p>
<p>DuPont Analyses 129</p>
<p>Chapter 10: Sources of Value Risks 135</p>
<p>Reducing Risks 136</p>
<p>Continual Monitoring and Testing 136</p>
<p>Dealing with Biases 138</p>
<p>Risk Rate Component Model 139</p>
<p>Intellectual Capital Value Drivers 146</p>
<p>Conclusion 147</p>
<p>Chapter 11: Valuing Liabilities 149</p>
<p>Liabilities Transferred Rather Than Settled 150</p>
<p>Asset Retirement Obligations 157</p>
<p>Contingent Liabilities 158</p>
<p>Chapter 12: Business Combinations 161</p>
<p>Do Mergers Pay Off? 162</p>
<p>Why Merge? 163</p>
<p>Determination of Synergies 166</p>
<p>Intrinsic and Investment Values 167</p>
<p>Quantification 167</p>
<p>Chapter 13: Purchase Price Allocation 173</p>
<p>Stage 1: Determine the Acquirer 174</p>
<p>Stage 2: Establish the Consideration s Fair Value 176</p>
<p>Knowledge of the Industry 178</p>
<p>Stage 3: Identify All the Items Involved 180</p>
<p>Stage 4: Select Appropriate Valuation Techniques 188</p>
<p>Stage 5: Estimate Fair Values and Reconcile Rates of Return 190</p>
<p>Conclusion 192</p>
<p>Chapter 14: Impairment 193</p>
<p>Reporting Units 194</p>
<p>Cash–Generating Units 196</p>
<p>Goodwill 197</p>
<p>Allocations 198</p>
<p>GAAP Long–Lived Assets Impairment Test 198</p>
<p>IFRS Impairment Test 200</p>
<p>GAAP Goodwill Impairment Test 202</p>
<p>Chapter 15: The Auditor s Blessing 207</p>
<p>Auditing Fair Values 208</p>
<p>Conclusion 220</p>
<p>About the Author 221</p>
<p>Index 223</p>