International Financial Reporting Standards and International Accounting Standards currently require valuation services within the following main areas:
- Fair value Reporting
- Business Combinations
- Impairment Reviews
Appraisal Associates professionals are experienced in appraising the tangible and intangible assets for purposes of financial reporting.
It is essential to utilize a valuation firm whose work will be accepted by auditors, whose report stands up to auditor scrutiny, and who will be available years later should an issue arise.
Our valuation services are well received by the auditors we have encountered, who have routinely referred Appraisal Associates to their clientele for valuation advice. The Appraisal Associates provides detailed supporting documentation for use with auditors. This allocation may also be used to support loan covenants or, a company may be able to utilize this information to maximize its tax planning.
Fair Value Reporting
IAS 16 requires non current property and plant assets held for the production or supply of goods or services to be recognized initially in the balance sheet at cost and thereafter carried in accordance with either the cost model or fair value model. Other accounting standards that require or permit the valuation of tangible assets include:
- Investment Property – IAS 40
- Leases – IAS 17
- Impairment of Assets – IAS 36
- Inventories – IAS 2
- Business Combinations – IFRS 3
- Non current Assets Held for Sale and Discontinued Operations –IFRS 5
In order to meet specific financial reporting requirements, users of the financial statements usually require application of the International Valuation Standards – IVS, as promulgated by the International Valuation Standards Committee – IVSC. The principal IVSC objective is to formulate and publish, in the public interest, valuation Standards and procedural guidance for the valuation of assets for use in financial statements. The objective of those Standards and Guidance is to explain the principles that apply to valuations prepared for use in financial statements and related accounts of business entities. Appraisers undertaking work of this nature should have an understanding of the accounting concepts and principles underlying the relevant International Financial Reporting Standards.
IFRS 3 requires all business combinations to be accounted for by applying the purchase method. This is consistent also with SFAS 141, the standard applicable for US accounting purposes. IFRS 3 and SFAS 141 apply to all listed companies in the EC and all SEC registrants respectively.
The standards require the buyer to recognize all identifiable assets, liabilities and contingent liabilities which have been acquired in any transaction at their fair values at the acquisition date. This includes all tangible and intangible assets and goodwill. Goodwill and intangible assets with indefinite lives are no longer amortized but must then be tested annually for impairment.
The Appraisal Associates specializes in the identification of those intangible assets involved in an acquisition. The intangible assets which are commonly identified are trademarks, brands, patents, copyrights, technology, customer contracts, customer relationships, databases, software, mailing lists and development assets. We undertake a purchase price allocation exercise which results in a valuation for each of the identifiable intangible assets and a value for the residual goodwill.
We also assist our clients in allocating the residual goodwill to the reporting units which is a key consideration for future impairment testing (See Impairment Reviews). Our valuation also includes an assessment of the appropriate economic lives for each of the intangible assets assigned a finite life.
The Appraisal Associates has extensive experience of undertaking purchase price allocations for business combinations, having worked for both local and international companies. Our independence is paramount for commissioning such work. Under the strict independence rules which apply to all listed companies worldwide, auditors are prohibited from undertaking this valuation work.
Impairment Reviews - IAS 36
IAS 36 requires annual impairment reviews for Investment property, Goodwill and Intangible assets with indefinite lives such as brands and trademarks
IAS 36 requires an entity to test goodwill acquired in a business combination for impairment annually. This approach is consistent with SFAS 142, the standard applicable for US reporting purposes and is in line with the requirements of IFRS 3 and SFAS 141.
IAS 36 requires companies to ensure that fixed assets and goodwill are recorded in the financial statements at no more than their recoverable amount and that any resulting impairment is charged to the profit and loss account.
The Appraisal Associates, a fully independent firm, specializes in valuing both businesses and intangible assets for impairment reviews. We have undertaken such impairment reviews for both local and international accounting purposes. Auditors are prohibited from undertaking impairment reviews under the strict independence rules applying to all listed companies worldwide.