Companies that are required to prepare financial statements for external reporting face complex and serious issues. Failing to timely file financial statements or comply with the reporting requirements could lead to fines, lawsuits, or other damaging consequences. Moreover, with fair value accounting (also known as the mark-to-market accounting practice) becoming more prevalent today, financial executives responsible for filing the financial statements have a more demanding role than ever before. While fair value accounting might provide a more accurate asset and liability valuation on an ongoing basis to users of the financial statements, financial executives are not necessarily prepared to accurately determine fair value of all assets and liabilities.
Fairness opinions are a fact of life in transactions involving public companies. There is a consensus that the fairness opinion is a powerful tool in protecting boards of directors from liability related to a transaction. For a public company, a board of directors’ careful consideration of an independent fairness opinion can be the strongest protection against accusations of, and liability for, fiduciary failure. But, why do privately held companies need a fairness opinion?
Change is hard to initiate even when we know the results will be better for us. This is true when there are signs that our ESOP valuation firm is no longer providing the necessary professional assistance. Our reluctance fades however, if warning signs begin pointing to increased risks for our company.
An interesting study exists called Roads to Resilience, which is a 2014 report by the UK’s Cranfield School of Management on behalf of the UK insurance and risk consultancy, Airmic. The basic thesis is that opportunity is the upside of risk, and that seizing risk-driven opportunities requires a decisive and rapid response, which in turn requires empowered teams, practiced processes and flexible resources.
Late last year Congress passed the final version of the Tax Cuts and Jobs Act of 2017. Although the plan does not alter ESOP legislation, there are some indirect effects on ESOPs. Some of the changes will impact the valuations of ESOP-owned companies.
The measurement of goodwill and subsequent tests for impairment under purchase accounting rules is complicated and sometimes a source of controversy between companies and their auditors and advisors. Fortunately, the Financial Accounting Standards Board (FASB) has come to understand that the cost of the rigorous analysis required does not meet the cost/benefit constraint that lies at the heart of accounting rules. Earlier this year FASB issued revised guidance for goodwill impairment testing designed to make the entire process more straightforward and economical.
Death, taxes – even divorce – are some of the more sobering circumstances that underscore the need for an independent valuation. Even when the motivation is more upbeat – such as a qualified buyer with a serious offer – the existence of an independent appraisal can provide the parties with a sense of reliability.
At some point during the lifecycle of your business, you will no doubt determine that you need to know the value of your business.
You may desire a valuation for business planning purposes, or you may require a valuation for IRS or regulatory reasons. No matter what the reason for the valuation, knowing how to select the right valuation professional for your particular needs, and what to expect during the valuation process will lead you to a successful outcome.