Financial Reporting and Compliance Services

Purchase Price Allocation (ASC 805)

When a business acquisition occurs, the accounting is governed by ASC 805 – Business Combinations (formerly SFAS 141R). ASC 805 requires that each asset and liability acquired in a business combination be recorded at fair value as of the acquisition date, including internally-developed intangible assets of the target company that may not have been previously reflected on the books. The applicable international standard for business combinations is IFRS 3 that sets similar requirements.

Fair Value Measurement (ASC 820)

ASC 820, Fair Value Measurements and Disclosures, requires or permits fair value measurements or disclosures and provides a single framework for measuring fair value and requires disclosures about fair value measurement. ASC 820 defines fair value on the basis of an "exit price" notion and uses a "fair value hierarchy," which results in a market-based — rather than entity-specific — measurement.

Stock Based Compensation (ASC 718)

Under ASC 718 all equity awards granted to employees must be valued and expensed for using a valuation model to determine the fair value of the award on its issuance date. The guidance further states that the fair value of the award should be allocated over the requisite service period of the equity award. Acceptable valuations methods used to determine the fair value of equity awards include the Black-Scholes Option Pricing Model, the Lattice Model, and the Monte Carlo Model. An award's value is then expensed using an acceptable amortization method.

Goodwill Impairment (ASC 350)

Under generally accepted accounting principles (GAAP), the acquirer in the purchase of a business is required to allocate the purchase price to the tangible and identifiable intangible acquired as part of the transaction.  Once the process, typically referred to as a “purchase price allocation” under ASC 805, is complete, GAAP further requires that any remaining unallocated purchase price  be recorded as goodwill.  Once the goodwill and intangible asset values are determined, however, the accounting for these items is not done – they must be tested for impairment on at least an annual basis.  The accounting for intangible asset impairment testing is governed by ASC 350 – Intangibles – Goodwill and Other.

Impairment of Long-Lived Assets (ASC 360)

ASC Topic 360, Property, Plant, and Equipment addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of. ASC 360 provides general guidelines as to when an asset (asset group) should be tested for impairment. Specifically, ASC 360 indicates that impairment testing should be completed whenever events or changes in circumstances indicate the asset’s carrying value may not be recoverable. ASC 360 requires that a company recognize an impairment loss if, and only if, the carrying amount of a long-lived asset (asset group) is not recoverable from the sum of the undiscounted cash flows expected to result from the use and eventual disposal of the asset (the “Recoverable Amount”) and if the carrying amount exceeds the asset’s Fair Value.

Valuation of Portfolio Company Investments (ASC 946)

Pursuant to ASC 946, “An investment company shall measure investments in debt and equity securities subsequently at fair value.” FASB ASC 820 establishes a framework for measuring fair value and requires disclosures about fair value measurements. Investment companies that fall under the scope of ASC 946 include private equity funds, venture capital funds, hedge funds, and business development companies.