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Fair Value Measurement: Practical Guidance and Implementation, 2nd Edition

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FAIR VALUE MEASUREMENT

Practical Guidance and Implementation

"Writing Fair Value Measurement was a monumental task fraught with controversy not only in the U.S., but also abroad. Having coauthored a book with Mark as well as written one myself, I was even more impressed that Mark was able to navigate these fair value minefields and produce a work that will be a tremendous help to accountants and non-accountants alike. If you are looking for a 'one-stop' book on fair value measurement, this is it!"

—Neil J. Beaton, CPA/ABV, CFA, ASA, Managing Director, Valuation Services, Alvarez & Marsal

"In recent years, the FASB and the IASB have added many requirements for various assets and liabilities to be measured at fair value. In this book, Zyla clearly describes how to implement fair value measurement and how investors and creditors should interpret it. The crisp writing and illuminating analysis will help readers to grasp the essence of fair value accounting and to apply it wisely."

—J. Edward Ketz, Associate Professor of Accounting, Pennsylvania State University

"The focus of the book is on fair value measurement based on level 3 inputs. This is a critical area of valuations for financial reporting due to a false comfort given by routine application of evaluating models and assumptions without real possibilities of calibration. Mark Zyla offers an extraordinary help in understanding the reliability of the inputs and the outputs of the different methodologies and the inherent biases in each of them. The book is a precious support for better valuation both in U.S. GAAP and in IFRS fair value reporting."

—Mauro Bini, Full Professor of Corporate Finance, Bocconi University; Chairman, Management Board OIV (Organismo Italiano di Valutazione) Essential guidance on the fair value measurement process

Now in a second edition, Fair Value Measurement: Practical Guidance and Implementation helps you succeed in understanding the fair value accounting rules that entities must follow. The result is a resource that you can rely on to understand the importance of valuation and the concepts that define it. In basic, nontechnical language, author Mark Zyla presents practical direction for best practices of financial valuation as well as for understanding the many FASB pronouncements involving fair value. An essential guide for auditors and valuation specialists, Fair Value Measurement: Practical Guidance and Implementation, Second Edition brings you up to speed on what fair value really means.

Table of Contents

  1. Cover
  2. Series
  3. Title Page
  4. Copyright
  5. Dedication
  6. Preface
  7. Acknowledgments
  8. Chapter One: The History and Evolution of Fair Value Accounting
    1. WHY THE TREND TOWARD FAIR VALUE ACCOUNTING?
    2. HISTORY AND EVOLUTION OF FAIR VALUE
    3. FAIR VALUE ACCOUNTING AND THE ECONOMIC CRISIS
    4. THE FASB AND IASB CONVERGENCE PROJECT
    5. THE FUTURE OF FAIR VALUE MEASUREMENT
    6. CONCLUSION
    7. NOTES
  9. Chapter Two: Fair Value Measurement Standards and Concepts
    1. FASB ASC 820, FAIR VALUE MEASUREMENT
    2. DISCLOSURES
    3. FAIR VALUE OPTION
    4. CONCLUSION
    5. NOTES
  10. Chapter Three: Business Combinations
    1. MERGERS AND ACQUISITIONS
    2. ACCOUNTING STANDARDS FOR BUSINESS COMBINATIONS'A BRIEF HISTORY
    3. ASC 805, BUSINESS COMBINATIONS
    4. OTHER BUSINESS COMBINATION HIGHLIGHTS
    5. SUBSEQUENT ACCOUNTING FOR GOODWILL AND OTHER INTANGIBLE ASSETS
    6. CONCLUSION
    7. NOTES
  11. Chapter Four: The Nature of Goodwill and Intangible Assets
    1. HISTORY OF INTANGIBLE ASSETS
    2. INTELLECTUAL PROPERTY
    3. ECONOMIC BASIS OF INTANGIBLE ASSETS
    4. IDENTIFICATION OF INTANGIBLE ASSETS
    5. USEFUL LIFE OF AN INTANGIBLE ASSET
    6. INTANGIBLE ASSETS AND ECONOMIC RISK
    7. GOODWILL
    8. ECONOMIC BALANCE SHEET
    9. CONCLUSION
    10. NOTES
  12. Chapter Five: Impairment
    1. EVOLUTION OF IMPAIRMENT TESTING
    2. APPLICABLE FASB GUIDANCE FOR IMPAIRMENT TESTING
    3. ACCOUNTING FOR THE IMPAIRMENT OF LONG‐LIVED ASSETS
    4. GOODWILL IMPAIRMENT TESTING
    5. TESTING OTHER INDEFINITE‐LIVED INTANGIBLE ASSETS FOR IMPAIRMENT
    6. CONCLUSION
    7. NOTES
  13. Appendix Five A: Example of a Qualitative Impairment
    1. FINANCIAL ACCOUNTING STANDARDS BOARD ASC 350,INTANGIBLES'GOODWILL AND OTHER
    2. PLANTRUST, INC.
    3. NOTES
  14. Chapter Six: The Cost Approach
    1. THE COST APPROACH UNDER FASB ASC 820, FAIR VALUE MEASUREMENT
    2. ECONOMIC FOUNDATION FOR THE COST APPROACH
    3. COST VERSUS PRICE VERSUS FAIR VALUE
    4. THE ROLE OF EXPECTED ECONOMIC BENEFITS IN THE COST APPROACH
    5. REPRODUCTION COST VERSUS REPLACEMENT COST
    6. COMPONENTS OF COST
    7. OBSOLESCENCE
    8. THE RELATIONSHIPS AMONG COST, OBSOLESCENCE, AND VALUE
    9. PHYSICAL DETERIORATION
    10. FUNCTIONAL (TECHNOLOGICAL) OBSOLESCENCE
    11. ECONOMIC (EXTERNAL) OBSOLESCENCE
    12. APPLYING THE COST APPROACH
    13. TAXES UNDER THE COST APPROACH
    14. LIMITATIONS OF THE COST APPROACH
    15. CONCLUSION
    16. NOTES
  15. Chapter Seven: The Market Approach
    1. MEASURING THE FAIR VALUE OF AN ENTITY USING A MARKET APPROACH
    2. CONCLUSION
    3. NOTES
  16. Appendix Seven A: Using the Guideline Transaction Method to Measure the Fair Value of a Privately Held (or Thinly Traded) Debt Security
  17. Chapter Eight: The Income Approach
    1. DISCOUNTED CASH FLOW METHOD
    2. MULTIPERIOD EXCESS EARNINGS METHOD
    3. FASB CONCEPTS STATEMENT 7
    4. RATES OF RETURN UNDER THE INCOME APPROACH
    5. THE INCOME INCREMENT/COST DECREMENT METHOD
    6. PROFIT SPLIT METHOD
    7. BUILD‐OUT METHOD, OR “GREENFIELD METHOD” (WITH AND WITHOUT)
    8. WEIGHTED AVERAGE COST OF CAPITAL CALCULATION
    9. CONCLUSION
    10. NOTES
  18. Chapter Nine: Advanced Valuation Methods for Measuring the Fair Value of Intangible Assets
    1. LIMITATIONS OF TRADITIONAL VALUATION METHODS
    2. REAL OPTIONS
    3. USING OPTION‐PRICING METHODOLOGIES TO VALUE INTANGIBLE ASSETS
    4. BLACK‐SCHOLES OPTION PRICING MODEL
    5. BINOMIAL OR LATTICE MODELS
    6. MONTE CARLO SIMULATION
    7. DECISION TREE ANALYSIS
    8. CONCLUSION
    9. NOTES
  19. Chapter Ten: The Remaining Useful Life of Intangible Assets
    1. FASB GUIDANCE ON DETERMINING THE REMAINING USEFUL LIFE
    2. CONSIDERATIONS IN MEASURING USEFUL LIVES OF INTANGIBLE ASSETS
    3. GUIDELINE USEFUL LIVES
    4. CONCLUSION
    5. NOTES
  20. Chapter Eleven: Fair Value Measurement for Alternative Investments
    1. INVESTMENTS IN CERTAIN ENTITIES THAT CALCULATED NET ASSET VALUE PER SHARE
    2. AICPA TECHNICAL PRACTICE AID
    3. AICPA GUIDANCE FOR DETERMINING THE FAIR VALUE OF INVESTMENT
    4. U.S. PRIVATE EQUITY VALUATION GUIDELINES
    5. FAIR VALUE MEASUREMENT FOR ALTERNATIVE INVESTMENT FUNDS
    6. CONCLUSION
    7. NOTES
  21. Chapter Twelve: Contingent Consideration
    1. CONTINGENT CONSIDERATION: EARN‐OUTS IN BUSINESS COMBINATIONS
    2. ACCOUNTING FOR CONTINGENT CONSIDERATION
    3. CONCLUSION
    4. NOTES
  22. Appendix Twelve A: Measuring the Fair Value of a Loan Guarantee
    1. THE JORDAN LEE FUND GUARANTEE OF TOWNSEND FARM DEVELOPMENT, LLC
    2. NOTES
  23. Chapter Thirteen: Auditing Fair Value Measurement
    1. AUDITING STANDARDS
    2. AUDIT STANDARDS FOR FAIR VALUE MEASUREMENTS AND DISCLOSURES
    3. THE AUDIT PROCESS
    4. AUDITING ESTIMATES IN FAIR VALUE MEASUREMENTS
    5. AU 328, AUDITING FAIR VALUE MEASUREMENTS AND DISCLOSURES
    6. PCAOB STAFF AUDIT PRACTICE ALERT NO. 2
    7. PCAOB STAFF AUDIT PRACTICE ALERT NO. 9
    8. SEC AUDIT GUIDANCE
    9. AICPA NONAUTHORITATIVE GUIDANCE
    10. THE APPRAISAL FOUNDATION
    11. CONCLUSION
    12. NOTES
  24. Appendix Thirteen A: Auditing a Business Combination or a Step 2 Impairment Test
    1. GENERAL
    2. INCOME APPROACH
    3. COST APPROACH
    4. MARKET APPROACH
  25. Appendix Thirteen B: Auditing a Step 1 Goodwill Impairment Test
    1. GENERAL
    2. INCOME APPROACH
    3. MARKET APPROACH
  26. Appendix Thirteen C: Survey of Fair Value Audit Deficiencies
    1. AUDIT DEFICIENCIES INCREASE IN DIFFICULT ECONOMIC TIMES
    2. PCAOB INSPECTIONS
    3. METHODOLOGY
    4. DESCRIPTION OF A DEFICIENCY
    5. AUDIT DEFICIENCY TRENDS
    6. FVM DEFICIENCIES
    7. IMPAIRMENT DEFICIENCIES
    8. CONCLUSION
    9. NOTES
  27. Chapter Fourteen: Fair Value Measurement Case Study
    1. LEARNING OBJECTIVES
    2. BUSINESS BACKGROUND AND FACTS'MOBILE APPS SOURCE, INC.
    3. NOTE
  28. Appendix Fourteen A: Suggested Case Study Solutions
  29. Information Request—ASC 350
    1. FINANCIAL INFORMATION
  30. Information Request for Business Combination—ASC 805
  31. Glossary
  32. Bibliography
  33. About the Author
  34. Index