Health & Tax Implications of Changes in 2012 and 2013

Transcription

1 Valuation / Transaction Consulting / Real Estate Advisory / Fixed Asset Management Presentation to FEI New York Chapter Professional Development Session Leading / Thinking / Performing

2 Outline of Contents PCAOB and Audit Issues >> 4 Addi5onal Valua5on Support >> 5 Ongoing Evolu5on of US Financial Repor5ng >> 6 Intangibles Valua5ons and Financial Repor5ng >> 7 Impairment Tes5ng >> 8 IFRS Complex Accoun5ng Issues >> 10 Business Enterprise and Equity Valua5ons >> 11 Valua5ons for Tax Repor5ng >> 14 Ques5ons >> 15 American Appraisal >> 16 2

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4 Trending Topics PCAOB and Audit Issues For FY 2011, PCAOB found fault with a significant number of public company audits inspected. Involves eight major US audit firms Error rates ranged from 22.6% to 61.5% Relates to documentaaon PCAOB sees deficiencies in the valua5on process with respect to: Share- based payments Fair value measurements Business combinaaons and impairment of intangible assets PCAOB sees limited improvements in its review of 2012 and 2013 inspec5on results. 4

5 Trending Topics Addi5onal Valua5on Support As a result of PCAOB s increased scruany, auditors now require valuaaon firms and client management to provide greater support for: Impairment TesAng Tax vs. Stock Deal AVriAon Rates Customers ConAngent ConsideraAon Control Premium Finite vs. Indefinite- Lived Assets DeterminaAon of Primary Asset Obsolescence Factor - Technology 5

6 Trending Topics Ongoing Evolu5on of US Financial Repor5ng Q Q Q Q Q PCC and FAF began creaang financial reporang alternaaves for private companies. AICPA released Financial ReporAng Framework for Small- and Medium- Sized EnAAes. PCC proposed several changes to private company accounang for business combinaaons & impairment tesang. FASB officially endorsed PCC s proposed changes for private company impairment tesang. FASB issued an exposure drac to reduce the complexity of development- stage enaty financial reporang. 6

7 Trending Topics Intangibles Valua5ons and Financial Repor5ng In June 2013, PCC proposed several changes to GAAP for private company accounang. The changes exempt private companies from needing to separately recognize certain intangible assets acquired in a business combinaaon. They only need to recognize intangibles arising from noncancelable contractual terms or from other legal rights. In November 2013, FASB issued an exposure drac to reduce the complexity of development- stage enaty financial reporang. The following GAAP requirements were eliminated: Need to present incepaon- to- date informaaon on the statements of income, cash flows, and shareholders equity Need to label the financial statements as those of a development- stage enaty. Need to disclose a descripaon of the development- stage acaviaes in which the enaty is engaged Need to disclose in the first year in which the enaty is no longer a development- stage enaty that in prior years it had been in the development stage 7

8 Trending Topics Impairment Tes5ng Part 1 In October 2013, PCC sent several proposed changes on GAAP for private company accounang to FASB for endorsement. The changes allow for amorazaaon of goodwill and a simplified goodwill impairment tesang model. Step 2 of the goodwill impairment test would be eliminated, and private companies could measure goodwill impairment using Step 1 only. In addiaon, goodwill would be: - Tested for impairment only when a triggering event occurs - Tested for impairment at the enaty level as compared to the reporang unit level - AmorAzed over the life of the primary asset (typically < 10 years) In November 2013, FASB officially endorsed proposed changes to goodwill impairment tesang. Changes were incorporated into GAAP in January 2014 and will become effecave for private company reporang in December

9 Trending Topics Impairment Tes5ng Part 2 Cause of impairment tesang differences around the world (GAAP vs IFRS) US GAAP IFRS Rules-Based Accounting Approach vs. Principles-Based Accounting Approach Goodwill tested for impairment via two-step fair value test One-step goodwill impairment test, has both a fair value aspect and an asset-recoverability aspect FASB s issuance of step zero qualitaave assessment did introduce an element of a principles- based approach under US GAAP. IASB and FASB are conanuing their decade- long work to converge IFRS and US GAAP. Converging goodwill impairment accounang does not appear to be a near- term project. 9

10 Trending Topics IFRS Complex Accoun5ng Issues Fair Value IFRS 13, effecave January 1, 2013, addresses inconsistencies in the determinaaon and disclosure of fair value measurements under current IFRS. Control Under IFRS 10, to determine control, enaaes are required to make a detailed assessment based on substance, instead of whether or not an investor has a majority of equity holding in an investee. Business Combina5ons IFRS 3 revised in Requires the idenaficaaon of the acquirer, measuring the consideraaon transferred, the assets acquired and the liabiliaes assumed, and calculaang goodwill and any noncontrolling interests Impairment Standard IAS 36 focuses on the term recoverable amount. Requires enaaes to recognize an impairment loss to the extent that the carrying amount of a business enaty or asset exceeds that enaty s or asset s recoverable amount. Note: In September 2013, DeloiVe issued a white paper clarifying certain key issues in IFRS and its latest updates. 10

11 Trending Topics Business Enterprise and Equity Valua5ons What is Control Premium? Strategic Value Ocen Combined Strategic Premium Controlling Interest Value Premium For Control Minority Interest Discount Marketable Minority Interest Value Discount for Lack of Marketability Nonmarketable Minority Interest Value 11

12 Trending Topics Business Enterprise and Equity Valua5ons Recent News In April 2013, the Appraisal FoundaAon issued a discussion drac on the measurement and applicaaon of Market ParAcipant AcquisiAon Premiums ( MPAPs ), commonly referred to as control premiums. Some conclusions from this drac are as follows: Best pracaces include expressing as well as applying the MPAP in the context of a TIC foundaaon. Exclusive reliance on observed premium data from completed transacaons provides insufficient support for a concluded MPAP. MPAPs should be supported by reference to either enhanced cash flows or a lower required return from a market paracipant s perspecave. Benefits will not in all instances be reliably idenafiable, in such cases resulang in either no, or a small, premium. 12

13 Trending Topics Business Enterprise and Equity Valua5ons Evolu5on of Views on Appropriate Control Premium to Apply Old Way Terminology: Control Premium Methodology: Avg. Historical TransacAons Methodology: Use Mergermarket, Bloomberg, Capital IQ as sources for transacaons Terminology: MPAP New Way Methodology: QuanAfy Synergy Methodology: Calculate value of the enterprise assuming market paracipant discount rate and levels of growth/ profitability. Drawbacks of Historical Transac5on Data Available data on past transacaons can be limited Market condiaons at the Ame of a transacaon can have substanaal influence on control premiums (e.g., business cycle, compeaave environment, scarcity of the asset). Past transacaons are rarely directly comparable; every transacaon has its own set of unique circumstances (i.e., target companies with high levels of leverage ocen command lower control premiums than companies with lower levels of leverage, all else being equal). 13

14 Trending Topics Valua5ons for Tax Repor5ng In November 2013, the AICPA issued a white paper on Sec. 6695A of the Internal Revenue Code. The IRS was given new responsibiliaes to ensure the quality of appraisals and appraisers who provided informaaon in support of a taxpayer s federal tax filings: The IRS imposes penalaes on appraisals that lead to substanaal and gross valuaaon misstatements on returns. The AICPA and three other major business appraiser organizaaons are recognized by the IRS as having generally accepted appraisal standards. The IRS Appraisal Review Process is a formal system whereby the IRS reviews appraisals that have been idenafied as problemaac. IRS examiners ocen request the assistance of valuaaon experts to analyze an appraisal. The IRS s Office of Professional Responsibility may take acaon against an appraiser and the appraiser s firm for violaang professional standards. AutomaAc IRS audits can be triggered when the same firm conducts tax and valuaaon on behalf of a client. 14

15 QUESTIONS

16 American Appraisal

17 Professional Qualifica5ons Chun is a manager for the New York financial valuaaon pracace. Chun paracipates in the valuaaon of business enterprises and intangible assets. His assignments have involved due diligence, industry research, comparaave financial analysis of public and private companies and discounted cash flows. These valuaaon engagements have been for tax planning, financial reporang and purchase price allocaaon. Chun has served various industries such as beverages, confecaonery, defense, gics and novelty, healthcare, music recording and publishing, pharmaceuacals, power generaaon, socware and specialty chemicals. Chun joined American Appraisal as a consultant in 2007; he was promoted to senior consultant in 2010 and to his current posiaon in early Previously, he worked in the Real Estate Investment Trust (REIT) industry for New Plan Excel Realty Trust. Chun Tao, CFA Manager, Financial ValuaAon PracAce Contact InformaAon Phone: ctao@american- appraisal.com Educa5on New York University, Stern School of Business, Bachelor of Science - Finance and InternaAonal Business Professional Affilia5ons CFA InsAtute, Chartered Financial Analyst DesignaAon Office Address 1500 Broadway Suite 2401 New York, New York United States 17

18 Professional Qualifica5ons Carlo is a director for the financial valuaaon pracace. He conducts financial valuaaons including valuaaons of securiaes, intangible assets, and business valuaaons. He has performed numerous valuaaons of public and private businesses; intangible assets such as patents, unpatented technology, contracts, licenses, copyrights, computer socware, franchises, noncompeaaon agreements and customer relaaonships; and financial assets such as inventory. The purposes of these valuaaons and financial advisory services include, in part, mergers and acquisiaons, divesatures, financing, strategic planning, shareholder buy/sell agreements, corporate restructuring, dispute resoluaon, purchase price allocaaon, goodwill and asset impairment and other tax and financial reporang consideraaons. Carlo A. Carpino, CFA, ASA Vice President & Director, Financial ValuaAon PracAce Contact InformaAon Phone: ccarpino@american- appraisal.com Office Address 1500 Broadway Suite 2401 New York, New York United States Carlo has completed appraisals for purposes including purchase price allocaaons, mergers and acquisiaons, management planning, federal and mulanaaonal corporate tax planning, estate and gic taxaaon, accounang and tax reporang, liagaaon support, and bankruptcy. Much of his work has been for financial reporang purposes; however, he also has performed tax- related assignments in connecaon with the valuaaon of closely held securiaes and in accordance with guidance provided in IRC 482, IRC 382, IRC 1060 and IRC 409A. Carlo joined American Appraisal in Educa5on Drexel University, Master of Business AdministraAon - Finance Drexel University, Bachelor of Science - Business AdministraAon Professional Affilia5ons American Society of Appraisers, Accredited Senior Appraiser: Business ValuaAon CFA InsAtute, Chartered Financial Analyst 18

19 Professional Qualifica5ons Sandy is a managing director of business development for New Jersey, New York and eastern Pennsylvania. She provides valuaaon counseling to major public and private corporaaons, banks and law and accounang firms. She assists clients in resolving valuaaon issues for a wide range of purposes including possible purchase/sale, mergers, federal income tax, financial reporang, property tax, insurance, estate planning and other purposes. Sandy joined American Appraisal in She has been in her current posiaon for 15 years. In addiaon, she serves on the adjunct faculty of a local community college. Prior to joining American Appraisal, she spent several years with a private investment counseling firm and with Procter & Gamble. Educa5on The College of New Jersey, Bachelor of Science Business Temple University, Fox School of Business and Management Sandra L. Sours Vice President & Managing Director Contact InformaAon Phone: ssours@american- appraisal.com Office Address 650 College Road East Suite 1500 Princeton, New Jersey United States 19

20 Profile of American Appraisal Unparalleled Valua5on Experience A pioneer in formal valuaaon concepts and procedures and a leader in the profession since 1896 Culture of client focus annually serving over 4,000 clients and constantly adapang to their evolving needs Diversified valuaaon consulang services in business valuaaon, real estate valuaaon, machinery and equipment valuaaon, fixed asset management, insurance soluaons and transacaon consulang AcAve involvement with the valuaaon profession s standard- sewng organizaaons throughout the world SubstanAal diversified industry experase Exemplary reputaaon and credibility with clients, regulatory agencies and third- party reviewers Global Reach Our integrated, employee- owned global plaxorm and entrepreneurial culture facilitate responsive and nimble client service More than 900 employees operaang from offices strategically located in 24 countries in the Americas, Europe, the Middle East and Asia- Pacific Resident managing directors and consultants in every country assuring familiarity with local market forces, cultural norms and relevant local regulaaons and standards Complete Independence ValuaAon and related advisory services are our only business Unencumbered by conflicts of interest that may accompany certain professional service offerings Independence provides greater objecavity and promotes disancave client service Significant commitment to and ongoing investment in knowledge management, corporate governance and risk management 20

21 Global Footprint American Appraisal thinks globally but has the ability to act locally. We are the world s only truly glocal valuaaon firm, comprising over 900 employees who operate from major financial centers located throughout the Americas, Europe, the Middle East and Asia- Pacific. Brazil Sao Paulo Greece Athens Netherlands RoVerdam Ukraine Kiev Canada Montreal Toronto Vancouver China Beijing Guangzhou Hong Kong Shanghai Shenzhen Czech Republic Prague France Paris Germany Berlin Frankfurt Munich Hungary Budapest India Bangalore Mumbai New Delhi Italy Bari Bologna Milan Padua Pesaro Rome Turin Japan Tokyo Kazakhstan Almaty Poland Warsaw Portugal Lisbon Porto Russia Moscow St. Petersburg Singapore Singapore Spain Barcelona Bilbao Madrid Taiwan Taipei Thailand Bangkok United Arab Emirates Abu Dhabi United Kingdom London United States Atlanta Boston CharloVe Chicago (2) Dallas Denver Detroit Houston Los Angeles Milwaukee New York Philadelphia Princeton San Francisco 21

22 Valua5on Consul5ng Services American Appraisal provides experase in all classificaaons of tangible and intangible assets. Our service porxolio focuses on four key competencies: Valua5on Business Enterprise Intangible Assets Financial Instruments Real Estate Machinery and Equipment Financial ReporAng Tax ReporAng Bankruptcy and Restructuring Dispute ResoluAon Transac5on Consul5ng Purchase Price AllocaAon Corporate Finance Advisory Fairness Opinions Solvency Opinions Real Estate Valua5on Advisory Collateral Financing Porxolio Review Property Tax Purchase, Sale or Lease Fair Rental Analysis Cost SegregaAon LiAgaAon Support Research and Analysis Fixed Asset Management & Insurance Fixed Asset Inventory and ReconciliaAon Property Insurance Appraisal Fixed Asset Outsourcing 22

23 Thank you for considering American Appraisal. We welcome this opportunity to work with you. 23