Valuations for Financial Reporting under FASB ASC 805 (formerly SFAS 141r)

A valuation for SFAS Statement No. 141(R) is an appraisal that determines the fair value of the assets acquired or liabilities assumed as part of a business combination.

Fair Value as stated by FASB Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures is defined as: "the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date."

SFAS 141R and Accounting Standards Codification ASC 805

In July, 2009, when the Financial Accounting Standards Board launched the Accounting Standards Codification (the FASB ASC). The FASB ASC replaced all previously existing financial accounting standards (other than U.S. Securities and Exchange Commission pronouncements) to become the single source of authoritative nongovernmental U.S. generally accepted accounting principles. Going forward, instead of issuing new standards (e.g., SFAS 142), the FASB will issue updates to the FASB ASC.

Who is expected to comply with SFAS 141R (FASB ASC 805 Business Combinations)?

Any company with GAAP-based financial statements that is contemplating, or has recently entered into a merger or acquisition is affected by SFAS 141 (now referred to as ASC 805, Business Combinations). In addition, SFAS 141 explains the procedures for determining the fair value of goodwill under SFAS 142 "impairment testing".

What are some of the changes required under SFAS 141R?

One of the changes brought about by SFAS 141R deals with accounting for contingent assets/liabilities. These contingent considerations may or may not be paid depending on the resolution of certain future events. Under the old rules of FAS 141, contingencies were not recognized until resolved. Under the SFAS 141(R), contingencies are to be measured at fair value on the acquisition date. The pronouncement calls for contingencies to be divided into two categories: contractual and non-contractual. Contractual contingencies (such as a warranty) are measured at their estimated fair value as of the acquisition date. Non-contractual contingencies (e.g. lawsuits), are to be measured at fair value only if it is determined that the liability is more likely than not to exist (i.e. probability > 50%) as of the valuation date.

Another significant change relates to transaction Costs. Under the original SFAS 141, transaction costs, such as legal and other acquisition closing costs, were included and capitalized as part of the purchase price. SFAS 141(R) requires that transaction costs be expensed.

When did SFAS 141(R) become effective?

What types of assets has Cambridge Partners valued as part of an appraisal for SFAS 141?

The professionals at Cambridge Partners have performed valuations for companies throughout the world. These assets include tangible and various intangible including their tangible and tangible assets, liabilities and IPR&D. The following illustrates various types of assets recently valued by members of our firm:

1. Machinery and equipment utilized in manufacturing. This includes equipment associated with food production, automotive, manufacturing, retail, healthcare and power generation, among others.
2. Patented technology for a leading manufacturer of water filtration products.
3. Trademarks, trade names and service marks for a consumer brands company.
4. Customer mailing list containing several million customer names for a 1000+ store retailer.
5. Customer relationship intangible assets for FAS 141 ranging from as few as a single customer account to thousands of customer accounts.
6. Power purchase agreements and conversion services agreements between energy/power producers and utility purchasers.
7. Fair value determination associated with leasehold improvements of a portfolio of office buildings.
8. Real estate valuations of numerous industrial coatings and paint manufacturing facilities in Europe, North America and South America.
9. Equipment valuation of various plant assets and tooling utilized in the manufacture of OEM automotive parts.
10. Favorable franchise agreements and foregone franchise fees.
11. SFAS 141 valuation of Employment and non-compete agreements with selling shareholders and other key management.
12. Bank core deposit intangibles.
13. Non-operating assets acquired as part of a business combination, including ownership interests in business partnerships, non-operating real estate, equities, company airplanes, etc.