The volatility of the commercial banking industry during the financial crisis resulted in a number of banks recognizing bargain purchase gains as they acquired distressed banks. Indeed, as industries undergo cyclical changes and consolidation trends, the likelihood of strategic buyers recognizing a bargain purchase gain increases. Reviewing the methodologies and assumptions used in the initial purchase price allocation to value intangible assets and contingent liabilities is a crucial step in determining whether or not a transaction meets the criteria to be categorized as a bargain purchase.
The Financial Reporting Blog
A weekly update on financial reporting topics curated by Mercer Capital’s Financial Reporting Valuation professionals.
This post summarizes current accounting issues receiving regulatory scrutiny including auditor selection and independence, the challenges involved in assigning balance sheet items, including goodwill, to various reporting units, as well as other “red flags.”
The FASB recently endorsed two GAAP exceptions for private companies. The first exception permits private companies to amortize goodwill and implements a simplified model for goodwill impairment testing. The second exception offers a practical expedient that allows private companies to qualify for hedge accounting under ASC Topic 815. Final standards for each are expected to be issued by the end of the year.
During the 1990s debate over the status of stock options as a corporate expense, the big technology companies argued passionately that, since stock option grants to employees don’t ding the corporate checkbook, they should not be recognized as an expense. Despite winning the initial battle (SFAS 123), the tech companies ultimately lost the war (SFAS 123R). Regardless of the ongoing debate about how best to measure earnings, stock-based compensation is a tool used by companies of all sizes and in all industries. In order to deliver the most reliable information to investors, companies need to carefully evaluate the value of such compensation packages when granted.
Less than a year after its formation, the Private Company Council (PCC) is making progress in its initial efforts to reduce the costs and complexities of financial reporting for private companies that use GAAP.
- Bankruptcy and Restructuring Advisory
- Equity-Based Compensation Valuation
- Fair Value
- Impairment Testing
- Portfolio Valuation
- Purchase Price Allocation