Fair Value

Caliber Advisors regularly provides fair value opinions prepared under IASB and FASB standards for foreign and domestic financial reporting. Our successful track-record has generated a consistent flow of repeat referrals from our extensive network of Big 4 Audit partners. Our work is known for meeting the rigorous standards and demands of audit managers, national valuation practices, the PCAOB and the SEC.

Some of the more common types of opinions we prepare are for:

Assets:

  • Investments (ASC 820, ASC 946, IFRS 13)
  • Finite-Lived Intangible Assets (ASC 805, ASC 360, IFRS 3, IAS 36)
  • Goodwill (ASC 350, IAS 36)

 Liabilities:

  • Interest Rate Swaps and Hedges (ASC 815, IAS 39)
  • Convertible Debt (ASC 470-20, IAS 39)
  • Contingent Purchase Obligations (ASC 805, IAS 37)
  • Guarantees (ASC 460, IAS 37)

 Equities:

  • Stock Options and ESPPs (ASC 718, IFRS 2)
  • Options, Warrants and Collared Warrants (ASC 815)
  • Private Common and Preferred Stock (ASC 718, IRC 409A)

Fair value measurement has become critical to the accounting function in US and International standards. Though fair value measurement issues arise in nearly every part of the financial statement, the most common areas of involvement are:

Intangible Asset Valuation

(ASC Topic 805 — Business Combinations, IFRS 3)

Our experienced appraisers work diligently to determine the often difficult to measure fair value of intangible assets and provide timely results. Critical steps include identifying the correct intangibles and utilizing methodologies commonly accepted by the SEC and audit firms, including the reconciliation of the investment IRR, WACC and WARAs. Recent focus by the PCAOB on market support for financial forecasts prepared by management or outside consultants (AU Section 328) has “raised the bar” on intangible asset valuations.

Goodwill Impairment

(ASC Topic 350 — Intangibles – Goodwill and Other)

Impairment studies regularly require significant company resources. We work with our clients to establish a sound foundation to avoid unnecessary recurring expenses and inefficient use of resources. The goodwill impairment guidelines may help reduce costs and eliminate unnecessary testing, and we work with our clients to develop the valuation metrics that will allow them to address the “more-likely than not” qualitative test.

Intangible Asset Impairment

(ASC Topic 360 — Long-lived Assets)

Impairment is the condition that exists when the carrying amount of a long-lived asset (asset group) exceeds its fair value. The impairment analysis of intangible assets is one of the more complex valuation procedures to implement. The first complexity is the definition of the asset group, which can involve multiple intangible assets, to be tested. The next challenge is determining applicable economic life of the asset group and the expected cash flow during that period. Finally, the test compares the carrying value of the asset group to the sum of its future cash flows. If the carrying value cannot be recouped in future cash flow, the asset is impaired by an amount equal to the difference between its carrying value and its discounted future cash flows (fair value).

The AITF is preparing a white paper on the implementation of impairment testing and the interwoven aspects of ASC 350 and ASC 360.

Debt with Embedded Derivatives

(ASC Topic 470 — Debt)

Emerging companies frequently issue convertible or straight debt with detachable warrants to raise capital between equity financings. These issuances require a bifurcation of the fair value of the detachable warrants and the underlying debt. In some cases, when the debt is convertible, the value of the embedded derivative must also be determined.

Establishing the fair value of these instruments is not a simple task. Frequently, the value of the equity derivative components is tied to the likelihood and timing of the next round of equity financing and the ultimately liquidity date. With this type of complexity, Monte Carlo (MCS) or other simulation tools are necessary to reliably measure fair value. Caliber staff has years of experience with MCS and related tools, in part, as a result of having a staff with strong engineering and mathematics training. In the most complicated and material matters, we also involve our contacts in the academic community for their assistance as well.

Equity as Compensation

(ASC Topic 718 — Stock Compensation)

We employ the methods outlined in the AICPA Practice Guide in determining the fair value of a company’s equity. In fact, we already employ many of the methods proposed in the new practice guide.

We have developed in-house models to analyze complex equity structures and track items of acute concern to the SEC, including applicability of minority interest and illiquidity discounts. We maintain a proprietary database (on publicly disclosed) private transactions that we use to supplement our illiquidity discounts. These fair value results also can be used to comply with Federal income tax reporting requirements under IRC Section 409(a), often with minimal adjustment.

Debt & Equity Portfolio Valuation

(ASC 320 —Investments and ASC 946 —Investment Companies)

Caliber’s unique in-house databases and complex instrument valuation models help our debt and equity investor clients establish the fair value of investments for financial and internal reporting purposes. We have unique access to market (level 2) transaction data for both public and private instruments. Our expertise spans across a wide variety of instruments, including: straight debt, convertible debt, warrants, collared warrants, preferred stock, common stock, stock options, and hybrid securities.

Derivatives and Hedge Accounting

(ASC Topic 815 — Derivatives)

Options, rights and obligations are present in almost every business agreement. When arrangements become material to the financial position of the enterprise, valuation comes in to play. Often the arrangements are tied to certain technical, financial, or market performance conditions. As such, their value becomes derivative of these conditions and requires the use of economic modeling, such as option modeling or Monte Carlo Simulation.

One of the more common situations where derivatives are used is in interest rate swaps used to hedge floating rate notes. Caliber has significant experience in the valuation and hedge accounting of these hedges, including the definition of hedge objectives.