Wiley Guide to Fair Value Under IFRS E-Book

James P. Catty

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 1188

Veröffentlichungsjahr: 2010

Beschreibung

Your one indispensable guide to all the Fair Value requirements of IFRS Acomplete guide to the complex valuation requirements of IFRS, this book includes chapters on theoretical and practical applications, with extensive examples illustrating the required techniques for each application. Appropriate for anyone involved professionally with finance--managers, accountants, investors, bankers, instructors, and students--this guide draws on a stellar panel of expert contributors from fourteen countries who provide international coverage and insight into a diverse range of topics, including: * Fair Value in implementing IFRS * Market Approach * Income Approach--Capitalization and Discounting Methods * Economic and Industry Conditions * Cost of Capital * Financial Statement Analyses * Impairment Testing * Intellectual Property Rights (patents, copyrights, trademarks) * Projecting Financial Statements * Liabilities * Customer Relationships * Share-based Payment * Plant and Equipment Guide to Fair Value Under IFRS is the first international valuation book of its kind. Fully compliant with the Certified Valuation Analyst curriculum, it provides detailed guidance as to how fair value is to be determined and fills numerous gaps in common understanding of IFRS requirements.

Leseprobe

Table of Contents

Title Page

Copyright Page

Dedication

Foreword

PREFACE

Recent Bubbles

The New Normal

Theme

Acknowledgements

ABOUT THE CONTRIBUTORS

1 FAIR VALUE CONCEPTS

INTRODUCTION

HISTORIC EXPERIENCE

IMPORTANCE OF JUDGMENT

FAIR VALUE VERSUS FAIR MARKET VALUE

HOW DID WE GET HERE?

MARKET APPROACH FOR FAIR VALUE OF FINANCIAL INSTRUMENTS

RELEGATION OF COST AND INCOME APPROACHES

AUDITING FAIR VALUE

MARK-TO-MARKET ACCOUNTING AND FAIR VALUE

PROBLEMS WITH FAIR VALUE—AND POLITICAL SOLUTIONS

IMPLEMENTING FAIR VALUE

POSTSCRIPT

2 THE COST APPROACH

INTRODUCTION

PRACTICAL APPLICATIONS

CURRENT COST NEW

DEPRECIATION

COMBINING TYPES OF DEPRECIATION

COST APPROACH CONSIDERATIONS

3 THE MARKET APPROACH

INTRODUCTION

OVERVIEW OF THE MARKET APPROACH

STANDARD AND PREMISE OF VALUE

USE OF THE MARKET APPROACH

CHOICE OF METHOD

COMPLETED TRANSACTION METHODS

GUIDELINE COMPANY METHOD

SELECTING VALUE MULTIPLES

MOST COMMON VALUE MULTIPLES

GUIDELINE SELECTION PROCESS

IMPLEMENTING THE GUIDELINE COMPANY METHOD

WEAKNESSES OF THE MARKET APPROACH

CONCLUSION

APPENDIX

4 INCOME APPROACH: CAPITALIZATION METHODS

INTRODUCTION

APPLICATION

ECONOMIC BENEFITS

ANALYSES OF HISTORIC PERFORMANCE

WHICH EARNINGS TO CAPITALIZE?

NORMALIZATION ADJUSTMENTS

CAPITALIZATION RATE

5 INCOME APPROACH: DISCOUNTING METHOD

INTRODUCTION

DISCOUNTING PROCEDURES

SELECTING INCOME STREAMS

SELECTING APPROPRIATE DISCOUNT RATES

CONCLUSION

6 EXCELLENT VALUATION REPORTS

INTRODUCTION

DIFFICULTIES

COMMON MISTAKES

WRITING

CONCLUSION

7 ASSESSING EXTERNAL RISKS

INTRODUCTION

SUITABLE FRAMEWORK

DEFINING THE DOMAIN

UNIT OF ANALYSES

SOURCES OF VARIANCES IN RATES OF RETURN

COST OF CAPITAL MODEL

TRILEVEL UNSYSTEMATIC RISK MODEL

MACROENVIRONMENT

FORCES

SUMMING UP THE MACROENVIRONMENT

DOMAIN

SUMMING UP THE DOMAIN

CONCLUSION

RECOMMENDED READING

8 STRATEGY AND BENCHMARKING

INTRODUCTION

TRADITIONAL ANALYTICS

QUANTITATIVE ANALYTICS

OPERATING METRICS

QUALITATIVE ANALYTICS

STRATEGY: MANAGEMENT’S RESPONSE TO THE EXTERNAL CONTEXT

BENCHMARKING STRATEGY IMPLEMENTATION

9 COST OF CAPITAL

INTRODUCTION

DRIVERS OF COSTS OF CAPITAL

COST OF EQUITY METHODS

PUBLISHED BETAS

APPLICATION OF CAPM

ARBITRAGE PRICING THEORY

FAMA-FRENCH THREE-FACTOR MODEL

BUILD-UP MODELS

RISK RATE COMPONENT MODEL

IMPLIED COST-OF-CAPITAL MODELS

WEIGHTED AVERAGE COST OF CAPITAL

REFERENCES

10 RISKS AND REWARDS

INTRODUCTION

IBBOTSON BUILD-UP MODEL

AN ALTERNATIVE: RRCM

CONCLUSION

APPENDIX

ADDITIONAL RESOURCES

11 FINANCIAL STATEMENT ANALYSES

INTRODUCTION

INTEGRATED FINANCIAL PLAN

RELIABLE RESULTS

COMPARATIVE ANALYSES

VALUE DRIVERS

DATA SOURCES

ADJUSTMENTS

OTHER MEASURES

FREE CASH FLOW

RATIO AND TREND ANALYSES

DISAGGREGATION

VALUE DRIVER ANALYSES

OTHER ANALYSES

CONCLUSION

12 PROJECTING FINANCIAL STATEMENTS

INTRODUCTION

INFORMATION REQUIREMENTS AND DATA COLLECTION

ADJUSTING HISTORIC DATA

HISTORIC VALUE DRIVERS AND FINANCIAL MODELING

VALUE DRIVERS AND PROJECTED FINANCIAL STATEMENTS

UNCERTAINTY IN DATA

MONTE CARLO SIMULATIONS

13 IMPAIRMENT TESTING

INTRODUCTION

IMPAIRMENT TESTING

VALUE CONCEPTS IN IMPAIRMENT TESTING

ALLOCATION OF GOODWILL TO CGUS OR GROUPS OF CGUS

DETERMINATION OF INPUT FACTORS

CONCLUSION

14 AUDITING VALUATION REPORTS

INTRODUCTION

VALUATOR’S FUNCTION

RELEVANT ISAS

STRUCTURE AND CONTENT OF VALUATION REPORTS

DISREGARDING VALUATIONS

CONCLUSION

15 COPYRIGHTS

INTRODUCTION

COPYRIGHTS AS INTERNATIONAL ASSETS

COPYRIGHTS AS FINANCIAL ASSETS

REPORTING STANDARDS

MEASURING COPYRIGHT VALUE

VALUATION PROCESS

CASE STUDY I: INTERNALLY CREATED ASSETS

CASE STUDY II: DIGITAL COPYRIGHTS

CASE STUDY III: ENFORCING COPYRIGHTS

16 CUSTOMER RELATIONSHIPS

INTRODUCTION

RANGE OF RELATIONSHIPS

RELEVANT IFRS LANGUAGE

VALUE INDICATORS

VALUATION METHODOLOGIES

EXAMPLE

CONCLUSION

17 DERIVATIVES AND FINANCIAL INSTRUMENTS

INTRODUCTION

OVERVIEW OF IFRS 7, IAS 32, AND IAS 39

CASE STUDY

VALUATION OF THE DEBT COMPONENT

SUMMARY

CONCLUSION

18 DOMAIN NAMES

INTRODUCTION

DOMAIN NAME SYSTEM

DOMAIN NAMES IN LAW AND UNDER IFRS

RISE AND FALL OF DOMAIN NAME VALUES

CYBER-SQUATTING, TYPO-SQUATTING, AND SEARCH ENGINES

VALUATION PROCESS

CASE STUDY BACKGROUND

CASE STUDY ANALYSES

19 HEDGING

INTRODUCTION

WHAT IS HEDGING?

DEFINITION OF HEDGING

IS THE RISK HEDGEABLE?

COMMON HEDGING VEHICLES

ASSURING INTEGRITY OF FUTURE CONTRACTS

REQUIRED MARGINS

PROBLEMS WITH FUTURES CONTRACTS

VALUING FUTURES CONTRACTS

HEDGING WITH OPTIONS

VALUING OPTIONS

NATURAL HEDGES

ACCOUNTING FOR HEDGES

SOUTHWEST AIRLINES’ SITUATION

EPILOGUE: BARRICK’S EXPERIENCE

20 INTELLECTUAL PROPERTY RIGHTS

INTRODUCTION

VALUATION PYRAMID

FACTORS AFFECTING IPR VALUATION

APPLICATION TO PATENTS

CONCLUSION

21 INTANGIBLE ASSETS

INTANGIBLE ASSETS

SKILLS OF THE VALUATOR

RECONCILIATION TO ENTITY VALUE

VALUATION OF INTANGIBLE ASSETS FOR IFRS REPORTING PURPOSES

VALUATION METHODS FOR INTANGIBLES

EXAMPLES

HIERARCHY OF VALUING INTANGIBLES

VALUATION PREMISES

DEFENSIVE INTANGIBLE ASSETS

VALUATION ASSUMPTIONS

VALUATION PROCESS

22 LEASES

INTRODUCTION

DEFINITIONS

LEVERAGED LEASES

FINANCIAL REPORTING

RETURN ENHANCEMENT

EFFECT OF LEASING ON VALUE

CONCLUSION

23 LIABILITIES

INTRODUCTION

TYPES OF LIABILITIES

REPORTING LIABILITIES: BORROWERS

REPORTING LIABILITIES: LENDERS

NATURE OF BONDS

VALUATION OF BONDS

YIELD TO MATURITY

CREDIT RISK

VALUATION OF SPECIAL OBLIGATIONS

CONCLUSION

24 MANUFACTURING IN CRISIS PERIODS

INTRODUCTION

VALUATION METHODOLOGIES

INTERNATIONAL ORIENTATION

EFFECTS OF THE RECENT FINANCIAL CRISIS

APPLICATION OF THE METHOD

INVENTORIES

ACCOUNTING FOR INVENTORIES

EXAMPLE: XANTHIC AS

CONCLUSION

25 MINERAL PROPERTIES

INTRODUCTION

METHODOLOGY DEPENDS ON DEVELOPMENT STATUS

SOURCES OF VALUE

VALUATION METHODOLOGIES

APPLICABLE TECHNIQUES

CONCLUSION

26 PASS-THROUGH ENTITIES

INTRODUCTION

FORMS OF ENTITIES

VALUATION CONSIDERATIONS

COMPARABLE CAPITALIZATION RATE

SALES OF PASS-THROUGH ENTITIES

CONCLUSION

27 PATENTS

INTRODUCTION

VALUATION PRINCIPLES

PORTFOLIO ACTIVITIES

VALUING PATENTS

PATENT PORTFOLIOS

APPROPRIATE METHODS

ILLUSTRATIVE EXAMPLES

RELIEF-FROM-ROYALTY METHOD

RESIDUAL VALUE METHOD

ASSET-SPECIFIC RATES OF RETURN

SUMMARY OF THE RESULTS

CONCLUSION

28 PETROLEUM RESOURCES

INTRODUCTION

OIL RESERVES

RESERVE STUDIES

WORKING INTEREST

NET PROFITS INTEREST

ROYALTY INTEREST

DISCOUNTING CASH FLOWS

SUMMARY

29 PHARMACEUTICALS AND BIOTECHNOLOGY

INTRODUCTION

INDUSTRY

DRUG DEVELOPMENT PROCESS

VALUATION STANDARDS AND METHODS

VALUATION METHODS

KEY VARIABLES FOR VALUATION

30 PLANT AND EQUIPMENT

INTRODUCTION

APPLICABLE STANDARDS

VALUATION OF PLANT AND EQUIPMENT

MARKET APPROACH

INCOME APPROACH

COST APPROACH

CONCLUSION

31 RETAIL LOCATIONS

INTRODUCTION

RETAIL TRENDS

DETERMINANTS OF RETAIL VALUE

PERFORMANCE OF RETAIL DEVELOPMENTS

EXAMPLE: COMMUNITY SHOPPING CENTERS

CONCLUSION

32 SHARE-BASED PAYMENTS

INTRODUCTION

OVERVIEW OF IFRS 2

MAJOR SHARE-BASED TRANSACTIONS

VALUATION OF EMPLOYEE SHARE OPTIONS

COMMONLY USED OPTION PRICING MODELS

VALUATION OF UNDERLYING SHARES

VALUATOR AND SHARE-BASED PAYMENTS

33 SOFTWARE AND SYSTEMS

INTRODUCTION

COMPUTER SOFTWARE

MARKET APPROACH

INCOME APPROACH

COST APPROACH

CONCLUSION

34 UNPATENTED TECHNOLOGIES

INTRODUCTION

PROTECTION

KNOW-HOW AND TRADE SECRETS ARE VALUABLE ASSETS

WHEN TO VALUE INTANGIBLE ASSETS

VALUATION METHODS

TECHNOLOGY JOINT VENTURES

CONCLUSION

35 TRADEMARKS AND BRANDS

INTRODUCTION

ACCOUNTING SITUATION

PROTECTING TRADEMARKS

TRADEMARK INFRINGEMENT

IMPORTANCE OF BRANDS AS ASSETS

BRANDS AND CUSTOMER EQUITY

BRAND VALUATION

SELECTED APPLICATIONS

VALUATION METHODOLOGIES

FAIR VALUE FOR IFRS

EXAMPLES

36 TRANSFER PRICING

INTRODUCTION

ARM’S-LENGTH PRINCIPLE

NECESSARY ANALYSES

INTANGIBLE ASSETS

PRICING METHODS

COMPARABLE UNCONTROLLED PRICE

RESALE PRICE METHOD

COST PLUS METHOD

PROFIT SPLIT METHOD

TRANSACTIONAL NET MARGIN METHOD

GLOBAL APPORTIONMENT

GLOSSARY

REFERENCES AND BIBLIOGRAPHY TRADEMARKS AND BRANDS

INDEX

Copyright © 2010 by John Wiley & Sons, Inc. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data

IFRS fair value guide / [edited by] James P. Catty.

p. cm.

Includes bibliographical references and index.

eISBN : 978-0-470-59736-1

1. International financial reporting standards. 2. Financial statements--Standards. 3. International business enterprises--Accounting--Standards. 4. Fair value--Accounting. I. Catty, James P.

HF5681.V3I47 2010

657’.3--dc22

2009037067

Egibi & Co., Babylonian Bankers (c. 600 BC-435 BC) The First Client and Sir Tim Berners-Lee (1955-) Founder of the World Wide Web That makes modern business possible

FOREWORD

Relationships, Dependency, and Reliability1

LIU PING

CHINA

Today’s expanding global business environment demands that all professionals responsible for financial information have to work together and rely on each other. Accountants, auditors and appraisers (valuators) must ensure that stakeholders in an entity—management, shareholders, creditors, and regulators—receive reliable, up-to-date financial information, enabling them to make the right decisions in fulfilling their duties and responsibilities. Errors in incorrectly recording, valuing, and auditing data at any stage will lead to wrong, possibly even damaging results. With the expansion of International Financial Reporting Standards (IFRS) throughout the world, the roles of the accountants and auditors are becoming harmonized, with appraisers supplying the basis for many conclusions. Now is the era of the appraiser; this book is a start.

To generate profits and run efficiently, management has to know in detail the costs involved in producing, selling, and distributing the entity’s various goods and services. In addition, it has to ascertain that there is enough cash available for capital expenditures, for working funds, and to pay shareholders the dividends that ensure continuing investment. Finally, such information, both financial and operational, allows management to demonstrate to regulators that the entity is in full compliance with all laws and regulations.

Shareholders need such material to decide whether to buy or sell securities, to establish trading prices and, in particular, as a measure for portfolio performance and stability. Today investors have many choices; to make wise and advantageous decisions, they need reliable financial information.

Lenders and creditors, including banks and suppliers, use such know-how when deciding to make new loans, extend existing ones, or enhance lines of credit, and also to gauge a firm’s ability to pay its bills and properly service both its short- and long-term debt. It is also of importance to vendors, who rely on it to grant trade credit and enter into long-term contracts.

Last, but not least, regulators insist on reliable financial information as part of their duty to protect the public trust. To supply this accurately requires the combined talents of the three separate sets of interrelated professionals: accountants, auditors, and valuators, each of whom relies on data from both the others. Their interaction is illustrated by Exhibit F.1.

Exhibit F.1

Accountants deal mostly with the present, recording on a daily basis the activities of every entity involved. Auditors, who are also accountants, deal with the past, confirming that the accounts they had been given present “fairly” the results of preceding activities, while appraisers, among whom I have the honor to serve, look to the future, calculating what someone will pay now for benefits that are yet to come.

Based on information and data from the entity’s accountant and advice from its auditors, we perform our services and reach our conclusions. Those may encompass numerous steps, including determining: the fair value of the whole firm; an individual division, subsidiary, or department; specific financial, physical, or intangible assets; or a potential acquisition target.

Valuing individual assets, especially intellectual property, is essential to the impairment tests, which since 2003 have been required by IFRS at least once a year. To conduct such an engagement properly, valuators must be able to rely on accurate financial information, continuously and freely provided as required by management through its accounting staff. The quality of any valuation is adversely affected by inaccurate or inadequate inputs. Valuators then deliver to the accountant and management their conclusions to be incorporated into the entity’s records for confirmation by the auditors. Similarly, the auditors have to rely on the professional efforts of both the accountant and the valuator.

The close business ties between eastern and western economies and global financial interaction over the past decades have led Africa, Asia, and Australia to adopt IFRS and its related fair value accounting. This in turn caused all valuators to become much more aware of approaches, methods, and techniques developed in North America and Europe. With contributors from six continents, this book offers a thorough grounding in all of those approaches.

PREFACE

JAMES P. CATTY

UNITED KINGDOM

For some years, the world has experienced accelerating globalization that has exceeded any commercial interchanges of previous centuries by an order of magnitude. Common sense dictates that such networks require an equally universal approach to accurately valuing interrelated holdings, following the same worldwide accounting principles; this is under way, as, by 2011, approximately 150 countries will have adopted International Financial Reporting Standards (IFRS). This book offers thorough assistance in such an undertaking, creating a unified language and giving advice concerning relevant methodologies.

While there are many national valuation textbooks, mainly in the United States, there are no international ones. To fill this void, our book is a collaboration of over 30 participants from 14 countries; it was written during an unprecedented downturn in the world economy and sets out best practices in many segments of valuation, for good times and bad. The concept is also to assist readers to react quickly to the new normal when it arrives.

When, as chairman of the International Association of Consultants, Valuators and Analysts (IACVA), I signed the contract with John Wiley & Sons, Inc., in October 2008, the world stock markets had been in virtual free fall for a month; I thank Wiley for its courage in taking on this project. After that, values continued to decline, in the United States a further 33%, before, in early March 2009, staging a remarkable resurrection. Now most indexes are back to or above their October levels, as massive, stimulative government policies are taking effect.

This has been the greatest turmoil in the markets since I first became involved in valuations more than 50 years ago. During the long period of Goldilocks economies, which lasted until 2007, risk premiums for virtually every feasible asset were low, reflecting comparatively limited recent losses. In 2008, a combination of repricing of risk, and fears that the financial world, as we knew it, was coming to an end changed everything and gave rise to the continuing worldwide crisis.

Recent Bubbles

Most investors profited from 1995 to 2007; that was a period of asset bubbles in many stock markets, most commodities (oil, copper, nickel, iron ore) and real estate; unfortunately, nearly everyone lost in the subsequent multiple collapses. Worldwide share and commodity value declined, following the huge decreases in home prices in many countries, principally: Australia, Britain, Spain, and the United States. The result was the greatest destruction of fortunes since the Dirty Thirties. According to some commentators, over one-third of worldwide wealth vanished in the last 12 months. Each bubble had four phases.

Stealth. “Smart funds” get in quickly, quietly, and cautiously; asset prices gradually increase, but the general population remains unaware.

Awareness. Price increases get attention; there is some profit taking, but selling is short-lived, as investors treat the dips as opportunities to buy more.

Mania. Masses peg relevant investments, first Internet shares, then real estate, as “the opportunity of a lifetime”; phrases like “prices can only go up” are passed around as indisputable facts but turn out later to be nasty viruses. More unsophisticated money pours in, as “smart funds” begin to unwind their position.

Blow-off. The absence of fresh capital lowers prices, but many late-to-the-party players insist that the wreck can be salvaged. They get evermore adamant about their “buy” recommendations as prices drop. That stubbornness creates a brief pause before the final nosedive.

The New Normal

It has become increasingly clear that the current situation is fundamentally different from all other recessions since World War II. Virtually every country is experiencing not merely another manifestation of the business cycle but a profound restructuring of its economic order. For some organizations, near-term survival is their only possible motivation, resulting in not merely cutting fat but also flesh. Others are peering through the fog of uncertainty, thinking about how to position themselves once things return to normal.

What is the new normal going to look like? It is unlikely that it will resemble any of the “before” situations; rather it will be shaped by several powerful forces, of which two—less borrowing and more government impact—will be dominant. A return to tighter regulation and the inclusion of activities such as derivatives that were under consideration long before the downturn began can also be expected.

It is important to realize that past avalanches of borrowings for virtually any purpose and the related underpricing of risks had two sources. The first was financial innovations that apparently reduced risks and added value to the economy. The second was a credit bubble, led by U.S. borrowers, fueled by misaligned incentives, irresponsible risk taking, lax oversight, and fraud. Where the former ends and the latter begins is hard to discern, but it is clear that the future will involve significantly lower leverage and higher prices for risks than we had all come to expect during the years of euphoria. Only entities that boost returns on equity the old-fashioned way, namely through productivity gains, will be rewarded.

Another feature will be expanded government activities. In the 1930s, during the Great Depression, participants in various economic sectors of most countries redefined their roles in the financial system; in the 1980s and 1990s, many such restructurings were unwound in the name of deregulation.

All signs point to an equally significant regulatory restructuring, with governments around the world laying down the ground rules in all financial sectors, including those that were once only lightly, if at all, regulated. They and other bodies, such as the International Accounting Standards Board (IASB), will demand new levels of transparency and disclosure and get involved in decisions that were once the sole prerogative of corporate boards, including executive compensation.

Some forces arise directly from the financial crisis, but others, which already existed, have been strengthened. For example, it was clear before the crisis began that U.S. consumption, which depends on income gains, could not continue to be the locomotive for global growth. For over 40 years, U.S. disposable income has been boosted by a series of one-time factors, such as the expanded entry of women into the workforce, increases in college graduates, the ability to refinance homes, and easy credit for all sorts of purposes; those have now played themselves out.

Peak spending of the baby boomers helped boost consumption in the 1980s and 1990s. Now aging, they are beginning to live on retirement savings that were insufficient in the first place, even before a great deal of housing and stock market wealth evaporated. As a result, the world’s economic center of gravity will continue its westward movement toward Asia. Fortunately, likely ongoing technological innovation and increasing human knowledge will tend to offset the declining value of aging auto plants.

Valuators who want to succeed in the new normal must focus on that which is changing and what remains basically the same for their clients, businesses, and industry. The resulting environment, while very different from the past, will give major opportunities to those who are prepared.

Scope

This publication is divided into two sections written by a combination of academics and practitioners. The first 13 chapters deal with subjects that have to be considered by all valuators on every assignment. The remaining chapters deal with particular areas that may or may not be of immediate significance but which, at some time or other, will become important.

As shown by their biographies, our contributors are all highly qualified, with most practitioners having taught professional development classes, many in several countries. They all realize that readers need comprehensible material that gets to the bottom of things and eliminates extraneous information.

The potential audience is everyone—managers, accountants, investors, bankers, teachers, and students—who is involved professionally with finance. Principle-based standards cannot, by their nature, give detailed guidance about how fair value is to be determined. This book fills numerous gaps so that all involved have greater understandings of value conclusions.

Theme

Accountants deal with activities in the past; managements deal with the reality of the present; valuators deal with expectations of the future. Value reflects the recognition and pricing of all the risks involved. Neither accountants nor managers are trained to quantify those; valuators are.

The world is drowning in data; by some estimates, corporate digital material in 2010 will amount to one zettabyte (21 zeros). To put values on the entities involved, such data will have to be compressed and summarized into useful information and the nuggets of actionable gold extracted from the mounds of informational ore. In addition, gold must be separated from any pyrite. Our objective is to help all readers in identifying and extracting that gold.

Fortunately, none of the contributors found it necessary to follow Raymond Chandler’s perfect literary advice:

When in doubt have a man come through the door with a gun in his hand. May that never happen to any of us.

Good reading.

Jim Catty Klosterneuburg, Lower Austria and Toronto, Canada, August 2009

ACKNOWLEDGMENTS

To write a book is a complicated endeavor. Having gone that route before, I know the importance of partners, contributors, and associates

Therefore, I would first like to thank my partners in IACVA—Bob Brackett, Richard Claywell, Bill Hanlin, and Terry Isom of the United States; Susan Yi of China; and Lionel Newton of Canada—for their continued support and encouragement.

Second, I would like to thank the contributors, who, especially in view of language differences, did so much illuminating work.

Third, I thank my clients for being understanding about delays in delivering reports.

Fourth, I thank the leaders of the IACVA charters throughout the world for their confidence and backing of the project: Zhou Yi and Samuel Chen, China; Wolfgang Kniest and Elke Stetter, Germany; Fafa Amable and Bennet Kpentley, Ghana; Sung-yeol Cho and Sung-Soo Seol, South Korea; Assem Safieddine and Zeina Barakat, Lebanon (Middle East); Jennifer Chen and Joseph Hsieh, Taiwan; and Parnell Black, United States.

Last, but not least, I thank my wife, Dita Vadron, who edited the final texts in her third language, English, and our assistant, Hellen Cumber, who kept me on schedule and applied strict control over numerous versions of individual chapters.

ABOUT THE CONTRIBUTORS

MS. LIU PING, PH.D., CPA

SECRETARY GENERAL, CHINA APPRAISAL SOCIETY, CHINA

Ms. Liu holds a Ph.D. in economics. She is a senior accountant serving as a member of the China Accounting Standards Committee. She is also a member of Chinese Oversight Committee for Acquisition and Restructure of Listed Companies. She was involved in practical accounting work for many years and is knowledgeable in accounting, business finance, state-owned assets regulation, auditing, and appraising profession. She has published a number of academic works, including Research on the Practice Environment of Appraisal Profession and The Management and Practice of Assets Valuation Business, as well as more than 100 articles in professional journals. Ms. Liu is currently vice president and secretary general of the China Appraisal Society, board member of the International Valuation Standards Council and of the World Association of Valuation Organizations, and the head of China Valuation Standards Team.

JAMES P. CATTY, MA, CPA/ABV (U.S.), CA•CBV (CANADA), CVA, CFA, CFE

CHAIRMAN, IACVA, CANADA

Jim holds BA and MA degrees from Oxford. He has been engaged in business valuations around the world for more than 50 years. He has undertaken speaking engagements in Canada, China, France, Germany, Romania, Taiwan, Turkey, the United Kingdom, and the United States. He is chairman and CEO of the International Association of Consultants, Valuators and Analysts with members in 12 countries; president of Corporate Valuation Services Limited, Toronto, and of counsel to Hanlin Moss, PS, Seattle, Washington, and X’ian, China.

ALFRED M. KING, MBA, CMA

VICE CHAIRMAN AND DIRECTOR, MARSHALL & STEVENS, UNITED STATES OF AMERICA

A native of Boston, Alfred graduated magna cum laude in economics from Harvard and received an MBA from Harvard Business School (1959). His expertise includes litigation support, valuation of intangible/intellectual assets, business valuations, solvency and reasonable equivalent value issues, valuation issues relating to domestic and international taxes and financial reporting, and complex allocation-of-purchase-cost assignments, including retrospective studies. He has personally appraised over $100 billion of assets.

A specialist in cost management systems, Alfred has lectured on the subject and has consulted with profit and not-for-profit organizations as well as several federal government departments on activity-based costing. He has also taught classes in cost management at Fordham University and is currently teaching at University of Mary Washington. He has written more than 80 articles for professional journals, receiving eight certificates of merit as well as a silver and a bronze medal. In addition, he is the author of Valuation: What Assets Are Really Worth, Fair Value for Financial Reporting, and Executive’s Guide to Fair Value (all published by John Wiley & Sons) and Total Cash Management (McGraw-Hill). He has been an instructor in valuation for professional valuation organizations.

YEA-MOW CHEN, PH.D., AVA

PROFESSOR OF FINANCE, SAN FRANCISCO STATE UNIVERSITY, UNITED STATES OF AMERICA

From 1991 to 2000, Yea-Mow was director of the U.S.-China Business Institution at San Francisco State University. Over the last six years, he has moved into the practical area of business valuation. Currently he is chairman of China Intangible Asset Appraisal Corp. Inc., which has undertaken more than 500 engagements and is one of the leading valuation firms in Taiwan. He serves as a board member of the China Intangible Assets and Business Valuation Association, also in Taiwan. Yea-Mow was an advisor to the Taiwan Securities Industry Association (2008-2009) and to the Taiwan Gretai Securities Exchange (OTC market) (2007-2008). He received his Ph.D. in economics from Ohio State University, United States.

STEPHEN L. BARRECA, BSEE, ASA, CDP, PE

FOUNDER AND PRESIDENT, BCRI VALUATION SERVICES, UNITED STATES OF AMERICA

Stephen specializes in the valuation of high-tech industries and utilities. He is president of the Alabama Chapter of the ASA, past president of the Society of Depreciation Professionals, and a member of International Association of Assessing Officers and the Institute of Electrical and Electronic Engineers. Stephen has published numerous articles on valuation and is a regular speaker and trainer in the subject. He received his BS degree in electrical engineering from the University of New Orleans (1978).

WILLIAM A. HANLIN, JR., BA, CPA, CFE, CVA, CFD

PRESIDENT, IACVA, UNITED STATES OF AMERICA

Bill received his BA from the University of Washington. He entered public accounting in 1969; since then he has obtained vast experience in tax matters. He is cofounder and managing partner of Hanlin Moss, P.S. of Seattle, Washington, and X’ian, China, which is a member of the International Network of Accountants and Auditors. As a Certified Fraud Examiner and Certified Fraud Deterrence Analyst, he is frequently engaged to detect, investigate, and deter fraud. Bill also provides litigation support as an expert witness in all kinds of cases, including contract disputes, divorce, bankruptcy cases, loss-of-income cases, and partnership disputes. Since 1994, Bill has been a CVA and has concentrated his practice in valuation. As president of IACVA, he has been involved in training in Brazil, China, Germany, Korea, Taiwan, Thailand, Turkey, the United Kingdom, and the United States.

J. RICHARD CLAYWELL, BA, CPA/ABV, CVA, CM&AA, CFFA, CFD

VICE PRESIDENT, IACVA, UNITED STATES OF AMERICA

Richard has worked in accounting since 1974; since 1985, he has practiced business valuation and has prepared almost 1,000 valuation reports. Richard’s practice is limited to valuing closely held businesses, litigation support, and exit planning. He has assisted clients with exit planning and prepared business valuation reports for estate and gift tax purposes, buy/sell agreements, sale and purchase of a business, adequacy of life insurance, reorganization, charitable contributions, divorce, economic loss analysis, partner disputes, dissenting shareholder actions, and disruption of a business. Richard has served on the Executive Advisory Board of NACVA and as chair of the Government Valuation Analyst Board, which oversees the Internal Revenue Service on business valuations. He is the chief architect of the computer-based valuation programs Business Valuation Manager Pro (BVM Pro), its report writer, and Business Valuation Quality Control Editor (BVQ). Richard was the only financial expert to present at the fifteenth Annual National Expert Witness Conference (2006). He presented at a National Exit Planning Conference in Denver on valuing deferred compensation plans (August 2007), on business valuations in Frankfurt, Germany (September 2008), and copresented in China for a weeklong business valuation training course.

BENNET KPENTEY, MA, CVA, CPC

FOUNDER AND CEO, SYNC CONSULT LIMITED, GHANA

Bennet has 15 years professional experience and has consulted for clients in the private and public sectors as well as international agencies, including the World Bank, Department for International Development, United Nations Development Programme, and the Danish International Development Agency. He is currently a part-time lecturer in strategic management in the executive MBA program at the University of Ghana. He holds an MA in international relations (economics major) from the International University of Japan (1994) and a BA in economics and geography from the University of Science and Technology in Ghana (1992). Before establishing Sync Consult, Bennet worked with Deloitte Touché Tohmatsu (1995-2000) and as a principal consultant in setting up Deloitte & Touché Management Solutions Practice in Ghana. At PricewaterhouseCoopers Africa Central (2000-2002), he had responsibility for corporate finance in Ghana. His research interests are in strategy and business valuation.

WOLFGANG KNIEST, DIPL.-KFM., CVA

FOUNDER AND MANAGING DIRECTOR, IACVA-GERMANY GMBH

PRINCIPAL, KCVC, GERMANY

Wolfgang has 10 years of experience in business valuation; his areas of expertise include valuation of intangible assets, midsize businesses, and global enterprises for domestic and international clients with a special focus on financial modeling. Wolfgang is a coauthor of the third edition of Unternehmensbewertung: Praxisfälle und Lösungen with K. Henselmann and W. Kniest. Wolfgang holds a Diplom-Kaufmann from the University of Bayreuth (1997) and is on the editorial board of the business valuation journal Bewertungs Praktiker. Previously, Wolfgang was an assistant professor in the Tax and Auditing Department at Chemitz University of Technology and worked for KPMG, Frankfurt. Wolfgang received his CVA accreditation in 2005.

BRANDI L. RUFFALO, MBA, AVA

FOUNDER AND PRESIDENT, THE BUSINESS DEVELOPMENT COMPANY

COFOUNDER, VAL UATION AND FORENSIC PARTNERS, LLC, UNITED STATES OF AMERICA,

Brandi offers comprehensive business valuation, forensic accounting, fraud investigation, and litigation support services for shareholder disputes, damages, lost profit calculations, marital dissolution, financial record reconstruction, financial reporting, business transactions, and tax purposes. She holds the designation of Accredited Valuation Analyst and is active in the NACVA and the Institute of Business Appraisers. Her publications and teaching include materials for the CVA credentials. Brandi was named a NACVA Instructor of Exceptional Distinction for 2006, 2007, and 2008, and she has spoken at the most recent three NACVA national conferences.

ROBERT C. BRACKETT, BSIE, MBA, CPA, CVA

PRESIDENT, CRANDALL & BRACKETT, LTD., UNITED STATES OF AMERICA

Bob has served as president of Crandall & Brackett, Ltd., a Chicago-area valuation firm, since 1991. He is active in many of the world’s professional organizations that provide training or standards setting for accountants and other professionals performing business valuation services. He is a founding member of IACVA, where he serves as corporate secretary, and he has served on NACVA’s Executive Advisory Board. Bob teaches courses for the AICPA, the Illinois CPA Society, NACVA, and the Thai Appraisal Foundation, among others. He continues to serve on the Standards Committees of IACVA and NACVA. He received his BS in industrial engineering from Iowa State University (1975) and his MBA from Northwestern University (1952).

WARREN D. MILLER, MBA, CFA, ASA, CMA, CPA

PRESIDENT, BECKMILL RESEARCH, LLC, UNITED STATES OF AMERICA

Warren cofounded Beckmill Research with Dorothy Beckert, CPS, in 1991. Wherever possible, the firm’s perspective is to help clients learn and understand ways to increase the value of their businesses. In addition to disciplined growth, a key component in enhancing value is reducing unsystematic risk. An expert on Austrian economics, industrial organization, and evolutionary economics, Warren has written many articles for valuation publications and contributed to several books. He also teaches extensively on a variety of financial subjects. His MBA is from Oklahoma State University (1991) and his BBA is from the University of Oklahoma (1975), United States. Warren is a member of the Financial Reporting Committee, Institute of Management Accountants, and the Editorial Review Board of the IBA’s publication Business Appraisal Practice.

WILLIAM C. QUACKENBUSH, MBA, ASA, CBA

MANAGING DIRECTOR, ADVENT VALUATION ADVISORS, UNITED STATES OF AMERICA

Bill has taught accounting and finance at several universities at both the graduate and undergraduate levels. He has been providing business valuation services since 1991. Previously he was in the banking industry in New York, having last served as president and CEO of a community bank. Bill has taught for both the IBA and the ASA in the United States, Europe, and Asia and has written professional development courses, articles, spoken at conferences, and lectures regularly to various groups on valuation issues. He currently is the editor of the ASA’s BV E-Letter and the vice chair of its Business Valuation Committee.

WOLFGANG BALLWIESER, PH.D.

FULL PROFESSOR, MUNICH UNIVERSITY, GERMANY

Wolfgang teaches accounting and business valuation. He graduated from Goethe University at Frankfurt/Main. His Ph.D. dissertation was about cash management, with a second dissertation on business valuation. He has an honorary doctorate from the University of Wuppertal, Germany, and is a fellow of the Bavarian Academy of Sciences and Humanities. He has written nine books and many articles on financial reporting, auditing, and business valuation.

JOERG WIESE, PH.D.

ASSISTANT PROFESSOR, INSTITUTE FOR ACCOUNTING AND AUDITING, LUDWIG-MAXIMILIANS UNIVERSITY, GERMANY

Joerg was born in Germany and is a graduate in business administration from the Ludwig-Maximilians University. After earning his doctorate in cost of capital and business valuation, he worked for the mergers and acquisitions department of Munich Re Group for one year. His research interests include valuation theory and financial statement analysis. He has published in several academic journals.

MARTIN COSTA, MBA, CPA, CVA

STEUERBERATER OF COUNSEL, R P RICHTER, GMBH, GERMANY

After a banking traineeship at Deutsche Bank AG, Munich, Martin studied business administration at Ludwig-Maximilians University, Munich. He practiced at C&L Deutsche Revision AG, Munich (today: PWC) until 1995, had his own accountancy firm until February 2006, and since then has worked at RP Richter GmbH accountancy firm as counsel. Martin’s main practice areas are auditing, with a focus on private equity and venture capital, forensic reports, business appraisals, financial due diligence, consolidated accounting according to German commercial law (HGB) and IFRS. Martin is a member of the German Institute of Certified Public Accountants, German Chamber of Certified Public Accountants, German Chamber of Tax Advisors, German Association of Tax Advisors, and International Association of Consultants, Valuators and Analysts—Germany e.V. Martin was a coauthor of “Hinzurechnungen und Kürzungen” in Gewerbesteuer—Gestaltungsberatung in der Praxis (Wiesbaden, 2008) and is the author of several articles in professional journals.

KLAUS HENSELMANN, PH.D, CVA

UNIVERSITY ERLANGEN-NUREMBERG, GERMANY

Klaus is head of the Institute for Finance Auditing Controlling Taxation at the University of Erlangen-Nuremberg. He is the author of 6 books and over 70 articles. In addition to his academic career, since 1997 he has had a professional consulting and valuation practice that focuses on financial planning, implementation of discounting and valuation models, due diligence, analyzing historical data, industry analysis, premiums and discounts, mergers and acquisitions, and litigation advice. Klaus obtained his Ph.D. in business administration from the University of Bayreuth, Germany (1992).

FRANK BOLLMANN, MBA, CVA

DIRECTOR, DUFF & PHELPS, GERMANY

Frank leads Duff & Phelps valuation advisory services practice for Germany, focused on financial reporting (IFRS), tax, intellectual property, fairness opinions, and other capital measures. Before returning to Germany, Frank gained experience in international corporate finance and valuations during many years working in the Silicon Valley, California, as well as Amsterdam, the Netherlands. He has taught valuation classes at the University of Cologne as well as the European Business School. Furthermore, he serves as a member of the International Valuation Standards Board of the IVSC.

ANDREAS JOEST, MBA, PH.D.

SENIOR ASSOCIATE, DUFF & PHELPS, GERMANY

Andreas focuses on finance consulting and valuation services for IFRS, tax, intellectual property, value-based management, and transaction opinions. Previously, Andreas was an adjunct professor of accounting at the University of Augsburg, Germany, and the University of Dayton, Ohio, United States. Among other subjects, he taught financial and managerial accounting as well as corporate valuation.

ANDREAS BERTSCH, PH.D.

PROFESSOR, HOCHSCHULE KONSTANZ, UNIVERSITY OF APPLIED SCIENCES, GERMANY

Andreas is a professor of accounting and controllership. He was previously team leader of currency and derivatives accounting at Landesbank Baden-Württemberg. He received his Ph.D. from the University of Bayreuth, Germany.

FERNANDO TORRES, MSC.

SENIOR ECONOMIST, CONSOR®, UNITED STATES OF AMERICA

Fernando has over 25 years of experience in economics, financial analysis, and business management in the United States and Mexico. He holds a B.A. in economics from the Metropolitan University in Mexico City (1980), a graduate diploma from the University of East Anglia (UK, 1981), and a master’s of science in econometrics from the University of London (UK, 1982). From then until 1990, Fernando was a professor of economics at Metropolitan University. He regularly presents on topics related to intangible asset valuation in a variety of venues, many of which qualify for CLE credit. During the past two years, Fernando has been an instructor for the course “Valuing Intangible Assets for Litigation,” which is part of the requirements of the Certified Forensic Financial Analyst designation issued by NACVA.

SAMUEL YAT CHIU CHAN, MBA, CVA, CM&AA, CEPA

DIRECTOR, GREATER CHINA APPRAISAL LIMITED, CHINA

Samuel is a director and the head of the Business and Intangible Asset Valuation Department of Greater China Appraisal, a national valuation firm with offices in Hong Kong, Beijing, Shanghai, Guangzhou, and Fuzhou, specializing in valuations of businesses, intangible assets, financial instruments, and fixed assets. He has provided valuation and advisory services to closely held businesses, public companies, and state-owned companies in China for merger and acquisition, initial public offerings, financial reporting compliance (GAAP and IFRS), ligation support, and exit planning purposes. He is vice president of education of IACVA China, teaching business valuation courses in universities, accounting firms, government authorities, and accounting associations.

LISA CHENG, MSC.

ASSOCIATE, GREATER CHINA APPRAISAL LIMITED, CHINA

Lisa is the chief financial engineer of the Greater China Appraisal. She specializes in valuation of derivatives and financial instruments including convertible bonds, bank loans, convertible preference shares, derivatives, forward contracts, currency swaps, accumulators, real options, share appreciation rights, and employee share options. She has written articles on enterprise risk management and taught various financial instrument valuation courses in universities.

WESTON ANSON, MBA

CHAIRMAN, CONSOR®, UNITED STATES OF AMERICA

Weston is an international authority on trademark, patent and copyright licensing, valuation, and litigation support through Consor, an intellectual assets consulting firm. After receiving his MBA (honors) from Harvard, he served with the management consulting firm of Booz-Allen & Hamilton in the United States. Subsequently, he was the youngest vice president and corporate officer at Playboy Enterprises, Inc., where he launched many of its licensing programs. He was also senior vice president of Hang Ten International, which grew to nearly 100 licensees in 30 countries under his direction. For the last 20 years, he has led the way in developing and establishing accepted methods to value brands, technologies, and other intellectual property for companies. He is an expert in establishing licensing strategies for brands as well as developing and managing licensing programs for a number of clients. Weston is a lecturer and author of over 150 articles on the subjects of licensing, valuation, reorganization in bankruptcy, technology and brand values, and the impact of licensing on value. His most recent book is The Attorney’s Guide to the Business Mind.

RICHARD PEDDE, MBA

PRESIDENT, PEDDE FARM LTD., CANADA

From 1987 to 2001, Richard held management positions in major dealers in derivatives. They include director, global head of Emerging Markets Fixed Income Trading, ABN AMRO Incorporated; managing director, Equity Trading, Nomura Securities International; principal, Fixed Income Derivative Products, Morgan Stanley Dean Witter; and managing director, vice president, Derivative Products, Bankers Trust Company, United States. Richard obtained his MBA at Columbia University, United States (1986), and has published articles including “Canadian Wheat Board Performance Benchmarking” and “Reform of the Canadian Wheat Board: A ‘Made in Canada’ Approach to Marketing Grain” (Western Centre for Economic Research, University of Alberta, 2007 and 2008), and “A Bushel Half Full: Reforming the Canadian Wheat Board” (C.D. Howe Institute, 2008).

JEONG BYEONGIL, PH.D, LL.M., M.ENG.

PROFESSOR, INHA UNIVERSITY, SOUTH KOREA

Byeongil is a specialist in intellectual property rights (IPR) including its related law. He spent 27 years teaching the law of patents, utility models, design patents, copyrights, and trademarks at INHA Law School in Korea. The subjects include IP information, IP valuation, patent strategy, IP transfer, and industrial security. He is combining studies in science/technology and law. He has been an engineer, jurist, IP valuer, IP transferor, and security expert. He is a vice president of the Korea Valuation Association and has published several books, including IP Law and Science/Technology and Law and 20 papers on IPR. Byeongil received his Ph.D. in intellectual property law (2005) from INHA University, South Korea; his LLM in intellectual property law (1999) from Franklin Pierce Law Center, United States, and his master’s of management information system engineering (1994) from Korea Advanced Institute of Science and Technology.

STAN SORIN, PH.D.

SENIOR RESEARCHER, IROVAL

RESEARCH IN VALUATION, ROMANIA

Stan is a member of the National Association of Romanian Valuers and a lecturer in business valuation. He has authored and coauthored several books on business and intangible assets valuation. Stan received his Ph.D. from Academia de Studii Economice, Bucharest, Romania.

ANDREA R. ISOM, MBA, MSJ, CVA

ASSISTANT EXECUTIVE MANAGER, IACVA, UNITED STATES OF AMERICA

As managing editor for International Treasurer and FAS133.com, publications of The NeuGroup in New York City, Andrea specialized in breaking news and enterprise stories on the subjects of derivatives, foreign exchange markets, derivative accountings and issues surrounding the landmark implementation issues of Financial Accounting Standard 133. During her tenure at The NeuGroup, she worked closely with the editorial advisory board, which included senior executives at General Electric, Intel and PWC. As a reporter and editor, she has covered presidential press conferences and interviewed senators and governors.

TERRY A. ISOM, MBA, CPA, CVA

SENIOR VICE PRESIDENT, SENTRY FINANCIAL CORPORATION, UNITED STATES OF AMERICA

Terry is the team leader at Sentry, in charge of accounting and tax issues, and is integrally involved in program and transaction structuring. In December 1994, Terry authored Asset Financing Strategies, which addressed the issues of lease versus buy and sale lease-backs. He has been the primary author of four books on leasing: The Handbook of Equipment Leasing (Amembal & Isom, 1988), Leasing for Profit (American Management Association, 1980), Handbook of Leasing: Techniques and Analysis (Petrocelli Books, 1982), and Guide to Captive Finance Company Equipment Leasing (Amembal American Association of Equipment Lessors, 1984); he recently coauthored the two-volume Operating Leases—The Complete Guide (Amembal & Associates). Before his current activities, Terry was a member of the University of Utah’s accounting faculty, during which time he consistently ranked among the top three instructors based on student evaluations. He taught both undergraduate courses in finance and accounting and graduate courses in managerial accounting. He currently serves as chairman of the board of NACVA and as a director of IACVA.

KARRILYN WILCOX, B.COMM

RESEARCHER, CANADA

Karrilyn has experience researching and valuing companies and has worked in equity research and business valuation. She has received numerous awards in business, finance, and research, including the Canadian Institute of Business Valuators First Place Research Award and the Chartered Financial Analyst First Place Research Award. She has also published several research articles and received a number of scholarships and research grants in accounting and finance. Her B. Comm. in finance and entrepreneurship is from Saint Mary’s University, Halifax.

EMRE BURCKIN, PH.D., CPA

CHAIRMAN, CONSULTANT CERTIFIED PUBLIC ACCOUNTANCY AND AUDITING COMPANY, TURKEY

FULL PROFESSOR, MARMARA UNIVERSITY, ISTANBUL

Emre currently is a full professor at Marmara University, Istanbul. His doctoral dissertation was titled Determination of Going Concern Value in Merger Operation. He has published many articles and books on the subjects of accounting, valuation, and audit and has presented numerous papers at national and international conferences.

AYSE PAMUKCU, PH.D.

LECTURER, MARMARA UNIVERSITY, TURKEY

Ayse completed her doctorate at the Marmara University in 2005; her dissertation was titled Audit Organization Supported by Computers in Accounting.

ZEYNEP BURCKIN EROGLU, MA

RESEARCH ASSISTANT, MARMARA UNIVERSITY, TURKEY

Zeynep completed her M.A. in 2003 at Marmara University in the Faculty of Economic and Administrative Sciences. She now works in the Economy branch while studying toward her doctorate.

MICHAEL J. LAWRENCE, BSC., FAUS AMM, FIMM, FAIG, MIA, MX, C.ENG, CPG

MANAGING DIRECTOR AND CHIEF VALUER, MINVAL, AUSTRALIA

Michael is a geologist who has spent most of his professional career (spanning 43 years) as a mining and geological consultant with major international resource consultancies and as managing director of their regional operations: from 1970 to mid-1982 for the French government’s BRGM/SEREM; and from mid-1988 to 1990 for the Robertson Group plc (UK). In 1991, he founded Sydney-based Minval Associates Pty Limited (MINVAL), which specializes in mineral property audits/due diligence and valuation, and minerals industry dispute resolution solutions. While at the NSW Department of Mineral Resources and Energy (mid- 1982-mid-1987), he completed his studies for his graduate diploma in public sector management and participated in corporate planning, internal management strategy reviews, and organization analysis and redesign projects. He also developed skills in dealing with government administration (at local, state, and federal levels) and the political process as well as how public interest/civil society groups use their influence. His consultancy work (1970- 1982 and 1988 to date), including the time he spent as a mining analyst with stockbroker Lancaster Securities (mid-1987 to mid-1988), involved him in mineral economics, financial analysis, and resource asset/company valuation. He has published 94 technical papers and made major contributions to AusIMM’s VALMIN Code since 1991 (chair, VALMIN Committee, 2000-2002); and development of AusIMM/MICA Alternate Dispute Resolution Scheme (chair, Interim Board, 2000-2003).

LAURA JANE TINDALL, PH.D., CPA, BVAL, CVA, MCBA

LAURA J. TINDALL COMPANY, UNITED STATES OF AMERICA

Laura has been valuing businesses and business damages since 1981. She has held several leadership positions in organizations, including serving on the boards of the Associate of Eminent Domain Professionals, AICPA, IBA, and NACVA. In addition to being a frequent lecturer at local, regional, national, and international conferences on the topics of valuation, expert testimony, and ethics, she has authored many articles and coauthored two AICPA guides, including AICPA Consulting Services Special Report 03-1, “Litigation Services and Applicable Professional Standards,” and AICPA Practice Aid 05-1, “A CPA’s Guide to Family Law Services.” Laura is the author of Ethics Reference Guide for Expert Witnesses.

JOHN L. CASALENA, LIB, CPA/ABV/PFS/CFF, BVAL, CFE, CDFA

JOHN L. CASALENA COMPANY, UNITED STATES OF AMERICA

John has a varied background, including COO and CFO positions and a traditional CPA tax practice. Currently his sole-practitioner practice is limited to M&A, family and business dispute resolution, income tax controversy, and litigation support. He is an author of published articles on Med/Val™ and personal goodwill and covenants not to compete. He presents on the subjects of mediation, collaborative divorce, taxation in divorce, personal goodwill, and covenants not to compete, for national conferences of AICPA, IBA, and NLSS as well as for the State Bar of Arizona, PESI, NBI, and many other organizations.

HEINZ GODDAR, PH.D.

PARTNER, BOEHMERT & BOEHMERT; PARTNER, FORRESTER & BOEHMERT, MUNICH, GERMANY

Heinz is a German patent attorney and a European patent and trademark attorney with a background in physics. He teaches patent and licensing law as an honorary professor at the University of Bremen, Germany, as a lecturer at the Munich Intellectual Property Law Center, at the University of Washington, Seattle, U.S., at the National ChengChi University, Taipei, at Tokai University, Tokyo, as a Consultant Professor at the University of Huazhong, Wuhan, China, and as a member of the Professors Committee at the Institute for International Intellectual Property at Peking University, Beijing. He is an associate judge at the Senate for Patent Attorneys Matters at the German Federal Court of Justice and a senior advisor to Investment in Germany GmbH, Berlin, with a specific responsibility for life sciences and chemicals and a consultant to the Global Institute of Intellectual Property, Delhi. Heinz is past president of LES International and of LES Germany.

ULRICH MOSER, PH.D., WIRTSCHAFTSPRÜFER, STEUERBERATER, CVA

PROFESSOR, ACCOUNTING AND FINANCE, ERFURT UNIVERSITY OF APPLIED SCIENCES, GERMANY

Ulrich obtained his Ph.D. from the University of Stuttgart (1989). He acts as a management consultant in the field of intellectual property and business valuation. He has over 15 years of experience in the field with a strong focus on valuing intellectual property rights, portfolios of them, early-stage technologies, and purchase price allocations (FAS 141/142, IFRS 3). Recent projects include valuing a portfolio of more than 100 trademarks as well as the product pipeline of a biotech company. He spends considerable time supporting strategic business decisions of clients based on advanced valuation techniques. He also assists in developing and implementing intangible asset management systems. Ulrich often speaks at national and international business valuation and intellectual property conferences. He regularly publishes articles on corporate finance and valuation topics and is editor of Praxis der Unternehmensbewertung (practitioner’s guide to valuation).

SUNG-SOO SEOL, PH.D.

PROFESSOR, DEPARTMENT OF ECONOMICS, HANNAM UNIVERSITY, SOUTH KOREA

Sung-Soo is also director, Hi-tech Business Research Institute, Hannam University (2000-); honorary president, Korea Technology Innovation Society (2007-); honorary president, Korea Valuation Association (for technology and business) (2007-); and visiting professor, Department of International Business and Marketing, California State Polytechnic University. His professional history includes credit analyst, Chase Manhattan Bank, Seoul; senior fellow, Daeduck Society for Science & Technology Policy; visiting fellow, Science Policy Research Unit, Sussex University, U.K.; cofounder, president, Korea Valuation Association (for technology and technology business); editor in chief, Technology Innovation Society Journal (Korea); member, National R&D Program Coordination Committee, National Science & Technology Council; president, Korea Technology Innovation Society; and member, Advisory Committee, Minister of Education, S&T. He has given many lectures and authored several books and papers.

EVŽEN KÖRNER, MSC., MBA

DIRECTOR, AMERICAN APPRAISAL, FIXED ASSET MANAGEMENT GROUP, CENTRAL EUROPE

In his professional capacity, Evžen provides consulting services relating to valuation of plant and equipment for diverse range of corporate clients in numerous countries. He has experience of a diverse range of industries including aerospace, automotive, biotechnology, chemical, telecommunication, computer services, electronic, semiconductor, power generation, steel and metal, public utilities, commercial banks, food and beverage, health care, insurance, consumer packaging, pulp and paper, and pharmaceuticals. Prior to joining American Appraisal, Evžen was employed by various manufacturing companies, responsible for specification and coordination of production processes and as a head of the engineering development division, in charge of development and restructuring program of a manufacturing company. His MSc. is from the Czech Technical University and his MBA is from the Open University Business School.

LAN YUAN LIM, MBA, MSC., BSC., LLM, LLB, PH.D.

CHAIR, SINGAPORE INSTITUTE OF SURVEYORS AND VALUERS CHAIR, WORLD ASSOCIATION OF VALUATION ORGANISATIONS

Lan Yuan has over 40 years of extensive experience in property business concerning property development and management, valuation, training and consultancy; he is a licensed appraiser. He is also a senior master mediator and an accredited arbitrator who sits as a tribunal member on the Valuation Review Board, Strata Titles Board, and the Appeals (Acquisition) Board in Singapore. Lan Yuan has been a consultant to UN agencies and is currently chairman of the World Association of Valuation Organisations. His MSc. is in construction management and his BSc. is in economics.

SHARI OVERSTREET, CPA/ABV, CVA, CM&AA

MANAGING DIRECTOR, THE MCLEAN GROUP, UNITED STATES OF AMERICA

Shari has more than 25 years of financial, accounting, business valuation, and M&A experience. Shari began her career in public accounting, working for a regional and then a national firm in both audit and tax divisions. She then held financial and operational leadership roles in various Austin-based companies. She has performed business valuations for many companies in the Austin area, a good many of which are technology based. Shari received her bachelor of business administration with a concentration in finance from the University of Texas, United States.

ANDY SMITH, CPA/ABV, ASA, CVA, CMA

PARTNER AND SENIOR MANAGING DIRECTOR, THE MCLEAN GROUP, UNITED STATES OF AMERICA

Andy manages the company’s business valuation practice. He has a broad background of experience, including public accounting, investment banking, and financial operations management. He is a National Association of Securities Dealers registered representative and financial and operations principal and has also been an instructor with NACVA.

SUSAN M. SAIDENS, BA, CPA, ABV, ASA, CVA, CFE, CFF

PRESIDENT, SMS VALUATION & FORENSIC SERVICES, LLC, UNITED STATES OF AMERICA

Susan’s firm is a niche business valuation and forensic accounting Certified Public Accounting Practice with big firm experience and expertise. She is a former member of NACVA’s Executive Advisory Board, former chair of NACVA’s Valuation Credentialing Board, and has received NACVA’s “Outstanding Member” award. She has lectured extensively on business valuation topics for organizations such as the Pennsylvania Institute of Certified Public Accountants, the Institute of Management Accountants, and state and local bar associations. Susan is a member of the team that annually authors and teaches the “Current Update in Valuation” course around the country for NACVA. She was an original member of the Appraisal Issues Task Force working with the Financial Accounting Standards Board and the Public Company Accounting Oversight Board on goodwill, intangible assets, stock options, and other fair value measurement issues for U.S. financial reporting purposes.

ANKE NESTLER, MBA, PH.D., CFA

PARTNER, VALNES CORPORATE FINANCE GMBH, GERMANY

Anke’s previous experience includes working for the corporate finance team of PricewaterhouseCoopers; for six years she was managing director of O&R Corporate Finance GmbH, a company associated with Linklaters LLP. Anke is a Certified Public Appraiser for Valuation of Companies and Intellectual Property (CCI Frankfurt/M.) and a member of the expert panel in the field of business valuation of the IHK Frankfurt/M. (Chamber of Commerce and Industry, Frankfurt/M.). She specializes in business valuation as well as the valuation of intangible assets, valuation in the field of restructuring, consultation in M&A transactions, financial due diligence, and financial statement analysis.

ROGER SINCLAIR, PH.D.

PROFESSOR EMERITUS, UNIVERSITY OF THE WITWATERSRAND, JOHANNESBURG, SOUTH AFRICA

Roger has taught for many years at Witwatersrand, where he was previously professor of marketing and head of the department. In the 1990s he led a team from the university in developing BrandMetrics, a brand valuation methodology. In 2009, this was bought by Prophet, a strategic consultancy with expertise in branding, marketing, design, and innovation. Roger obtained his Ph.D. at University of the Witwatersrand, South Africa.

LIONEL W. NEWTON, BA, FCA, TEP, CVA, CFFA

PARTNER, RUBINOVICH NEWTON LL, CANADA

Lionel obtained his CA designation in Ontario in 1972 and has been in public practice in Toronto since 1974. He was elected a fellow of the Ontario Institute of Chartered Accountants in June 2003. From 2001 to 2005, he was chairman of the board, International Network of Accountants and Auditors. Lionel has published various articles, participated in panels dealing with small business and income tax matters, including United States and Canada cross-border taxation. He has also provided testimony to the Finance Committee (Canadian House of Commons) and the Ontario Superior Court of Justice, with respect to valuation, economic damages, inappropriate investment advice, family law, estate matters, claims of constructive and/or resultant trusts, and income tax issues.

CHRISTOPHER J. STEEVES, BA, LL.B.

PARTNER, FRASER MILNER CASGRAIN LLP, BARRISTERS & SOLICITORS, CANADA

Christopher was ranked in the 2006 Chambers Global Guide as one of Canada’s leading tax lawyers. His practice focuses on corporate restructurings and acquisitions. He provides advice on the taxation of complex domestic and international financings, securities issuances and investment funds, and has specialized expertise with respect to cross-border tax planning. Christopher is coeditor for the Corporate Tax Planning feature of the Canadian Tax Journal, a member of the Editorial Board for the Canadian Tax Reporter (CCH Canadian Limited) and for Corporate Structures and Groups (Federated Press). He was also coeditor for Canadian Transfer Pricing (CCH Canadian Limited), 2002.

1 FAIR VALUE CONCEPTS

ALFRED M. KING

UNITED STATES

INTRODUCTION

Being asked to write about fair value concepts for a book with numerous chapters, each dealing with an aspect of fair value for International Financial Reporting Standards (IFRS), by an expert in the field implies that the general editor believes the author has some specialized knowledge of the subject, based on 40 years of active experience. The author will do his best not to disappoint. In this chapter, the terms “fair value” and “fair market value” are capitalized when they refer to the latest definition in the United States.

HISTORIC EXPERIENCE

The concepts underlying fair value for financial reporting draw on the more than 100 years of valuators’ experiences. In that context, our activities today bear only a passing relationship to the work performed by our predecessors. Within the past 10 years, major changes have occurred in our firms, as the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) have incorporated their ideas of fair value into financial reporting. At the outset, it should be understood that those concepts, as used in both IFRS and generally accepted accounting principles (GAAP), are merely a subset of the more generalized experience developed in the derivation and application of (fair) market value in tax practice in many countries; while the names are confusingly similar, the concepts are very different.

Taxes

The definitions and underlying concepts of the traditional “standard of value,” fair market value, cover applications designed to provide useful information for a range of disparate purposes—from insurable values at the high end, through tax amounts, to bankruptcy realizations at the low end. Until quite recently, most valuations pertained, in one way or another, to business transactions.

In fact, there have been three distinct waves of interest in valuation. The original use was not for financial reporting but to determine tax liabilities. In the ancient world, Egypt, Babylon, Greece, Rome, Persia, and China all taxed an individual’s or a partnership’s assets, which needed a valuator. In those eras, a valuator, serving as a tax assessor, could be a very important individual. Often, after a king died, his ministers were killed and buried with him; in many cases, the tax valuator was the only one spared, as the heir needed that person’s knowledge. Later, in the year 10 A.D., China introduced an income tax; fortunately, it soon vanished, until the British reintroduced it in 1798 to pay for their fight against Napoleon; after that, it again disappeared for nearly a century. In the United States, the income tax started in 1861 to finance the North in the Civil War; again, after the conflict, it was dropped until 1913. During the past five decades, taxation of capital gains has become almost universal, leading to intensification in the use of tax valuations.

Business Transactions