Our Valuations Services

With heightened scrutiny from regulators and their demands for substantiation of valuation work, the audit community, chief executive officers, chief financial officers, the audit community, and retirement and taxation experts rely on valuations performed by independent accredited professionals to support their important financial reporting and legal responsibilities. Newbury Piret & Co. offers this service.

A note on our headings: the Accounting Standards Codification (ASC) is the single source of authoritative non-governmental U.S. generally accepted accounting practices (GAAP). The new codification system is effective as of September 15, 2009 and all previous US GAAP standards (such as the Fair Accounting Standards or FAS) have been replaced.

Our valuations services include:

Financial Reporting

ASC 805 (FAS 141(R)) Business Combinations
An appraisal under ASC 805 is the determination of the fair value of assets acquired, and liabilities assumed during a business combination. These valuations are often required under the following circumstances:
During an asset purchase where the net assets acquired constitute a business; or
During a stock purchase where the buyer acquires a controlling interest in the seller.
ASC 805 valuations aid the acquiring company's auditors in allocating the purchase price among the various assets acquired for financial accounting purposes.

ASC 350 (FAS 142) Goodwill Impairment
During an ASC 805 analysis, if the aggregate purchase price is greater than the fair value of the acquired assets, then the difference is considered goodwill. ASC 350 mandates that goodwill shall not be amortized over a defined period, but must be tested for impairment on an annual basis at the reporting unit level. Depending on the outcome of the analysis, goodwill impairment testing can be a two step process, these steps are defined below.

  • Step One: Determines if the goodwill is impaired. This is accomplished by a thorough analysis of the fair value of the reporting unit. If the appraiser has determined that impairment is present, then the analysis must proceed to step two.
  • Step Two: Consists of calculating the amount of the impairment. This is determined by calculating the implied goodwill and comparing it against the carrying value.

ASC 350 valuations assist the client's auditors in completing their annual audit. They are often necessary if the company has goodwill on balance sheet, and the auditor suspects that impairment may be present.

IRC 409A Stock Options
IRC Section 409A ("409A") was included in the American Jobs Creation Act of 2004 (the "Act"), and provides regulations that private companies must adhere to when issuing stock options and other forms of non-qualified deferred compensation. Under 409A, options are subject to various tax penalties if it can be shown that they were granted with an exercise price at or below the fair market value ("FMV") of the underlying common stock.

In order to avoid these penalties, 409A states that the FMV must be determined by the use of "reasonable application of a reasonable valuation method." This can be satisfied by hiring an independent appraiser to conduct the valuation. Moreover, if the IRS challenges the value, by having used an independent appraiser, the company shifts the burden of proof to the IRS.

These valuations can be broken down into two distinct stages, the determination of the company's equity value, and its allocation. The value of the company's equity can be calculated using the three widely used and accepted valuation methodologies, the cost, market, and income approaches. Once a value has been established, the AICPA encourages the appraiser to use one of the following methodologies to allocate the value among the different classes of equity:

  • Current Value Method;
  • PWERM (Probability Weighted Expected Return Method); or
  • Option Pricing Method.

Each allocation method is appropriate under different scenarios, and it is important to review the circumstances around each engagement to avoid applying an inappropriate method.

ASC 820 (FAS 157) Fair Value Measurements
Fair value is the standard of value used for financial accounting analyses (e.g. ASC 805, 350, 718) and is most often used in conjunction with any valuation engagement that has to be in compliance with standards set forth in FASB's Accounting Standards Codification (ASC). According to ASC 820, the definition of fair value is as follows:

"Fair value is 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."

ASC 718 (FAS 123(R)) Stock Compensation
ASC 718 requires companies to expense share based payments resulting from services rendered by employees and non-employees in exchange for stock options or other equity based compensation. ASC 718 requires that all entities measure the fair value of the equity awards using a one of the following methodologies:

  • Black-Scholes-Merton option pricing methodology;
  • Lattice model (e.g. binomial lattice); or
  • Monte Carlo Simulation.

ASC 718 does not make an authoritative pronouncement on which methodology to utilize. Rather, it allows the appraiser to select the method that best represents the fair value based upon the company's circumstances.

Divorce & Litigation Support
Newbury Piret has performed a number of valuations for divorce and litigation support in recent years. We provide a solid valuation analyses, reports, and expert witness testimony on the business issues and situations being litigated and on the relevant financial practices and theory related to the martial dissolutions.

Employee Stock Ownership Plans (ESOP)
Employee stock ownership plans have become a popular vehicle for providing liquidity to current shareholders and incentives to employees. They also provide financial and economic benefits to the sponsoring company, some of these benefits are:

  • Providing employee benefits in a tax efficient manner;
  • Enhancing employee loyalty and commitment; and
  • Tax efficient source of funds for the company.

Due to these advantages, ESOPs have become an attractive employee benefit plan for many corporations.

Setting up an ESOP can be a demanding process, and an independent appraiser has many important functions, such as conducting the feasibility analysis for the ESOP transaction, associated fairness opinions, and the annual valuation updates required by the Tax Reform Act of 1986.

"Cheap" Stock Options
Companies who issue equity securities twelve months before an initial public offering ("IPO") with values or strike prices below the anticipated IPO price are subject to scrutiny by the SEC during the registration process. Newbury Piret provides expert independent analyses to support the value and strike prices of any equity security that you issue during that time.

Enterprise Value & Shareholder's Equity
Newbury Piret has extensive experience in performing business enterprise and shareholder equity valuations in a wide variety of industries, and for a number of purposes. Some of the more common valuation needs of our clients include:

  • Minority interest valuations;
  • Controlling interest valuations;
  • Purchase price support; and
  • Business enterprise valuations.

Estate and Gift Tax Valuations
Over the past decade, estate and gift tax returns have been coming under increased scrutiny from the IRS, with approximately 50% of returns valued at $5 million or more being audited. With the IRS's experts becoming increasingly sophisticated and knowledgeable in valuation theory and practice, it is important that the estate select an appraiser with a strong educational background and professional credentialing. Some common estate and gift tax valuations include:

  • Filing estate and gift tax returns;
  • Grantor retained annuity trust; and
  • Charitable remainder unitrust.