IRC 409A Common Stock Valuation
This free, guided checker walks your team through the key decision points for IRC 409A Common Stock Valuation. Answer a few questions to see the likely approach and the evidence to document.
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Fair Value in Goodwill and CGU Impairment
This free, guided checker walks your team through the key decision points for Fair Value in Goodwill and CGU Impairment. Answer a few questions to see the likely approach and the evidence to document.
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This tool is a high-level valuation screening aid for general information only and is not a valuation, appraisal, accounting, tax or legal opinion. A defensible conclusion of value requires a qualified valuation specialist applying professional standards to entity-specific evidence.
The questions this tool walks you through
Here is what the checker asks and why each step matters. Prefer to talk it through? Contact us and we will help directly.
Is the objective to measure the fair value of a reporting unit that carries goodwill under ASC 350, or the recoverable amount of a cash-generating unit (CGU) to which goodwill has been allocated under IAS 36?
Goodwill is never tested on its own; it is tested with the reporting unit (US GAAP) or the CGU or group of CGUs (IFRS) to which it was assigned. If the carrying amount you are testing does not include allocated goodwill, the relevant model is the long-lived-asset or indefinite-lived-intangible test, not this one. Confirm the unit of account before selecting a measurement basis.
Confirm goodwill has been assigned to the reporting unit or CGU being tested under ASC 350-20-35 or IAS 36.80. Apply the standalone-asset or asset-group impairment model rather than a goodwill fair value measurement under ASC 360-10-35 or IAS 36.66.
Official guidance: FASB Accounting Standards Codification
What has prompted this impairment measurement?
The trigger determines whether a fair value or recoverable amount even has to be measured this period. Goodwill and CGUs with goodwill carry a mandatory annual test, but an interim triggering event or IAS 36 indicator accelerates it. Under US GAAP a supportable qualitative (Step 0) conclusion can avoid the annual quantitative test; under IFRS the annual test of a CGU with goodwill is mandatory, and an indicator review only affects whether an interim test is needed. Either conclusion must be documented, not assumed.
Proceed to a quantitative measurement because the annual test is mandatory under IAS 36.90 and ASC 350-20-35. Proceed to a quantitative measurement because an indicator or triggering event requires testing under IAS 36.12. Document the qualitative conclusion under ASC 350-20-35-3; no quantitative measurement is required this period. Record that no annual test is due and no indicator exists under IAS 36.12; no measurement is required now.
Official guidance: FASB Accounting Standards Codification
Which measurement basis will the quantitative test use?
ASC 350 uses one basis - the reporting unit's fair value. IAS 36 requires the recoverable amount, the higher of fair value less costs of disposal and value in use, so a CGU may need both estimated. Fair value and fair value less costs of disposal are market-participant exit prices; value in use is an entity-specific present value, and the two use different inputs and different discount rates.
Measure the reporting unit's fair value as an exit price under ASC 820-10-35. Measure fair value less costs of disposal using the IFRS 13.9 exit price under IAS 36.18. Begin with the market-participant fair value measurement and compare with value in use under IAS 36.18. Measure value in use with entity-specific cash flows and a pre-tax discount rate under IAS 36.55 and IAS 36.74.
Official guidance: FASB Accounting Standards Codification
Are the fair value inputs built on market-participant assumptions and an exit-price, highest-and-best-use premise rather than the current owner's entity-specific synergies?
Fair value for financial reporting is an exit price a market participant would pay, not investment value to the current owner. Entity-specific synergies, above-market contracts, or an owner's planned restructuring belong in value in use (if IAS 36 permits them), not in a fair value or fair value less costs of disposal measurement. Mixing the two overstates fair value and understates impairment.
Confirm the principal (or most advantageous) market and the market-participant inputs under ASC 820-10-35. Remove entity-specific synergies and remeasure on a market-participant exit-price basis under ASC 820-10-35 before concluding.
Official guidance: FASB Accounting Standards Codification
For any income-approach (discounted cash flow) fair value, are the projected cash flows and the discount rate internally consistent, and does the concluded fair value reconcile across the income and market approaches?
A discounted cash flow is reliable only when the numerator and denominator match: post-tax cash flows require a post-tax rate, nominal cash flows a nominal rate, and debt-free cash flows a weighted average cost of capital. When both an income and a market approach are used, differences should be understood and reconciled, not averaged blindly. An unreconciled model is a common source of overstated fair value.
Document the reconciliation of the income and market approaches and the consistency of the cash flows and rate under IVS 105. Align the cash-flow and discount-rate bases and reconcile the approaches under ASC 820-10-35 before concluding.
Official guidance: FASB Accounting Standards Codification
Has the aggregate fair value of the reporting units or CGUs been reconciled to the entity's market capitalization, with any implied control premium supported by market evidence?
For a public entity, the total fair value of the reporting units should be reconciled to market capitalization at or near the measurement date. An implied control premium is acceptable only if it is consistent with premiums observed in actual change-of-control transactions; an unexplained gap suggests the fair values are too high. Document the reconciliation in the workpapers.
Conclude the market-participant fair value and compare it with the carrying amount under ASC 350-20-35 or IAS 36.18. Reconcile aggregate fair value to market capitalization and support the implied control premium under ASC 350-20-35 before concluding.
Official guidance: FASB Accounting Standards Codification
Are the value-in-use cash flows and discount rate internally consistent - pre-tax cash flows discounted at a pre-tax rate, excluding financing cash flows, income tax, and the benefits of future restructurings or asset enhancements the entity is not yet committed to?
Value in use is measured before tax and before financing, using the asset or CGU in its current condition. Including tax cash flows, interest, or the benefit of a restructuring the entity has not committed to will overstate value in use and mask an impairment. The discount rate must be a pre-tax rate consistent with the pre-tax cash flows, which in practice is derived rather than simply grossed up.
Confirm the pre-tax cash flows and pre-tax discount rate are consistent under IAS 36.55 and IAS 36.74. Restate value in use on a consistent pre-tax basis excluding financing, tax, and uncommitted actions under IAS 36.44 and IAS 36.50 before concluding.
Official guidance: FASB Accounting Standards Codification
Are the value-in-use projections based on reasonable and supportable assumptions and the most recent approved budgets or forecasts, generally covering no more than five years unless a longer period is justified, with a steady or declining terminal growth rate?
IAS 36 constrains value-in-use projections to management's most recent approved budgets, generally a maximum five-year explicit period, extrapolated at a steady or declining rate that does not exceed the long-term average growth for the products, industries, or countries involved. Hockey-stick forecasts and perpetual high growth are the most common ways value in use is overstated. Test the assumptions against past forecasting accuracy.
Conclude value in use, and compare it and fair value less costs of disposal with the carrying amount under IAS 36.18. Rebuild the projections on reasonable and supportable, approved assumptions under IAS 36.33 before concluding.
Official guidance: FASB Accounting Standards Codification
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