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Fair Value Checklist for Audit Season

December 6th, 2011 by Brian Bornino

With year-end upon us, this may be companies’ last chance to “get ahead” and deal with any “fair value” issues before field work begins on your year-end audit.  The most common issues to be aware of include:

1. Did you make acquisitions in 2011?


If so, a purchase price allocation in accordance with ASC 805 is probably required, in which the fair value of all acquired assets and liabilities, including previously un-booked intangible assets such as technology (whether patented or not), trade names, customer relationships (whether contractual or not), and various others must be valued and recorded.

2. Do you have goodwill on your balance sheet?


If so, this goodwill must be tested annually for impairment.  While new FASB rules allow companies to initially measure impairment using qualitative factors, inevitably many prudent auditors will require more rigorous quantitative procedures.

3. Did you issue any stock-based compensation in 2011, such as stock, options, stock appreciation rights, warrants, etc.?


If so, the fair value of this stock-based compensation must be determined so that an appropriate compensation expense can be recorded.  Also, in the case of options and warrants, there may be income tax-related issues to address related to IRC 409(A).


Now is definitely the time to contact a valuation advisor if any of these issues apply to you, as most high quality valuation advisors are currently filling up their backlogs and workloads for the upcoming audit season.

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