Accounting valuations
Fair value accounting continues to grow in significance in the accounting world and audit firms are demanding greater levels of sophistication and complexity in the valuation of many assets and liabilities, particularly in relation to business combinations and acquisitions.
Purchase price allocations
For all acquisitions, companies need to consider the allocation of the fair value of the purchase price across the identified tangible and intangible assets. To a greater or lesser extent, this applies to all companies, irrespective of the financial reporting framework.
Under IFRS and US GAAP, there are extensive and established requirements for the recognition of intangible assets separately from goodwill. Under New UK GAAP, whilst the amendments to FRS 102 (effective from 2019) have relaxed the requirements on recognising intangible assets on acquisitions, the changes do not necessarily mean the end to the recognition of all intangible assets on acquisition.
We have a dedicated team of valuation experts with significant experience in carrying out purchase price allocation assignments, with particular focus on the valuation of intangible assets. We use a variety of established valuation techniques recognised as generally accepted practice by auditors, applying these to a wide range of intangible assets.
We work with a wide range of companies, from fully-listed and AIM companies through to privately-owned and private equity-backed businesses, providing valuation advice on acquisitions in the UK and internationally. Our experience covers purchase price allocation assignments in a wide range of industries and sectors, including:
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Goodwill impairment reviews
Companies reporting under IFRS are required to carry out impairment testing every year on goodwill arising on business combinations starting from the period the acquisition was made. In recent years, given challenges in the wider economic climate impairment testing has been brought into sharper focus for auditors and regulators alike.
We work with many companies to carry out impairment testing on goodwill, using information from management and other sources to estimate the recoverable amounts (value in use or fair value fewer costs to sell) of cash-generating units. As part of our testing, we provide sensitivity analyses on assumptions that have the most significant impact on the results of the testing.
In our experience, there is often a natural link between the services provided in respect of purchase price allocation on the acquisition and impairment testing required subsequently.
Share-based payments
Even in volatile markets, share-based payments continue to be a valuable element in many companies’ remuneration and retention strategies. We have a range of internally developed option pricing models which can be tailored to provide valuations for virtually all share-based payment arrangements.
Given the complexity of many types of awards currently being issued, it can sometimes be difficult for companies to understand the impact of proposed share-based payment arrangements on future earnings. We often assist companies in understanding the potential impact of proposed arrangements through illustrative valuations, thus allowing the performance conditions to be adjusted if necessary to balance the competing needs of providing incentives to employees and maximising reported earnings.
We also work with companies to accurately calculate the share-based payment charge to be recognised across the life of the awards, taking into account (actual and expected) forfeitures as well as the (actual and expected) outcome of non-market performance conditions.
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