What Is Fair Value Reporting?

Fair value reporting refers to the use of independent business valuations to support financial statement presentation under generally accepted accounting principles (GAAP). Under GAAP, companies must measure and report assets at fair value in specific circumstances, and these valuations must be performed by qualified, independent professionals. Fair value reporting is required in several critical areas of corporate accounting, including business acquisitions, goodwill impairment analysis, stock-based compensation, and certain restructuring transactions.

Fair value reporting serves several important purposes. It ensures that financial statements reflect accurate asset values as of the measurement date. It provides auditors with the independent third-party valuations required to support their audit opinions. It demonstrates to investors, regulators, and other stakeholders that a company’s financial statements are based on credible, professionally prepared valuations. For companies conducting material acquisitions or facing potential goodwill impairment, fair value reporting is often required and is always prudent.

At Corporate Valuations, Inc., we have more than four decades of experience providing fair value valuations that meet the specific requirements of ASC 805, ASC 820, ASC 350, ASC 718, and other relevant accounting standards. Our ASA-credentialed professionals understand the intersection of valuation, accounting, and audit requirements, and we prepare valuations that support both strong financial reporting and successful audit outcomes.

Purchase Price Allocation (ASC 805)

When a company acquires another business, accounting standards require the purchase price to be allocated among the assets acquired and liabilities assumed. This allocation—called Purchase Price Allocation (PPA) or business combination accounting—determines the fair value of identifiable assets and liabilities, and the resulting goodwill amount. The allocation has direct implications for future financial statement presentation, depreciation and amortization expense, and goodwill impairment analysis.

Why PPA Valuations Matter

An inaccurate purchase price allocation can distort financial statements for years following an acquisition. Tangible assets may be misstated if fair values are not carefully determined. Intangible assets such as customer relationships, proprietary technology, trade names, and covenants not to compete may be incorrectly valued or omitted entirely, resulting in excess goodwill that doesn’t reflect the true nature of what was acquired. When companies later conduct goodwill impairment testing, inaccurate initial allocations can lead to unexpected impairment charges.

Our PPA Process

We perform comprehensive purchase price allocations that carefully analyze and value all tangible and intangible assets acquired. We work from a detailed understanding of the business acquired, the transaction documents, financial data, and the expected synergies and business drivers. We analyze fair values for inventory, equipment, real estate, intellectual property, customer relationships, and other business-specific assets. Our work is thoroughly documented to meet audit standards and prepared in formats that integrate seamlessly with your company’s accounting system and financial statement preparation process. We have completed hundreds of purchase price allocations across a wide range of industries and transaction sizes.

Goodwill Impairment Testing (ASC 350)

Companies are required under ASC 350 to test goodwill for impairment at least annually (or more frequently if circumstances warrant). Goodwill impairment testing compares the fair value of a reporting unit to its net book value; if fair value has declined below carrying value, an impairment charge may be required. Goodwill impairment testing is a complex process requiring careful analysis of operating performance, market conditions, and competitive position.

The Impairment Challenge

Many companies dread goodwill impairment testing because unexpected impairment charges can materially impact earnings, ratios, and stock price. However, rigorous, well-documented annual testing actually protects your company by identifying valuation issues early, allowing time for strategic response, and avoiding surprise impairment charges. Fair value testing also demonstrates to auditors and investors that your company has a disciplined, professional approach to financial reporting.

Our Impairment Testing Approach

We conduct comprehensive goodwill impairment testing that objectively evaluates fair value under current market conditions. Our testing employs income-based approaches (discounted cash flow analysis) supplemented by market-based data (comparable company multiples, transaction data) and asset-based analysis where appropriate. We carefully document all assumptions, sensitivities, and conclusions. We work closely with your finance and accounting teams to ensure seamless integration with your financial planning, budgeting, and forecasting processes. Our detailed, professional reports provide auditors with the documentation they need to support their audit conclusions and give you confidence in your financial statements.

Stock-Based Compensation (ASC 718)

Companies issuing equity awards to employees, consultants, or other service providers must measure the fair value of those awards under ASC 718. For publicly-traded companies, equity award valuation typically relies on market prices. However, for private companies and for certain types of awards (restricted stock units, performance awards, profits interests, etc.), fair value must be determined through professional valuation analysis.

Valuation of Equity Awards

We value equity awards for private companies using valuation methodologies appropriate to the company stage and circumstances. For early-stage companies, we may use option-pricing models (such as the Black-Scholes model or binomial models) to value equity grants. For more mature companies, we employ discounted cash flow methods, comparable transaction analysis, or asset-based approaches. For performance awards and restricted units, we analyze the probability of vesting and market conditions that may affect the award value.

Audit Support & Compliance

Stock-based compensation is a major expense item for many companies, and auditors scrutinize ASC 718 compliance carefully. We provide detailed valuation reports that document the basis for fair value, explain our methodology, and support your company’s financial statement presentation. We work with audit firms, compensation consultants, and CFOs to ensure that equity award valuations are accurate, well-documented, and compliant with accounting standards. Our reports are prepared specifically to meet audit standards and support successful audit outcomes.

Working With Your Audit Team

We have developed strong working relationships with audit firms throughout the Pacific Northwest and nationally. When we prepare fair value valuations, we coordinate closely with your audit firm to ensure all reporting requirements are met and to facilitate efficient audit procedures. We provide valuations in formats and with documentation that audit teams expect, respond promptly to audit inquiries, and support successful audit outcomes.

Whether you need a purchase price allocation to support an acquisition, annual goodwill impairment testing, equity compensation valuations, or other fair value reporting, we have the expertise and audit experience to deliver high-quality work that supports your financial statements, meets accounting standards, and satisfies your auditors. We work on realistic timelines and provide transparent, professional support throughout the process.

Support Your Financial Reporting

Whether you need purchase price allocations, goodwill impairment testing, equity compensation valuations, or other fair value reporting support, our experienced team can deliver audit-quality valuations on your timeline. Contact us to discuss your fair value reporting needs.