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With anticipation and a touch of fear, many were hanging their hats on the December jobs data and the official start of the recession. The disappointing numbers were the lowest in more than four years and further signal the economic slowdown. For what is worth, an economic recession conjures up many assumptions with respect to valuation. Aside from the migration to consumer cyclical stocks such as Proctor and Gamble, Johnson and Johnson, and possibly the fight to treasuries, we also may expect to see more write-downs on corporate balance sheets. As we move into the 2008 audit season auditors will have the nagging benefit of hindsight relative to year-end financials. The question is how will this clouded perspective impact the results of goodwill impairment tests (FAS 142), fair value calculations of investments under the anticipated FAS 157 or the fair value of various embedded derivatives under FAS 133. With less optimism than late last year, will auditors view companies' projections with an even greater deal of skepticism? Only time will tell, but management will be under pressure to defend the assumptions used in the valuation of the assets on carried on their balance sheets.

Category(s): Valuation Thoughts
Posted by Jim Connors at 07:34 PM | Permalink | Comments (0) | TrackBacks (0)