Financial Reporting
Quist offers the following financial reporting and transaction advisory services:
Complex Securities and Financial Instruments
We are specialized in determining the fair value of complex securities, including various equity securities, convertible debt and other types of performance-based derivatives. We leverage our broad technical and quantitative expertise to account for economic uncertainties and market risks. We work collaboratively with you and your audit teams to ensure a smooth understanding of approaches and assumptions so that you can achieve your financial reporting objectives seamlessly.
Purchase Price Allocations
A Purchase Price Allocation (“PPA”) is frequently required for tax and financial reporting following a merger or acquisition. The authority on purchase price allocation for financial accounting purposes under US GAAP is Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 805: Business Combinations.
Acquiring entities will allocate the cost of an acquired entity to the assets acquired, both tangible and intangible, and the liabilities assumed as of the date of acquisition (based on their estimated fair values). We’ve developed strong expertise in valuing intellectual property such as trademarks, patents, customer lists, technical know-how, and data processing/technology.
Once the allocation of the purchase price to each asset (and liability) in a business sale has been accomplished, the residual is known as goodwill. Goodwill represents the amount an acquirer has paid above the fair value of the identifiable assets.
Goodwill Impairment
FASB Accounting Standards Codification (ASC) 350 – Goodwill and Other, requires an annual impairment test of goodwill, at a level of reporting referred to as the Reporting Unit. A goodwill impairment test progresses in three broad stages:
In the preliminary stage a qualitative assessment is performed to determine whether the goodwill carried on its balance sheet is likely to exceed its fair market value.
The first step to a quantitative assessment consists of calculating the fair value of the Reporting Unit on which the goodwill is based, and then comparing that fair value to the amount of goodwill currently carried on the balance sheet. If this assessment reveals that the value of goodwill stated on the company’s balance sheet is less than its determined fair value, then no further testing is required. If, on the other hand, the assessment reveals that stated goodwill exceeds its fair value, the company must proceed to step two of the quantitative assessment.
In step two of the quantitative assessment, the company’s individual assets and liabilities are scrutinized to determine their fair values. The amount by which the fair value established in step one exceeds the amount allocated to the assets and liabilities of a reporting unit is the implied fair value of goodwill. The excess of the carrying amount of goodwill over the fair value of that goodwill determines the amount of the goodwill impairment. The value of this impairment is subsequently reported as a goodwill impairment charge in the company’s financial statements.
Portfolio Company Valuations
In an environment of volatile markets, potential conflicts of interest, and regulatory changes, it is critical for fund and investment managers to hire a valuation partner who can help them navigate the portfolio valuation process, provide objective advice, and withstand scrutiny from all sides. We provide periodic valuations to assist our clients with financial reporting requirements.
According to Accounting Standards Codification (ASC) 820, portfolio investments must be reported at fair value on the investment firms’ financial statements. In partnership with major accounting firms, Quist has developed best practices to assist venture and private equity clients in implementing a more accurate, efficient and supportable process around portfolio investment reporting.