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Valuation for Financial Reporting

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(The following is an excerpt from The Executive's Guide to Business ValuationTo view this free IACAM executive guide, please click the blue link above.)

Valuation for Financial Reporting

When a purchaser acquires a target, the resulting goodwill (if any) resides on the acquirer’s financials after the close of the transaction. A purchase price allocation (“PPA”) is a classic example of valuation for financial reporting compliance. In a PPA, the valuator appraises the tangible and intangible assets of an acquired company. Financial Accounting Standard Board (FASB) pronouncement 141R, “Business Combinations”, dictates the regulatory foundation in a purchase price allocation.

In valuation for “mark-to-market” accounting, FASB 157 similarly provides authoritative guidance. Other areas of financial reporting that require a valuation include computing the option expense under FASB 123R. 


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