ASC 852 relates to accounting for corporate reorganizations. This ASC topic addresses the accounting and financial statement disclosure for debtor companies that emerge from Chapter 11 bankruptcy protection. In certain circumstances, such reorganized entities adopt fresh-start accounting, including the fair value of the reorganized company’s intangible assets. The seventh category of valuation reasons relates to forensic analysis. Litigation involving intangible assets generally falls into two categories: (1) breach of contract and (2) torts. A breach of contract claim requires that there is a contractual relationship between the parties. In a tort claim, there is no contract between the parties. Rather, one party owes a duty to the other party. Examples of breach of contract claims include violations of an intangible asset purchase or other transfer agreement, use license agreement, development agreement, commercialization agreement or joint venture agreement. Examples of tort claims include breach of fiduciary responsibility, infringement, eminent domain and expropriation actions, interference with business opportunity, fraud and misrepresentation, slander, and libel. There are generally accepted methods and procedures for measuring the economic damages suffered by the aggrieved party. These economic damages methods and procedures fall into three categories: (1) measurement of lost profits related to wrongful acts; (2) measurement of a fair royalty rate to compensate the owner/operator for wrongful acts; and (3) measurement of a decrease in intangible asset value (or “the cost to cure”) due to wrongful acts. The eighth category of valuation reasons relates to strategic planning and management information. The first of these relates to the control of the owner/operator’s intangible asset. The owner/ operator uses the valuation to inventory and to centralize internal control procedures related to intangible assets. The second relates to the protection of the intangible asset. The owner/operator uses the valuation to assess the adequacy of the company’s insurance on its intangible assets, and to document ownership and value of intangible assets to prosecute infringement and other claims. Other reasons involve intangible asset commercialization opportunities. The owner/operator could investigate and enter into license agreements, technology-sharing agreements, joint development agreements, joint commercialization agreements, and joint venture agreements.
Who is the Appropriate Valuation Analyst? There are many professionals who perform intangible asset valuations. Each of these professionals has certain pros and cons related to who is best qualified. The various categories include: academics, economists, industry consultants, licensing executives, CPAs and appraisers. An important consideration for the owner/ operator is: What other advice or service is desired in addition to the quantitative value conclusion? Robert Reilly, CPA
In addition to reporting the value conclusion, the owner/operator may want the analyst to assist with: 1) Preparing an offering document or other sales memorandum to begin the process of selling the intangible asset; 2) Negotiating the terms of a license or other commercialization agreement; 3) Identifying licensor or licensee candidates for a potential agreement; 4) Advising related to the financial accounting for an intangible asset transaction; 5) Advising related to the tax aspects for an intangible asset transaction; 6) Advising the owner/operator on how to optimize the use of the intangible assets; 7) Preparing the intangible asset components of a bankruptcy reorganization plan; 8) Finding an interested financing source; 9) Appearing before a government regulatory authority; or 10) Providing an expert witness report and courtroom expert testimony. The CPA who holds the Accredited in Business Valuation (ABV) credential is often the appropriate professional to value the intangible asset. CPAs comply with rigorous and comprehensive professional standards. CPAs are highly regarded by taxation authorities, regulatory agencies, the banking profession and the judiciary. In addition, most CPAs are knowledgeable of the related issues that affect intangible asset valuation, including financial accounting and taxation issues. CPAs who have also earned the ABV credential have a demonstrated experience and expertise in intangible asset valuation. The ABV credential, which is granted by AICPA, is granted to CPAs who have achieved specific experience, examination, and continuing education requirements.
Understand the Reason There are numerous reasons to conduct an intangible asset valuation. Understanding the reason for the intangible asset analysis is an important prerequisite to conducting the valuation, both for the CPA and the owner/operator. A clear definition of the valuation reason allows the CPA to understand if (1) any specific analytical guidelines, procedures or regulations apply and (2) any specific reporting requirement applies. For example, intangible asset valuations prepared for fair value accounting purposes should meet ASC 820 fair value guidance. Intangible asset valuations performed for intercompany transfer price income tax purposes should comply with Section 482 regulations. The individual reasons for the valuation may influence the standard of value applied, the valuation date selected, the approaches and methods applied, the form and format of the report prepared, and even the type of professional employed to perform the analysis. n
is a managing director with Willamette Management Associates in Chicago. His practice includes valuation consulting, economic analysis and financial advisory services. He can be reached at rfreilly@willamette.com.
Today’sCPA November/December 2014
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