In the uncertainty of this social distancing economy and volatile equity and debt markets, how should business owners and professionals of private companies think about value and the impact on corporate planning and financial reporting initiatives? In this article, we consider the difference between “price” and “value,” which may assist C-suite executives with internal planning and reporting efforts.
In February 2016, the Financial Accounting Standards Board (“FASB”) released Accounting Standards Update (“ASU”) 2016-02, which provided the finalized standards related to lease accounting under Accounting Standards Codification Topic 842, Leases (“ASC 842”). Subsequent Accounting Standards Updates have been issued in order to provide additional clarity on specific issues pertaining to lease reporting, which are beyond the scope of this article. ASC 842 pertains to both lessors and lessees, but valuation requirements resulting from the recently implemented standard mostly impacts lessees. Therefore, this article will be focused primarily on valuation issues which are relevant to lessees.
The Coronavirus Pandemic: Identifying Valuation Effects and Planning Opportunities for Private Clients
As you might expect, MPI is currently in close consultation with its clients given the volatility in financial markets, economic uncertainties, business shutdowns and other factors. The values of many privately-held businesses and investment partnerships, like most asset classes, have declined as a result of the crisis. The steepness of this decline, the duration of the economic effects of the crisis and the path to recovery will differ by industry and company position. To that end, we are hesitant to draw too many conclusions from price changes indicated by broad market averages, yet also know that the negative impacts on companies and individuals are far and wide. One thing that is clear is that the current environment has created a unique wealth transfer opportunity for many high-net-worth individuals and business owners. When the time is right, strategies should be discussed with the counsel of a trusted and experienced advisor.
The Latest Development in Business Valuation: Burdens of Proof, Tax Affecting S Corporations, and Chapter 14 in Kress
The combination of the court’s acceptance of tax affecting an S corporation’s earnings, tax affecting by the Internal Revenue Service’s expert, and the court’s determination that no S corporation premium applies resulted in a monumental development in the valuation of pass-through entities for federal estate and gift tax purposes.
Contact: Todd G. Povlich
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MPI’s Joshua Sechter was recently honored by the American Institute of CPAs as one of their Standing Ovation Recipients at their 2019 AICPA Forensic and Valuation Services Conference in Las Vegas.