FV review Essay

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Class1: Over 40% of all audits inspected by the PCAOB in 2012 had deficiencies.
FVM audit deficiencies continue to be significant, making up 24.6% of total deficiencies in 2012.
There has been a significant shift in the causes of FVM deficiencies from financial instruments to business combinations. Prior to 2012, 86.9% of FVM deficiencies were caused by insufficient testing of financial instruments. In 2012, deficiencies relating to financial instrument dropped to 55.0% and those relating to business combinations increased to 45.0% of all FVM deficiencies.
The number of deficiencies caused by failures to assess risk and failures to test internal controls increased sharply in 2012
Sarbanes Oxley
Requires the CEO and CFO of a company to certify the accuracy of the financial statements with the understanding that they may be held personally criminally liable if the financial statements are found not to be accurate
Created the PCAOB with the mandate to conduct inspections of registered public accounting firms
Restricted the activities on some non audit services that may not be performed by an audit firm for its audit clients
PCAOB
The Public Company Accounting Oversight Board (PCAOB) conducts inspections of registered public accounting firms as required by he Sarbanes-Oxley Act of 2002
Designed to identify and address deficiencies in a firm’s audit engagements and to determine whether they indicate a weakness or a defect in the firm’s system of quality control over audits.
Accounting Standards Codification (ASC) database is the authoritative source for US GAAP
The purpose of the work plan is to provide the SEC with sufficient information to decide ”whether, when and how our current financial reporting system for US issuers should be transition to a system incorporating IFRS.”
Adam Smiths
New rules in recent years have required that the Fair Value (FV) of stock options to be shown as an expense in the income statement
Private company council initially emerged about 2 years ago as a sister entity to the FASB
Private company council concept: Reduce costs related to GAAP compliance for private companies – change “non-useful” data requirements
Business Combinations
Treatment of Goodwill as Amortizable
Non compete & customer related intangibles in goodwill

Impairment
Goodwill testing only upon “triggering event” – not annually
Goodwill tested at “entity level” instead of lower level “reporting unit level”

Class 4
Fair value shall be measured using assumptions that market participants, acting in their economic best interests, would use when pricing the asset or liability

Markets participants are the buyers and sellers of an asset or liability in the exit market and are independent of each other.

Market participants must have both the willingness and the ability to transact at fair value

Fair value is not the value specific to the reporting entity, nor is it necessarily the specific value to one market participant whose risk assessment may significantly differ (e.g., an outlier) from other market participants.

Level 2 – Observable inputs (directly or indirectly) other than quoted prices included within Level 1 for identical assets and liabilities ( Use data from prices for similar assets and adjust)
A fair value measurement of a financial liability or a non-financial liability assumes that the liability, is transferred to a market participant at the measurement date

A fair value measurement of a financial liability or a non-financial liability assumes that the liability, is transferred to a market participant at the measurement date (that is, the liability would continue and the market participant transferee would be required to fulfill the obligation; it would not be settled with the counterparty or otherwise extinguished on the measurement date).
The standard requires that the fair value of a liability include the non-performance risk related to the liability being measured. This refers to the risk that an obligation
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