Valuation for Financial Reporting

Accounting and valuation standards for financial reporting are constantly changing and have become increasingly complex. This course builds on concepts covered in Level III – Advanced Business Valuation, which introduced valuation for financial reporting concepts as well as the valuation of intangible assets. IVFR continues and expands on this foundation with coverage of a number of the financial reporting-related standards and guidance in existence and used in practice, as well as some of the related valuation issues that can be encountered.

This course takes a public company perspective and focuses on the international financial reporting standards (“IFRS”) as all Canadian public companies are required to report under IFRS. Further, the accounting standards for private enterprises (“ASPE”) are predominantly similar to IFRS with respect to the valuation of intangibles and the impairment of goodwill and intangibles for financial reporting purposes.

Module 1 – Introduction of Financial Reporting Standards

This module focuses on the application of IFRS 13, which was issued by the International Accounting Standards Board (“IASB”) in 2011 and is the single framework for Fair Value measurement under IFRS. The standard applies to both financial and non-financial items measured at Fair Value.

Specific topics addressed in this module include:

  • Fair Value for financial reporting.
  • Value-in-use cash flows.
  • Business combinations and impairment testing.

Module 2 – Purchase Price Allocation

Module 2 discusses the key aspects of the purchase price allocation process, such as identifying the intangible assets, assessing and selecting the appropriate valuation approach, developing the valuation model, assessing the reasonableness of the results and managing the purchase price allocation process.

Specific topics in this module include:

  • Identifying the acquirer.
  • Measuring fair value of the target company.
  • Determining the purchase price.
  • Market participant assumptions.
  • Weighted Average Returns Analysis (WARA).

Module 3 – Valuation of Investment Entities

Module 3 provides an introduction to the valuation of investment entities and the relevant accounting standards and guidance. Investment entities are defined as entities which hold investments on behalf of their owners and generally have no business operations other than acting as a holding company for the investment owners of the investment (such as pension funds, hedge funds, private equity funds).

Specific topics in this module include:

  • Relevant accounting standards and guidance.
  • Fair Value measurement for investment entities.
  • Fair Value hierarchy.
  • Transactions that are not orderly.
  • Gains on initial recognition.

Module 4 – Impairment

Module 4 provides an introduction to the impairment test relating to goodwill and intangible assets. The module discusses the rationale behind goodwill and intangible asset impairment, the process to perform the impairment testing and specific valuation issues relating to the impairment test.

Specific topics addressed in this module include:

  • Triggering events.
  • Discussion of Cash-Generating Units.
  • Intangible assets.
  • Fair Value vs. market prices.
  • Auditor and valuator responsibilities.

Module 5 – The Role of a Valuator in an Audit Engagement

Modules 1 to 4 discussed specific financial reporting standards that require Fair Value accounting. In order to implement these standards, auditors of financial statements subject to Fair Value reporting will have to become comfortable with valuation methods used by the company or by management’s valuator. To this end, an auditor may involve a valuator as an expert on the audit team to assist them in obtaining sufficient and appropriate audit evidence, which is discussed in this module.

Specific topics in this module include:

  • Determination of audit services required.
  • Independence and objectivity considerations.
  • Use of an expert.
  • Engagement process. Assessment of the Fair Value report.

 

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