SFAS 141 and 142: Room for the Single Shingle Shop?

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Susan Heisey
D.L. Heisey & Co., Inc.
Parker, CO

When SFAS 141 & 142 first appeared on the scene in June of 2001, visions of dollar signs danced in BV practitioners’ heads. Since that time, real-world experience has shown us a mixed bag of results. Though there have been any number of articles dealing with the technical side of delivering this service line, very little attention has been paid to how a practitioner – especially someone in a smaller (or even single-shingle) shop – might successfully develop this work. Just what sort of energy, resources and professional attention are necessary to achieve a satisfactory market share?

Perhaps the first question worth asking is whether there really is any market share to be had. Essentially, SFAS 141 & 142 address the financial accounting and reporting of business combinations, and for acquired goodwill and other intangible assets. This represents a significant shift in how American business, both public and private, will organize, account for and report on operations. In a nutshell, the old way of accounting for business combinations and goodwill amortization was recognized as less than helpful overall, and potentially arbitrary. All this change is great news for appraisers because any business that acquires another that involves intangible assets and/or recognizes goodwill as a result must perform a fair value measurement as of the acquisition date, and thereafter test its new intangibles and/or goodwill regularly for evidence of impairment. Since so many valuable business assets comprise intangibles, it’s hard to imagine a business combination (regardless of size) that doesn’t also involve some intangible in need of annual fair value measurements. The ongoing appraisal opportunity involves recurring fair value measurements for the client.

Serving this market, however, isn’t as easy for the smaller practice as simply declaring that you’re available to take the engagements. For one thing, these aren’t your grandfather’s 59-60 fair market value appraisals. SFAS 141 & 142 requires fair value as the appraisal standard, and compliance with work paper performance that meets AICPA audit standard requirements. Fortunately, neither of these are fatal requirements. Additionally, though, one needs competency in intangible asset valuation, applied quantitative analytical appraisal methods, familiarity with other referenced literature, a strategic marketing plan and, above all, competency in the FASB fair value standard.

So, you think you see an opportunity? You still want to move ahead? In the October issue of this newsletter, we’ll offer a closer look at the nuts and bolts of actually pursuing 141 & 142 market share.