Orchard values equity securities for financial reporting and tax purposes. Sometimes these purposes can overlap, as when a company requires a common stock valuation for option pricing purposes. A Regulation 409A valuation for tax may also be used for financial reporting of stock option valuation under ASC 718 (formerly FAS No. 123R). Often, however, we find that appraisal requirements differ depending on how the appraisal will be used. In an appraisal for financial reporting, it is necessary to demonstrate an understanding of the relevant accounting standards and practice. This guidance takes various forms:
- As an “Accounting Standards Codification (ASC)” published by the Financial Accounting Standards Board (FASB). For example, ASC 820 is the standard for "Fair Value Measurements", which provides the FASB's definition of fair value.
- As an issue addressed by an "emerging issues task force" (EITF) of the FASB.
- As practice guidance published by an industry organization, such as the American Institute of Certified Public Accountants (AICPA), the Appraisal Foundation, or the Appraisal Issues Task Force (AITF).
If the appraisal is to be used for tax reporting, accounting standards are less relevant than IRS pronouncements (such as Revenue Ruling 59-60), court cases and the body of literature which addresses business appraisals for tax purposes. If the appraisal is to be used for an Employee Stock Ownership Plan (ESOP valuation), regulations from the Department of Labor are relevant.
If the appraisal is for accounting purposes, the standard of value is fair value. If a valuation for tax is required, the standard is fair market value.
It is the responsibility of the business appraiser to know the appropriate standards and practices for a particular type of appraisal. To that end, we work hard to stay up-to-date on the latest pronouncements, and we're constantly exchanging ideas and findings with others in the industry.