After the introduction of FAS 157 and FAS 159, the valuation of illiquid securities became a problem with high impact on public company financial statements. Pluris values illiquid securities for hundreds of publicly traded companies, both on the asset-side and the liability-side of their financial statements. Throughout the recent financial crisis, and with revisions to the fair value rules issued frequently both leading up to and at codification, new fair value issues have arisen frequently. With our proprietary data on illiquid securities in LiquiStat, public companies rely on Pluris to provide guidance in this area.
Fair Value
The Financial Accounting Standards Board (FASB) originally defined the term “fair value” in Concepts Statement No. 7 as, “The amount at which that asset (or liability) could be bought (or incurred) or sold (or settled) in a current transaction between willing parties, that is, other than in a forced or liquidation sale.”
While this definition specifically addresses the value of assets and liabilities, the FASB has held that is also applies to equity instruments.
ASC 820 (FAS 157) validates the importance of using market data for valuations, elevating FASB fair-value guidelines to Level A GAAP. See our “FAS 157 Handbook” for more information.
Because of inherent differences between employee stock options and restricted stock, and their market-traded equivalents, analysts usually rely on theoretical models for ASC 718 (FAS 123R) valuations.
Pluris Valuation Advisors has in-depth experience using both theoretical models and data from comparable transactions to develop valuations that will withstand audit scrutiny. For an overview of how valuation methods for employee securities and investor securities differ, please e-mail us.