Principal Issues and Past Problems
This article introduces valuation issues associated with the new accounting standards. It reviews, from a UK perspective, the principal issues and past problems associated with the significant switch from historical cost-based accounting to fair value-based accounting principles as reflected in these standards, principally IFRS 2: Share-based payments, IFRS 3: Business Combinations and IAS 36: Intangible assets
The Valuation of Brands
This article introduces how to value brands for financial reporting purposes, including their component elements, principally trademarks and/or trade names, and associated "brand assets" such as technical innovation and marketing support, distribution network, installed equipment base, maintenance support network, deferred assets, etc.
Managing your brands to maximize value
This article examines the use of the valuation concepts reviewed in the previous article to manage the value of brands. Hopefully this will help these concepts "come alive" for those for whom valuation has little relevance to the day-to-day problems of trying to run a business.
Technology Valuation
This article introduces how to value patents, unpatented technology and "in-process" research & development projects. Consideration of the interesting valuation challenges associated with R&D projects in the biotechnology and pharmaceutical industries, however, was left to a later article.
Employee share options and share-based payments
This article introduces how to value employee share options and other share-based payments, and the importance of performance conditions attaching to these. Market-based performance conditions are only valued once, as of the date of grant, whereas the impact of changes in non-market conditions is subsequently "trued-up" for in the accounts of the reporting company.
Valuing your unquoted companys shares
It is necessary to value an unquoted companys shares before you can value its employee share options or share-based payments. This article introduces how to do so using the income, market and cost approaches, and addresses associated issues such as developing appropriate discount rates, terminal values, and the value of majority shareholdings versus that of minority interests.
ESOs: Valuing the Impact of Performance Conditions
This article introduces the major issues to be addressed in constructing appropriate Monte Carlo simulation models to estimate the probabilities of complex market-based performance conditions being met. It also provides guidance on estimating the probabilities of meeting commonly encountered non-market performance conditions, often involving estimating the errors inherent in brokers (or managements) forecasts.
Valuing IPR&D in biotech and managing technology
This article follows on from the earlier one on the valuation of technology and addresses the issues related to R&D projects in the biotechnology and pharmaceutical industries. It also introduces the use of decision trees in valuation. A final section addresses some of the ways companies have used the key concepts for determining the strength of patents and associated unpatented technology to better manage their technology.
Negative Goodwill and Buildings with Trading Potential
This short article is intended to alert accountants and other financial executives to some of the issues and abuses associated with the valuation of real estate and other tangible fixed assets which, regrettably, they may still encounter in practice. Although there is not necessarily any direct connection between Negative Goodwill and the Valuation of Buildings with Trading Potential, in practice the two issues are often associated.
Valuation of Customer Relationships
This article introduces a number of the basic concepts associated with valuing customer relationships and, in particular, reviews the key steps and factors to consider in analysing the lives of such relationships.
Determining Discount Rates
This article recaps the development of discount rates for valuing business and goes on to address how you might handle some of complexities associated with developing and applying discount rates in valuing acquired intangible assets.
More on Discount Rates; Escaping the Labyrinth
This article reviews the confusion surrounding the Equity Risk Premium and its appropriate level for incorporation into discount rates. It also considers Country Risk Premia and steps which have been taken to address shortcomings in the Capital Asst Pricing Model - such as Arbitrage Pricing Theory, the Fama-French Three Factor Model, and Weimin Lius Liquidity adjustment factor. Finally it addresses some of the essential concepts and problems associated with use of the Adjusted Present Value ('APV') model, and some of the conceptual confusion surrounding its use.

b) Valuation issues in business and financial reporting

SME Valuations: Discount Rates and Goodwill
This article examines in greater depth a number of key issues specific to the valuation of unquoted small and medium-sized enterprises. The article specifically addresses the use of fundamental measures of risk in the development of discount rates (with specific reference to the Duff & Phelps LLC: Risk Premium Report), and how best to handle certain issues relating to the valuation of Goodwill and other intangible assets for tax purposes in the UK. The latter include personal goodwill (i.e. that attaching to a previous owner of a business), discretionary earnings, buildings with trading potential, and the exclusion of intangible assets created prior to April 2002.
The irrelevancy of much valuation-related research (Opinion-piece)
This opinion-piece addresses the problem of academic researchers outside the USA concentrating much of their valuation research exclusively on US-based market data. For reasons of academic recognition and credibility, there is a perceived need for academic researchers to publish their research in prestigious USA-based journals. Regrettably, associated with this requirement is the belief that the editors of such journals require, therefore, the research to have been based on market data relating to the US markets. The opinion-piece also addresses other factors contributing to the dearth of sound, comprehensive valuation-related research outside the USA, which include cultural factors and the emphasis placed on obtaining funding for research from bodies such as research councils rather than generating funding for further research based upon exploiting the commercial potential of prior research.

c) Published on www.financeweek.co.uk (sister web-site to AccountingWEB) under the series title: How firms should value intangible assets:

Analysing what is an intangible asset
The article discusses how to define intangible assets and the development of the concept with specific reference to brands and customer relationships. It also addresses the difference often found between valuations performed for accounting purposes and the assets perceived "value to the business".
1. Tax amortisation benefit: examination of this controversial topic has been included both in the original article and as a separate carve-out, owing to its importance.
Valuing intangibles: a critical review of Royalty-relief
The article examines new developments associated with how best to value strong consumer brands and patents. In some situations the Relief-from-Royalty methodology may be inappropriate, but its correct use is outlined.
Intangible assets, MEEM, economic lives and financial overlays
This article examines the multi-period excess earnings methodology, MEEM [or MPEEM], together with some of the associated complexities encountered in practical application. Owing to the length of the original article, it is included on this web-site as two separate carve-outs, as follows:
1. Valuing intangibles: Financial overlays, WARA, and economic lives The carve-out examines the role of the Financial Overlay in helping reduce errors and inconsistencies when valuing intangible assets, and addresses the reconciliation of the weighted return on all assets to the weighted average cost of capital. Finally, two ways to determine an assets effective remaining economic life are examined.
2. Valuing intangibles: Multi-period excess earnings methodology This carve-out examines the multi-period excess earnings methodology (MEEM) and some of the associated complexities encountered in practical application. MEEM is often used in valuing customer relationships, and can also be appropriate in valuing strong consumer brands and strong pharmaceutical product patents.

Section 2

An article published by BNA International in a Special Report on Valuation and Taxation of Intellectual Property, October 2007:

Valuing technology, including R&D Projects
This article introduces how to value patents, unpatented technology and "in-process" research & development projects. The second part of the article considers the specific valuation challenges associated with R&D projects in the biotechnology and pharmaceutical industries, and introduces the use of decision trees in valuation.

Section 3

Training materials; unpublished articles

Lecture Notes: Valuation of Intangible Assets and Accounting Issues
Notes on a miscellany of issues including an introduction to the valuation of intellectual property and intangible assets, open market and fair value + specific fair value problems, valuation in the context of the new accounting standards + the changed UK tax regime, principles-based versus rules-based regulation, other accounting issues, and critical success factors in effective fiscal negotiations.
Employee Share/Stock Options: A brief overview of issues relevant to FRS20 Valuations

Section 4

The role of Monte Carlo in the appraisal of complex financial instruments by Hugh J Osburn, ASA, CFA and G.P.Y. Clarke, PhD

This article addresses the valuation of a path-dependent option, using the example of a floating-strike lookback option as a case study. It also examines the obligations of the appraiser in disclosing the risks in the option valuation. Current practice of reporting the mean value as the "fair value" does not meet any requirement for risk evaluation, and it is this point that is the main focus of the article.

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Edited versions of article 5 (Employee share options and share-based payments), 16 (Valuing intangibles: a critical review of Royalty-relief) and of the carve-outs 15a (Valuing intangibles: Tax amortisation benefit) and 17a (Valuing intangibles: Financial overlays, WARA, and economic lives) have also been published in Newsletters issued by the Valuation Special Interest Group of the Institute of Chartered Accountants in England and Wales.

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Articles: valuation of businesses, intangible assets and complex options

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