Financial Reporting Valuation

Having an accurate and credible valuation is vital for financial reporting purposes as valuations are increasingly being scrutinized by owners, boards, auditors, and regulatory bodies. We have the capability to provide end-to-end support, including scoping, project management and execution, and audit support.
The fair value standards and applications are constantly evolving and can be complex. Our team has experience across a wide spectrum of accounting standards under the US GAAP and IFRS, and follows best practices by staying up to date on industry developments and guidance issued by institutions such as the AICPA and the Appraisal Foundation. Our team of valuation professionals provides sophisticated and supportable valuations to comply with these requirements. We ensure an efficient valuation process that withstands the requisite audit and regulatory scrutiny.

Purchase Price Allocations – ASC 805 and IFRS 3

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Whether it is a merger, an acquisition, or any other kind of business combination, it is often characterized by a complex and layered set of agreements to cover the transfer of ownership of different types of assets and liabilities to the buyer. Often, the consideration paid as a part of the transaction can be stock-based (which may require fair valuation if the acquirer is private) or in the form of earnout payments, contingent on the target company achieving certain financial or operational milestones. Valuation of stock consideration and earnouts, as well as the tangible and intangible assets and liabilities as of the date of the business combination, requires the use of multiple valuation approaches with a high level of attention to detail.

Our team of experienced valuation experts partners with you to deliver a robust valuation opinion reflecting the value of each business component, asset, and liability related to the transaction. With our experience and expertise, our valuations invariably stand the test of fair value in regulatory reporting (including audit scrutiny), dispute negotiations, and related party dealings. Leveraging the industry’s best practices and latest guidance, our team provides you with a robust and detailed purchase price allocation and the resultant goodwill estimate.

Goodwill Impairment – ASC 350/ ASC 360 and IFRS 36

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As the global economic scenario evolves faster than ever before, the fair market values of assets become increasingly volatile. With global accounting and reporting standards moving increasingly towards the “mark-to-market” method, illiquid assets of any business, especially intangible assets, need to be periodically revalued and restated in the financial statements.

Testing for goodwill impairment, and other intangible assets and long-lived assets is an important part of this ongoing process. It is usually an annual (or triggered by special events) exercise that requires testing for impairment at the reporting unit level. We at Knowcraft Analytics, understand the detailed approach required for it and are well-positioned to provide you the last-mile support in executing these projects.

Complex Financial Instruments – ASC 815/ ASC 820 and IFRS 9/ IFRS 13

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Major business agreements often include complex terms and conditions that engender different kinds of embedded derivative financial instruments, such as convertible notes, synthetic option structures, swaps, warrants and other embedded derivatives. Financial reporting standards globally require these instruments to be fair valued and reported in the financial statement. However, the valuation of these complex financial instruments requires an in-depth understanding of how such contracts are structured and a high level of expertise in valuing them.

Our valuation experts employ industry best practices, such as the option pricing model, Monte Carlo simulations, binomial (lattice) model, and probability-weighted scenario analysis, among others, to arrive at the most accurate and robust valuation of all kinds of complex securities and embedded features that form a part of business arrangements of your clients.

Stock Compensation Expenses – ASC 718 and IFRS 2

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Companies often offer equity-based compensation such as stock options, restricted stock units (RSUs), stock appreciation rights (SARs), or other equity awards to employees. These compensation plans may have complex terms and conditions, such as a vesting schedule tied to the performance of the company and/or a payout date contingent upon future events.

Knowcraft Analytics assists in ensuring that these equity-based compensation plans are recognized and measured accurately, preserving both employee trust and financial statement integrity. Our valuation experts employ valuation methodologies such as the option pricing model, Monte Carlo simulations, binomial (lattice) model, and probability-weighted scenario analysis, among others, to arrive at the fair value.

Portfolio Valuations – ASC 820 and IFRS 13

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Under ASC 820, private equity funds, hedge funds, pension funds, investment banks, and other institutional investors are required to periodically report the values of or “mark-to-market” their portfolio investments to their investors. Portfolio valuation requires an in-depth understanding of markets, the assets in question, the company and its competitors, and financial and nonfinancial information. Portfolio valuations are a complex aspect of investment management, especially for private investments with limited market data for comparison.

Knowcraft Analytics specializes in assisting clients with illiquid portfolio valuation services, i.e., securities and positions for which there are no “active market” quotations. We understand the complexity of valuing financial instruments such as illiquid equity, debt, and derivatives. We assist in the development and implementation of industry-leading valuation “best practices”, and procedures to ensure well-documented and defensible valuations for your clients.

Lease Accounting – ASC 842 and IFRS 16

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The new IFRS 16 – lease accounting standard became effective as of January 1, 2019, for all companies (both private and public). Additionally, the FASB lease accounting standard (ASC 842) took effect beginning after December 15, 2021 (calendar 2022) for private companies. These standards bring many leases onto the balance sheet and could significantly impact a business’ financial statements. The discount rate assumption is one of the most important judgements that the companies are required to make for lease asset and liability valuations. The interest rate implicit in the lease can be determined through an incremental borrowing rate (IBR) analysis. We understand the detailed approach required for it and are well-positioned to provide you with an accurate assessment of the IBR.

Intellectual Property

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Valuation of intellectual property (IP) assets held by a company is useful for several reasons, including financial reporting, tax compliance, fundraising, and strategic transactions such as sale, merger, acquisition, or licensing. IPs, such as trademarks, patents, domain names, brands, and completed and in-process research and development, are often the backbone of growing companies/ business units. For these reasons, accurate valuation and correct reporting of IP are key elements of communicating with all major stakeholders – shareholders, management, lenders, and regulatory authorities.

Our team of valuation experts has several years of experience in industries as diverse as technology, biotechnology and pharmaceuticals, medical devices, and consumer goods. With a team of in-house industry experts backed by strong internal processes and controls, we are best placed to provide an accurate assessment of the value for the entire set of IP assets of your clients.

Why Choose Knowcraft for Valuation?

Executed Over 10,000 Engagements
Acted as an Advisor to Help Clients Venture into New Service Offerings
Reduced Turn around Time by ~40%
Helped Scale Businesses from a Single-Member Team to a 40+ Member Strong Team
Enabled Business Growth through 50%-100% Increase in Revenue and 30%-50% Improved Margins

Case Studies

Contingent Consideration Valuation

Contingent Consideration Valuation

THE CLIENT AND THE ASK: A pharmaceutical company (the “Acquirer”) acquired a biotechnology company (the “Company”) in exchange for an upfront payment and certain payments contingent upon successful achievement of future regulatory and sales milestones for certain...

Forecasting and Valuation

Forecasting and Valuation

THE COMPANY AND THE ASK: The Company is a technology company with a business proposition to provide diagnostic services to rural India and reduce the turnaround time of getting the report from 24 hours to 1 hour. The Company was operating using multiple business...

IRC – 409A Valuation of Common Stock

IRC – 409A Valuation of Common Stock

THE COMPANY: A biotechnology company (the “Company”) engaged in the development of an Influenza vaccine as its flagship product with others in the pipeline. The lead drug was in the pre-clinical phase of development, as of the date of valuation. The Company had raised...

Frequently Asked Questions

What challenges are associated with financial reporting?

Challenges in financial reporting include complex accounting standards, changes in regulations, and the need for accurate and timely data. Due to expanding geographical footprint, it is increasingly vital for companies to simultaneously keep track of the U.S. and statutory generally accepted accounting principles (GAAP), international financial reporting standards (IFRS), and Securities and Exchange Commission (SEC) and other country-specific capital market regulations and investigations, to assist with internal and external financial reporting. Companies must navigate these challenges to provide reliable financial information.

What are the key components of a financial statement?

The primary components of a financial statement include the income statement, which shows revenues and expenses, the balance sheet, reflecting assets and liabilities, and the cash flow statement, detailing cash inflows and outflows.

How is financial valuation defined?

Financial valuation is the process of determining the economic value of an asset, company, or investment. It involves assessing the present and future cash flows, risk factors, and market conditions to arrive at a fair and accurate value.

Why is financial reporting important for businesses?

Financial reporting provides transparency and accountability, helping businesses communicate their financial performance to investors, creditors, and other stakeholders. It aids in decision-making and builds trust in the financial markets.
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