I have interviews coming up with several firms that provide business valuation and transaction services to corporations. Specifically, they provide opinions on purchase price allocation, goodwill impairment, accretion/dilution analysis, tax strategy, capital budgeting advice etc. I was told to expect some technical accounting questions. Other than knowing the process involved on the services above, what do you think would be some likely technical questions might be?
A few things to familiarize yourself with before your interview: ASC 350 (formerly SFAS 142) - Goodwill impairment - you can review at fasb.org ASC 805 (formerly SFAS 141r) - purchase price allocation - fasb.org ASC 718 (formerly SFAS 123r) - stock compensation - fasb.org IRC 409a - stock compensation for tax purposes - somewhere on IRS.gov, very similar to ASC 718. Derivates are becoming an increasing part of financial valuation, so try to work in your knowledge of Black-Scholes, Monte Carlo simulation and lattice models. If you have any debt knowledge, that is highly sought after right now too. Alternative investments are also big. Specific questions could involve valuation methods for different intangible assets, equity allocation methods for companies with both preferred and common stock, issues related to asset purchase vs. stock purchase.
Thanks higgmond. My understanding is that these groups are broken down into subgroups and I would not be responsible for securities valuation. Few follow up questions: 1) I have a decent understanding of goodwill impairment but how do these firms typically value other intangibles such as copyrights, patents, and trademarks? Did the CFA curriculum touch on this? If so, I don’t remember it. What level was it in so I can go back and review? 2) Where can I find some info on the equity allocation methods? A google search didn’t help and if it was in the CFA curriculum, I again dont remember it.
MT, The CFA curriculum isn’t really going to help in this case. I’m kind of pressed for time this afternoon, but poke around on the AICPA website and the Appraisal Foundation website and/or Google the following terms: For intangible asset valuation methods: “Multi-period Excess Earnings Method” “Relief from Royalty Method” “Greenfield Method” For equity allocation: “Option Pricing Method” “Probability-Weighted Expected Return Method” “Current Value Method” You can also Google generic stuff: “Valuing Customer Relationships” “Valuing Trademarks” Each of the Big 4 has good papers/articles on just about everything valuation related if you look around their websites enough.
Thanks a bunch. I will take a look at these topics. My interview is not until next week, so I should have plenty of time to prepare. I may have more questions in the coming days. Your help is very much appreciated.
Maybe over simplistic, but know the approaches to valuation for closely held businesses (net asset, income, market). Also know about the various discounts (minority, marketability) - maybe read up on some recent court cases that are relevant to the subject area.