Accounting and Valuation Guide: Valuation of Privately-Held-Company Equity Securities Issued as Compensation

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1st Edition

by AICPA (Author)

This new Guide has been developed by AICPA staff and the Equity Securities Task Force and is the first in a series of 3 NEW AICPA Accounting Valuation Guides to be released. This long anticipated release reflects best practices developed over the previous decade.

Since the issuance of FASB ASC 718 and 505-50 in 2004, valuing stock-based compensation ("cheap stock") has been a significant challenge for private companies. This New Guide has been designed to mitigate those challenges. It brings you practical guidance and illustrations related to accounting, disclosures and valuation of privately held company equity securities issued as compensation.

This guide includes:

• Evaluating private and secondary market transactions — What should companies do when transaction activity doesn't match their estimates of value?
• Adjustments for control and marketability — How should companies think about the value of the enterprise for the purpose of valuing minority securities? When is it appropriate to apply a discount for lack of marketability, and how should the estimated discount be supported?
• Highly leveraged entities — How should companies incorporate the fair value of debt in the valuation of equity securities? What is the impact of leverage on the expected volatility of various securities?
• The relevance of ASC 820 (SFAS 157) to cheap stock issues
• Updated guidance and illustrations regarding the valuation of, and disclosures related to, privately held company equity securities issued as compensation

This Guide also provides expanded and more robust valuation material to reflect advances in the theory and practice of valuation since 2004.

This edition includes guidance from FASB ASC 718, 505-50, 820-10 and SSVS 1 which were all issued since the last AICPA guidance dedicated to this issue.