Guide to Intangible Asset Valuation.
By Robert F. Reilly and Robert P.
Schweihs, AICPA, 2013, ISBN: 978-1937352257, $122.50 paperback, $111.25 e-book ($98.00 and $89.00 for the
e-book, respectively, for AICPA members)
Although the importance of intangible assets is now well accepted, the concept of intangible assets being a primary generator of value was a radical idea until the 1980s. Formerly, the equity section of a typical company listed on the New York Stock Exchange (NYSE) was a good indicator of market value. Since the widespread use of computers and the Internet, the globalization of trade, and the deregulation of major industries (such as telecommunications, electricity, transportation and financial services), intangible assets have been heralded as a more important component of value than the hard assets of the industrial age (Baruch Lev, Intangibles: Management, Measurement and Reporting, Brookings Institution Press, 2001). Brands, processes, patents, and intellectual property are the drivers of value today. Their scalability and networking effects are not subject to the diminishing returns associated with physical assets.
Once accepting that intangible assets are the dominant value drivers, there is still the challenge of valuing them. Cost has very little place in the analysis; sales value is difficult to identify; and the revenue generated by the use of an intangible asset is, more often than not, hard to determine. Guide to Intangible Asset Valuation is a one-stop resource that lays out in detail just about everything an accountant needs to know in order to value intangible assets. It can serve as an analyst's starting point to identify and then fulfill intangible asset valuation assignment objectives.
After a glance through the 14-page table of contents, this book (more than 700 pages long) seems daunting. Reilly and Schweihs provide a detailed presentation of virtual ly every aspect of almost any kind of intangible asset valuation endeavor. Basic definitions, valuation principles, and key concepts are well described and accompanied by step-by-step guides on how to apply them, with detailed data gathering and procedures that define the intangible asset valuation process. This reviewer is currently working on a project that includes a valuation of both proprietary software products and a franchise and a trade name. Turning to these topics provided the information necessary to structure the reviewer's approach to the project. The
Guide to Intangible Asset Valuation is a one-stop resource that lays out in detail just about everything an accountant needs to know.
book clarified certain concepts and provided a useful, comprehensive guide that pointed the way by identifying sources of information.
Reilly and Schweihs cover a variety of assignment types--from the allocation of acquisition price and impairment testing to economic damage analyses relating to infringement suits, as well as valuations to determine sale price, royalty rates, intercompany transfer pricing, securitization, taxation, bankruptcy, and remaining useful life determinations. Details on what a valuation analyst should consider are based upon the purpose of the assignment. Basic concepts, such as standards of value and premise of value, are discussed with reference to the questions of "whom" the transaction is with and "how" it will be consummated, respectively. For example, a sale, as compared to a licensing transaction using a fair market value standard, can lead to very different results depending upon the circumstances described by the premise of value. Throughout the book, the authors do a great job of highlighting and explaining this type of nuance.
Highlights by Chapter
Chapters 1 through 12 identify intangible assets; give reasons to value them; explain valuation principles for the various types of valuations; and provide data-gathering techniques, due diligence procedures, and the nuts and bolts of the valuation process. Chapter 13, on highest and best-use analysis, is particularly insightful. When valuing the equity of a business, the highest and best use is typically the continuance of the business. Intangible assets may have very different values, depending upon their intended use versus potential use. For example, the sale of an intangible asset may produce a higher value than its value in use.
Chapters 14 to 20 describe the cost, market, and income approaches, along with specific procedures for applying them and comprehensive illustrative examples of each. Chapters 21 to 24 are devoted to acquisition and fair value accounting issues. Chapter 25 details valuation principles associated with intellectual property. Chapters 26 to 33 explain how to value a variety of intangible asset types, including contracts, customers, data processing, human capital, and engineering. Finally, Chapter 34 provides a guide to reporting the results of an intangible asset valuation.
A Valuable Tool
Guide to Intangible Asset Valuation is a must-read for professionals who value such assets or for those who use the results of valuations for consulting, management, investment, or attest services. I know of no other publication that deals with this subject from a hands-on approach as effectively as this guide.
Martin J. Lieberman, CPA/ABV, ASA, is a managing partner and head of the business valuations/forensic accounting group of Lieberman LLP, New York, N. Y., and a member of The CPA Journal Editorial Board.