Fair Value Measurements and Disclosures

ASC Topic 820 (formerly SFAS 157) provides guidance on how entities should measure and disclose fair value in their financial statements. Fair value is defined in ASC Topic 820 as the “price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” Fair value, as defined under ASC Topic 820 focuses on an exit price.

ASC Topic 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and establishes a fair value hierarchy that distinguishes between observable (market based) and unobservable (entity specific) inputs. The fair value hierarchy consists of: (1) level 1 inputs - including unadjusted quoted prices for identical assets or liabilities in active markets; (2) level 2 inputs – including quoted prices for identical assets in markets that are not active (thinly traded securities), quoted prices for similar assets (restricted securities, private investments in public companies, etc.), or market inputs other than the directly observable quoted price; and (3) level 3 inputs – including those inputs that are not currently observable (discounted cash flow analysis).

The implementation of ASC Topic 820, and the need to provide investors with transparency on a timely basis, has spurred many alternative investment fund managers to bring in third-party valuation experts to value their assets or review their internal valuation work. The valuation of illiquid securities (typically Level 3 assets) can be a particularly challenging project depending on the assets and the time available to fund management.

Empire has strong experience valuing alternative investments on behalf of private equity firms, venture capital funds, hedge funds and family offices. In its over 20 years of experience, Empire has valued all levels and types of equity-related investment assets, as well as most types and levels of debt securities, including portfolios of consumer, corporate and mortgage notes and bonds. In recent years, we have undertaken valuation engagements for clients ranging up to 35 assets per quarter. This work requires high quality review and analysis, and the ability to act within very short timeframes. Empire’s approach to using teams of analysts that remain consistent from quarter to quarter allows the process to flow smoothly and reliably for our clients.

Empire has performed over 75 engagements on behalf of funds with $100mm - $75bn of assets under management, with between one and 40 entities valued per fund. We have also provided valuations of investee debt and equity holdings for major Family Offices ($1bn and over).

Much of our business is derived from repeat customers who appreciate Empire’s value proposition – attention to client service and deadlines; strong industry, SEC and IRS experience; thought leadership; easy-to-work-with people; and reasonable fees with no surprises.

Empire’s Report Level Services

Empire tailors its services to provide the right level of assurance for each fund client. These services run the gamut from full valuation opinions and “positive assurance” concerning a fund’s analyses to “negative assurance” letters indicating the fund’s values are not unreasonable. This work can involve more than one level of assurance, as funds look to Empire to do full valuations of their more complex and difficult assets but look for “review” level reports for their other assets.

We work interactively with fund clients to understand each asset’s current standing and outlook, explain our thinking and methods, arrive at conclusions based on those and other inputs, and produce understandable and reliable reports.

Empire has been through hundreds of valuation technical reviews over the years with Big Four and major regional audit firms, as well as the SEC. This gives us the experience to know what is needed to facilitate these reviews and effectively respond to questions that get raised. We are also well known by, and maintain relationships with, current reviewers at the major audit firms. Our experience includes defending our opinions before auditors from the big four accounting firms, the SEC, and other governmental agencies when necessary.

For information on Empire’s services in this area please feel free to contact {cms_selflink page='contact' text='Mark Shayne, Managing Director or Scott Nammacher, Managing Director.'