"Fair Value"

Fair Value - Why it is important

Approach & Methodology

FAIR VALUE Copyright © 2017 Beide Forvaltning A/S

What it all comes down to .

Increasing focus on «accurate information» when

communicating financial statements has become a vital part of

overall corporate governance and financial guidance in

general. To ensure the right processes are in place we

recommend a structured approch vetted in policies and the risk

charter.

The process of determining fair value

To ensure that strategic decisions, tactical dispositions and M&A

transactions are performed and reported in line with stakeholder

expectations, we recommend the following steps

A. Identification of valuation principals (by duration)

B. Methodology (quantificational proficiency)

C. Vetting of approach

The term «fair value» is a structured best attempt to come up with

a market value of assets / liabilities, transactions, and derivatives

given «observability» of markets. Fair value principals are

governed under FAS157 / IFRS13 and divided into 3 levels dependt

on underlying «observability and liquidity» of markets».

Identification – Valuation principles


Determining how to quantify .

Matching cash flow characteristics of holdings with

observability of markets / transactions represents an

important matrix that periodically should be updated and

discussed with auditors to ensure that there is an overall

robust and relevant approach to balance sheet and income

statement valuations.

Identification process

The identification process itself consists of the following steps

designed to ensure stakeholder buy-in and acceptance;

A. Cash flow mapping. Categorize assets/liabilities/transactions and

derivatives by asset codes and vertecies (using constant maturities

or months / structured periods).

B. Market observability by asset code and nature of holdings

following GAAP/IFRS fair value rules.

C. Mapping of quantificational methods addressing linear / non-

linear characteristics based on what is described in A & B.

Prevalent use of quantificational methods are important for many

companies due to stakeholder expectations, investor and market

guidance and transparency of M&A activity. Addressing the process

for valuation principles (quantificational methods) is therefore

important to ensure everyone understands what is in place.

Methodology


Quality of quantificational approach

Establishing a quantification protocol will address what

methodology is in place, processes established and create

a document that can be used to create a structured, and

relevant process to be communicated with stakeholders.

Quantificational protocol

By establishing the protocol, organizations can «walk through»

valuation principles for asset codes (fixed income, FX, Commodity

and Equity) following accounting standards focusing on the

following;

1. Level 1 – Liquid markets. Processes and valuation models used to

provide value from transparant markets.

2. Level 2 - Readibly available - Processes and valuation models used

to provide value from 3rd party transaction or readily available

quotes.

3. Level 3 – Model used to provide valuations of low liquidty

assest/liabilities where

Prevalent use of quantificational methods, can be a challenge for

many organizations. In order to avoid surprises we suggested that a

«quantificational protocol» is established outlining the methods used

for addressing valuation principles.

Vetting of Approach


What is vetting? .

Vetting of overall processes is «good governance» and will

address elements important in creating internal and

external expectancy for how financials are identified,

monitored and managed.

Financial guidance

Disclosure of income statement, balance sheet and cash flow

statement variables require that structured processes are in place

to address principles for guidance. By vetting approach to the

overall fair value determination, organization can improve financial

guidance by;

A. Clearly communciate what processes are in place.

B. Ownership of overall processes (internal, board)

C. Strategy for how to communciate expectancy

Vetting refers to how an organization develops assurance for what

quantificational routines are in place, how prevalent they are, and

to what extent that are known to internal and external

stakeholders. Vetting has become more important in recent years

due to increasing scutiny of regulators and stakeholders.

FAIR VALUE - PACKAGES

TCopyright © 2017 Beide Forvaltning A/S

Product Description Prices

Cashflow

mapping

Assist an organization and stakeholders in

identifying and addressing how linear and non-

linear cashflows should be mapped to represent

prevalent quantication.

Hourly price based on an

evaluation of how many hours it

will take to perform all or some of

activities listed

Process &

quantificational

protocol

Establish an overall recurring process for

addressing how assets/liabiliies/transactions and

derivatives should be valued and documented

to meet stakeholder expectancey and overall

financial governance.

Hourly price based on an

evaluation of how many hours it

will take to perform all or some of

activities listed

Periodically reviewing and communicating fair value of holdings will ensure that strategic dispositions, tactical

allocation, and financial guidance are line with expectations.

FAIR VALUE

"Fair Value"

Economy & Finance

Transcript of "Fair Value"