Valuing IP Post-Sarbanes-Oxley: it's no longer a matter of making a best estimate.

Summary

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Intellectual property

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Valuing IP Post-Sarbanes-Oxley: it's no longer a matter of making a best estimate.

EXECUTIVE SUMMARY

* ALTHOUGH SARBANES-OXLEY SETS NO SPECIFIC requirements for CPAs valuing intellectual property, it does put greater emphasis on accurate valuation of all assets and imposes punishments on CEOs and CFOs for failure to do so.

* INTANGIBLE ASSETS OF ALL KINDS, INCLUDING PATENTS, brand names, in-process research and the like, have become increasingly important to the economic value of a business. This makes it critical to accurately disclose the facts about intellectual property.

* SARBANES-OXLEY ISN'T THE ONLY RECENT development affecting IP valuation. FASB Statement nos. 141 (intangible asset identification upon acquisition) and 142 (annual intangible asset fair value measurement) require companies to measure and report on the financial performance of acquired intangible assets.

* VALUING IP RAISES COMPETITIVE ISSUES over divulging asset values companies might prefer to keep secret. Companies must balance their need to protect proprietary information with disclosure requirements.

* CPAs CAN HELP COMPANIES CHOOSE FROM AMONG several methods for valuing IP assets. These include the market, cost and income approaches. With the market approach, a company compares its IP assets with similar assets in the marketplace that have a known value. The cost approach values IP based on the cost to obtain it; the income approach values it based on its income-producing ability.

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Before 2002, identifying and valuing intellectual propert...

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