Concept of Fair Value Paper
- June 21, 2022/ Uncategorized
Fair value can mean many things in a legal context. It is essential to see if there is any legal, local jurisdictional precedent for the definition of fair value. Generally speaking, fair value means the value of the shares literally without regard for lack of marketability discount. Fair value is commonly used in dissenting or oppressed shareholder disputes. Oppressed shareholder disputes generally involve disenfranchised minority shareholders who press their claims of unfair treatment to the court because they cannot seek remedy within the corporate structure due to their minority shareholder position. Courts have ruled that using a market discount in these situations effectively penalizes the minority position in an inequitable manner.
Generally Accepted Accounting Principles codify fair value for financial statement reporting. ASC-820 defines fair value as Fair Value is 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.
Given that fair value (FV) is a diffusing concept in business valuation and financial reporting, organize a comparison of how FV is considered in valuing closely held companies other than oppressed shareholders and financial statement reporting. Think about the interaction between the valuation process and the end product, focus on the FV standard for BV and the FV process for level 3 inputs.