Wednesday, December 13

Foundations of Economic Methods

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Foundations of economic methods

      When properly applied, economic methods are more complex and requires the greatest attention from the assessor.

      For a correct application of economic methods, financial statements – accounting is only a starting point and no final results.

      The evaluator will prepare an economic assessment based on the latest accounts, the same presentation, but different in content from one sheet.

      If the competent application of economic methods, all assets and obligations will be reconstructed in accordance with the standard of value chosen by the assessor. In any case, each asset item and each obligation will be considered in isolation, possibly within groups, in order to choose the most appropriate approach and therefore the best current value.

      It is absolutely necessary that all company assets and liabilities are subject to review and evaluation process.

      Many of the valuable assets of a company may not appear in the balance sheet. Here you can include in particular the intangible assets, intellectual property rights. Usually this kind of assets are recorded at historical cost in accounting, unless they were purchased as part of the business.

      Also, there may be cases in which all obligations are not recorded in the company’s balance sheet. It is likely the main obligations (which may occur as a result of complaints, litigation, etc..).

      In conclusion, the appraiser estimated in accordance with the provisions and standards of evaluation can only be equal to the carrying amount of random and very rare anyway. There is no justification for conceptual or theoretical demonstration nor a practical statistical results to support equality. Accounting value (net asset accounting), is not related to the economic value or assessment process, but an accounting convention.

      The evaluation process includes:

          – Identification and evaluation of tangible and intangible assets and liabilities in balance sheet;

          – Update the value of assets and liabilities that are reflected in the balance sheet.

      There are two extreme alternative economic method of aggregation of assets:

a) updating the global assets;

                       b) updating discrete assets (item by item).

The practices are generally applicable procedures in cases intermediate between these two extremes (some assets are analyzed in the overall categories, others discreetly).


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