Debt Buyers ? The True Value of Your Company is Recognized!

It’s not often that you read the words “accounting” and “exciting” in the same sentence; however, something exciting happened at the Financial Accounting Standards Board (FASB) that will have an impact on many ARM firms this year.

If you’re a debt buyer, this change will significantly affect your balance sheet. A new accounting standard, “FASB 159,” allows a company to report certain assets at fair market value rather than at cost. David Lavine, our on-staff CPA and valuation expert, doesn’t usually get giddy over accounting standards, but this development has him whistling in the halls. I asked him to explain it in layman’s terms:

“When following the Generally Accepted Accounting Principles – or GAAP – there is often a ‘gap’ between recorded asset values and fair market values. In the ARM industry, this is often the case for debt buyers, where the price paid for portfolios may be significantly lower than their ‘street value.’

"Starting this fiscal year, FASB 159 allows companies to record assets like debt portfolios at market – as opposed to historical – cost. If your company purchases debt, it clearly meets the ‘substance over form’ criteria of the FASB.

"Starting with your FY 2007 financial statements, you can present the market value of the portfolios you own under management, thus increasing the equity amount of the business. This reflects a much clearer picture of the true equity of the enterprise. Balance sheet management can now be based on market value, as it should be.

"This can be enormously useful when valuing your enterprise to determine equity for financing, for dispute resolution, or in preparation for a company sale. We are already assisting one portfolio debt buyer with a valuation of their accounts to provide their accountants for their FY 2007 financial statements. I strongly suggest that everyone with purchased debt to explore this option with their professional advisor.”

This small accounting change can have a big impact – especially for debt buyers looking to secure financing to purchase new inventory. But most debt buyers have no idea that this option is available to them. Were you aware of this? Spread the word!