Abstract

The implementation of SFAS 141 and SFAS 142 has focused renewed attention on establishing the value and remaining useful life of intangible assets. Many business entities have expended substantial resources to develop customer relationships that represent a valuable corporate asset. These customer relationships are significant assets that need to be recognized in corporate financial statements. For fair value reporting purposes, the value of customer relationships is typically quantified through the development of a financial model and the performance of a discounted cash flow analysis. Life expectancy and the pattern of customer account survivorship is one of the primary factors influencing the value of the customer relationships. The future life expectancy of the customer population is established through an analysis of historical patterns of account retirement. The retirement rate method is recognized as the most accurate method to establish life expectancy for customer relationships. This article discusses retirement rate analysis and its use as a statistical methodology for establishing customer account life characteristics.

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