Goodwill Impairment Testing

Have you had to cut your workforce, suffered supply chain disruptions, seen operating or cash flow losses? Experienced store closures, loss of key customers, or capital and financial challenges? Has the short or long-term future for your business changed?

These current market events will more than likely trigger the need to conduct interim impairment testing. 

The CFO Suite can help you get through this time when you might need that additional capability or capacity for your team. 

ASC 350 guidance requires annual goodwill impairment testing; and when events occur that indicate a greater than 50% probability of impairment, even more frequent testing is required. Companies should take a fresh look at existing processes and controls for assessing asset impairment and ensure they can properly identify triggering events. This is integral to appropriately measuring goodwill impairment.

ASC 350 guidance advises companies to focus on circumstances affecting the inputs of their valuation model to determine if a triggering event is present. Some of the most relevant factors to consider are:

  • Decline in stock price and market cap
  • Current and projected operating or cash flow losses.
  • Change in the extent/use of an asset or its decrease in market value
  • Capital and financial resource effects, including liquidity risk
  • Manufacturing or other types of production slowdowns or shutdowns
  • Store closures, whether permanent or temporary, of your company or competitors
  • Workforce shortages, absences, reductions
  • Decline in competitor market multiples
  • Loss of key customers
  • Supply chain disruptions and significant increase in raw material costs
  • Negative shift in product or service demand
  • Macroeconomic conditions such as a deterioration in general economic conditions
  • Change in the market for an entity’s products or services

The operational and economic impact of the current and unprecedented global events are still not fully known. Impairment consideration will be more complicated than ever before as they are heavily dependent on factors such as the evolution of the pandemic, government restrictions on business operations, government aid, and consumer confidence.

How We Help Our Clients

Early and ongoing coordination between accounting, valuation and tax professionals is critical to effectively navigating financial reporting complexities of the goodwill impairment model.

Impairment testing is resource-intensive; we help navigate our clients through this process by providing technical accounting resources to:

  • Perform the necessary quantitative and qualitative analysis
  • Assess impairment indicators, test for recoverability, and measure the impairment
  • Collaborate to provide a valuation support for management review, and external auditors
  • Conduct a process optimization review
  • Determine whether existing staff have the experience and bandwidth for future needs and if not, develop a staffing plan and execute the direct-hire strategy

The CFO Suite is your trusted resource for interim, project and direct-hire game changers that maximize the capabilities and capacity of your accounting and finance department. 

Through our consultative approach, founded upon years of practical experience in public accounting, industry and professional services, we are a unique firm dedicated to finding game changers to just get it done! We know what it takes to build the right team to support your organization through challenges and change.

800.CFO.3481

If you have any questions, please feel free to email us at  info@cfosuite.com