Goodwill & Intangible Asset Impairment Testing

A primary requirement of ASC 350 (precodification SFAS 142) is an impairment test of goodwill, as well as intangible assets having indefinite remaining useful lives.  These tests must be performed at least annually for both publicly-held and privately-held companies, and may be required more often if events or changes in circumstances indicate a potential impairment.  All testing is performed at the reporting unit level.

 

In some circumstances, a qualitative assessment (Step 0) may be permitted in determining whether impairment exists.  FairValue Advisors provides management with the critical capital market data and financial analysis for management to use in this qualitative assessment.

The quantitative goodwill impairment test requires a fair value determination for each reporting unit that has goodwill (Step 1).  If the carrying value of the reporting unit is below the fair value determined, no impairment charge applies and the test is concluded.  If the carrying value of the reporting unit exceeds its determined fair value, then a second step is required to accurately assess the magnitude of the goodwill impairment.  This second step involves a hypothetical purchase price allocation (under ASC 805) and the related valuation of assets in order to determine the residual value of goodwill.  

 

Accurate fair value estimates can be critical in determining whether goodwill or intangible assets are impaired as required by ASC 350.  At FairValue Advisors, we work closely with corporate officers and the auditors in determining the specific valuation needs for impairment testing.  Our appraisal process and reports are specifically designed to satisfy the auditor’s requirements and fully comply with FASB’s financial reporting standards.

Valuation Projects

A defense contractor was appraised by FairValue Advisors for evaluation by a private equity firm.

April 18, 2019

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