Companies that have recorded goodwill on their balance sheet must test this asset annually for impairment and make any adjustments required. A similar scenario exists for long-lived assets, if certain extraordinary events occur. Complying with myriad financial accounting standards can be daunting. Working with a professional firm that is able to conduct independent valuations can help ensure that your financial statements are accurately reporting the company’s true financial position. In some cases, these annual reviews can also help companies improve their bottom line.
What is a goodwill impairment study?
When a company completes an acquisition, ASC 805 (Formerly SFAS 141R) requires that all acquired assets be valued so that the purchase price can be allocated. If the sum of fair values of these assets categories (including cash/equivalents) is less than the purchase price, the balance of the acquisition value is deemed to be goodwill and is booked as such as a balance sheet intangible asset. Companies, public or private, are then required to test this goodwill annually to determine if there is any impairment of goodwill. In short, if the value of the business enterprise has declined since the date of the acquisition, goodwill impairment may exist.
How is a goodwill impairment study performed?
ASC 350 (Formerly SFAS 142) requires that goodwill impairment analysis be conducted at the reporting unit level. In Step 1, Gordon Brothers-AccuVal conducts a business enterprise valuation and compares the fair value of each reporting unit to its respective carrying amount, including the goodwill allocated to it. If the value of the goodwill is lower than its carrying value, it fails Step 1, and the company is required to proceed with Step 2.
In Step 2 of the goodwill impairment analysis, the financial statements of the firm are adjusted to reflect current market conditions. The current fair value of the company determined in Step 1 is reallocated among all assets of the business, and the difference between the current market value and the carrying value of the goodwill is written-down as an impairment charge on the financial statements.
When do I need to conduct a goodwill impairment study?
Companies carrying goodwill must test for impairment of goodwill annually. In addition, goodwill impairment studies must be performed when certain triggering events occur that, more likely than not, have reduced the fair value of the reporting unit below its carrying amount.
AccuVal also assists companies with impairment studies of long-lived assets in compliance with ASC 360 (Formerly SFAS 144). This requirement can be difficult to interpret and our appraisers can help you to determine when testing is appropriate. These trigger events may include a significant decrease in market share, an adverse change in regulation, or a current-period operating or cash flow loss combined with a history of operating or cash flow losses.
AccuVal employs a team of full-time practitioners that specialize in valuing business enterprises and intangible assets, and our impairment studies meet independence requirements of auditors. Feel confident that impairment of goodwill is accurately tested and reported by partnering with Gordon Brothers-AccuVal.
Long-lived assets are non-current assets that are specified as:
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