Goodwill and Intangible Asset Impairment
ASC Topic 350
After initial recognition, goodwill and indefinite lived intangible assets are periodically tested for impairment under ASC Topic 350. Such impairment tests are the result of ASC Topic 805's prohibition of pooling of interests and the elimination of goodwill amortization.
Duff & Phelps has broad expertise in the initial recognition of values and subsequent impairment testing as well as the interaction of the two standards. We assign the acquired assets, liabilities assumed and residual purchase price to reporting units. We also estimate the fair value of the reporting units and indefinite lived intangible assets. Additionally, we provide estimates of the implied residual value for reporting units where fair value is below the carrying value.
IAS 36: Impairment of Assets requires the testing of goodwill and long-lived intangible assets on an annual basis with other assets tested where there is an indication that the asset may be impaired. Goodwill is tested at a cash generating unit ("CGU") level and is a single step test comparing the carrying value of the CGU to the recoverable amount. Goodwill impairment tests under IFRS frequently give materially different results to those under US GAAP due to the two step test used in ASC Topic 350.
We assist clients in a number of areas including:
- Providing additional assurance for the board and auditors through independent review and support for key assumptions and forecasts
- Addressing auditors' concerns around consistency of approach; sum of the parts analysis; and reconciliation to and explanation of variances from market capitalization, which can result in significant time and cost savings as part of the audit review process
- Building well structured and integrated impairment models that can be used for future impairment tests and as part of ongoing business review