Goodwill is an intangible asset that can be measured and belongs to the company. Under ASC 350, companies must perform an annual test to determine if the goodwill of any of its reporting units is impaired. Material changes in the economic outlook or in a company’s ongoing business outlook may require an impairment of goodwill. The test for goodwill impairment determines the fair value of reporting units and compares that value to the carrying value of reporting units. If the carrying value is higher than the fair value, then the impairment amount becomes the difference between the two.
Goodwill needs to be tested for impairment annually under ASC 350. If goodwill tests positive for impairment in a qualitative assessment, then the fair value of reporting units must be determined for the quantitative assessment. The quantitative assessment includes complexities that can require the advice of independent third-party valuation experts to reach appropriate valuations.
- Competition growth
- Economic circumstance deterioration
- Change of key management personnel
Given the complexities involved in each stage of valuing impairments, it is often necessary to seek the advice of experts such as Scalar to reach the appropriate valuations. Scalar’s valuation experts have worked with thousands of clients in all major industries and understand the optimal methodologies to calculate the most precise value.