It wasn’t an option to wait for the next regularly scheduled meeting, which could have been several weeks later. For companies that had to complete an interim impairment exercise, making sure the board and audit committee had current information with the benefit of management’s analysis in real time was key. Communicating and disclosing impairmentĬompanies also recognized the importance of timely and frequent communication between management, the board, and the audit committee.
Across the spectrum, evaluating potential impairment indicators may not have been as obvious in some industries as it was in others. On the flip side, retail, restaurant, fitness, travel, and commercial real estate businesses experienced huge drops in demand. For example, the large technology and e-commerce companies saw heightened demand for their offerings as people shifted to shopping online and working remotely. Therefore, if an organization has operations in Asia or Europe, the risk of impairment occurring there may not have been obvious in the early days, which could have slowed down the “triggering event” analysis required under the guidance.Ī company’s industry was also relevant, as some have been affected more than others. In the beginning of the pandemic, management teams based in the United States understandably didn’t know the severity of the issue as it was developing in Asia. The ongoing deterioration in general economic conditions and the resulting negative effect on earnings and cash flows also triggered the need for an interim goodwill impairment test for many companies.įinancial statement preparers typically begin considering if a triggering event occurred by evaluating macroeconomic changes. This process has been complicated by uncertainty around how much longer the pandemic will last and what the long-term effects will be, making assessing the amount of an impairment more challenging and subjective. As a result, many companies have had to take a hard, fresh look at their processes around goodwill impairment. Although hope is on the horizon with the development and approval of several vaccines, as well as third-party intervention from governments and central banks to stabilize economic conditions, impacts of the COVID-19 outbreak continue to evolve. Ongoing COVID-19 impactsĪs previously noted, the pandemic has affected almost all entities in some way. Companies are required to monitor for and evaluate goodwill triggering events as they occur throughout the year. Private companies and not-for-profit entities that have elected the accounting alternative to amortize goodwill are still required to test it for impairment (at either the entity level or the reporting-unit level) if a triggering event occurs. GAAP, a public company or an eligible entity that has not elected the accounting alternative for goodwill is required to assess goodwill for impairment annually or when a triggering event occurs that would more likely than not reduce the fair value of a reporting unit below its carrying amount, including goodwill. FASB also has ongoing projects that look not only to broadly change the accounting for goodwill but also to provide optional relief to private companies and certain not-for-profit entities from monitoring goodwill triggering events throughout their fiscal year. In addition to the serious public health threat it poses, the COVID-19 pandemic has affected the current and future financial performance of many entities, with its impact showing on both projections of future cash flows and estimated earnings.Īs a result, goodwill impairment has been an area of increased focus when it comes to financial reporting since the onset of the pandemic.
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