Impairment Testing

Financial reporting requirements related to impairment testing can be complex.  Testing may include annual tests and “triggered” tests, specific assets or asset groups, direct fair value write-downs or a multistep testing process, and other considerations unique to impairment accounting. 

Per the Financial Accounting Standards Board:

• Goodwill and intangible assets with indefinite useful lives must be tested at least annually for impairment under ASC Topic 350, Intangibles – Goodwill and Other.
• ASC Topic 360, Property, Plant, and Equipment, requires that long-lived assets be tested for recoverability whenever events or changes in circumstances indicate that their carrying value may not be recoverable.

Long-lived assets might include real property and related intangible assets (land, land improvements, buildings and leasehold interests), personal property and related assets (personal property, leasehold improvements and construction in progress) and intangible assets (trademarks, technology, noncompete agreements and customer relationships).

• When the fair value of an asset is less than current book value, ASC 350 and ASC 360 may define the difference as impairment and require the asset owner to write off that difference as an impairment charge.

American Appraisal helps clients with impairment testing issues on a daily basis.  From multibillion-dollar writeoffs for Fortune 500 clients to small asset adjustments for privately held firms preparing for acquisition, we provide experienced insight into the application of often confusing impairment rules to real-world business circumstances. 

What We Do
Our services related to impairment testing include:

• Assisting clients in the overall impairment test planning process
• Estimating fair values for reporting units
• Assigning acquired assets and assumed liabilities to reporting units based on their relation to the operations of the reporting unit
• Assigning goodwill to reporting units based on the benefits of the combination to respective reporting units
• Reassigning assets, including goodwill and liabilities, to reporting units as part of reorganization of the reporting structure
• Testing long-lived assets for impairment and determining asset group structure, consistent with the lowest level of determinable cash flows
• Assisting in preparation of future cash flows used to test recoverability of long-lived assets, consistent with use and eventual disposition of the asset or asset group
• Determining the primary asset of an asset group and its remaining useful life, which sets the term for the projected cash flows
• Converting projected cash flows into fair value estimates, consistent with market participant assumptions

Why American Appraisal?
American Appraisal has the expertise to conduct impairment testing from beginning to end, from the financial analysis required for Step One tests to any real and personal property and/or intangible asset valuations that might be required for final impairment determination. Our consultants are subject-matter experts and industry specialists who understand the competitive, technological and regulatory issues faced by our clients.