In today’s challenging economy, companies are facing increased scrutiny from the SEC and their auditors on goodwill and long-lived impairment leading to extensive questioning and higher levels of documentation support and disclosures. The SEC recently indicated its intention to spend more resources on enforcement of ASC topics 350/360 as they relate to fair value, which means organizations can no longer confidently minimize the scope of the accounting and valuation needed to apply the required accounting standards.

Deciding when, and if, quantitative impairment testing is needed is critical to preparing reliable and accurate financial statements. Without adequate analyses, there is a higher risk of scrutiny, which can potentially lead to inefficient audits, regulatory or legal disputes, or damage to the company’s reputation.

Recent SEC comment letters and auditor publications emphasize the significance of performing the requisite amount of analysis on goodwill and long-lived assets. The following four key areas of scrutiny have come to the forefront:

Timing of Impairment: If an impairment is recognized, was there a trigger event in the prior reporting period, and if so, should any impairment have been taken earlier?

Excerpt from an SEC comment letter: “Please identify the impaired assets and tell us whether or not you tested them for impairment during the previous quarter. If you did not test these assets for impairment during the previous quarter, explain to us your basis for concluding that an impairment test was not necessary…

Consistency with Prior Valuations: Is there reasonable rationale for deviating from methodologies applied and key inputs utilized in prior goodwill impairment tests and/or purchase price allocation analyses?
Reasonableness of Projections: Were the projections prepared with reasonable assumptions, appropriate internal controls, and absence of bias?
Consideration of Market Inputs: Did the fair value measurement take into account the overall macro-economic environment (such as depressed equity values) and not just the company’s specific performance? Equity values have often declined even for entities that have achieved their budgets and projections.

Excerpt from an SEC comment letter: “Please provide the assumptions used for competition, general business, economic market, financial conditions and matters specific to the business…

In light of these complexities, leveraging specialized expertise becomes indispensable. WilliamsMarston stands as a dependable ally, offering experience and proficiency in ASC 350 and ASC 360 analyses. Their adept team maneuvers deftly through valuation and accounting intricacies, ensuring adherence to regulatory standards, meticulous documentation, and methodological precision. This not only secures precise financial statements but also expedites audits, curtailing the risk of added costs, regulatory and auditor disputes, and reputational erosion.

Ultimately, in today’s difficult financial landscape, a delicate choreography of methodologies, insights, and regulatory adherence is requisite for effectively addressing goodwill impairment. Thorough analyses, alignment with valuation norms, and comprehensive market assessments form the bedrock of accurate financial reporting and audit resilience.