Accounting experts have extensively analyzed the technical requirements of Financial Accounting Standards Board’s (FASB) Accounting Standards Codification No. 350 and No. 360 (ASC 350 and ASC 360). In practice, however, the challenge is not just technical compliance but executing impairment testing efficiently and minimizing back-and-forth among management, valuation experts, and independent auditors. 

The Impairment Framework: ASC 350 and ASC 360

ASC 350 applies to goodwill and indefinite-lived intangible assets and requires at least annual impairment testing using a one-step model. ASC 360 applies to long-lived assets held and used (such as property, plant, equipment, and finite-lived intangibles) and requires impairment testing only when a triggering event occurs, using a two-step model.

The management of impairment testing can be challenging due to the complexity and materiality of reporting units or asset groups, as well as the likelihood of impairment. With multiple stakeholders involved—management, valuation experts, and independent auditors—it is important to ensure each stakeholder achieves an efficient and effective outcome.

Unlocking a successful valuation can be a game-changer for any organization. Here are three key strategies CFOs and controllers may consider for a smooth and successful valuation:

Strategy 1: Scoping the Current State – “Develop the scope early”

A smooth valuation process requires proactive planning well in advance of the valuation date. CFOs and Controllers should have a clear understanding of their balance sheet, the impairment testing cadence, potential triggering events, and be able to identify any indefinite-lived assets and confirm their existence on the balance sheet. They should also determine whether the company is reviewed as a consolidated entity or as multiple reporting units (RU), as a higher number of RUs can drive complexity with these valuations based on where the goodwill is allocated, which could simplify the analysis if the goodwill sits in a single RU.  The company’s early preparation helps prevent errors or oversights and reduces the likelihood of last-minute questions from auditors.

Strategy 2: Building a Complete and Audit-Ready Data Set – “Thorough data collection leads to supportable valuations”

CFOs and controllers should ensure they are able to provide complete, current and transparent information, including management-approved forecasts and relevant market data. They should review their valuation provider’s and auditor’s PBC (prepared-by-client) checklists early to ensure that all requested documentation is available and complete, and that they are prepared to identify and address any irregularities before providing information to auditors.

Among the prepared data should be market data from similar companies and transactions, which can be used to determine market multiples or discount rates, and a reasonable multi-year forecast for the company or reporting unit. This should reflect everything that was known or could be known at the impairment test date. Early preparation for and review of PBC requirements helps identify gaps and reduces follow-up requests during the audit.

Strategy 3: Applying Rigorous Analysis and Internal Quality Control – “Be thorough and have strong quality control processes”

During the valuation process, companies should begin with a model that is flexible and can be updated as new information becomes available. This may require using multiple approaches, with the two most common models being DCF and the market approach. Both of these approaches have strengths and weaknesses, and in any given situation one might be given more weight than the other. For public companies, market capitalization reconciliations are required.

Valuation providers should employ strong quality control procedures.  Before concluding the valuation process, companies should work with their valuation provider to consider anything that might have been missed, verify all assumptions, and determine that all documents are available before providing the analysis to the independent auditors for their review.

Setting the Stage for Efficient, Defensible Impairment Testing

By applying these strategies, organizations can reduce execution risk, improve audit readiness, and ensure that impairment conclusions are both well-supported and efficiently delivered. CFOs and controllers can shift impairment testing from a reactive compliance exercise to a controlled, well-managed process.

WM’s valuation team partners with management to appropriately scope analyses, develop audit-ready valuation models, and facilitate efficient auditor review. The goal is to develop a strong valuation that is supportable to both the client and their auditor.  Reach out to learn more.

This article is for general information only and does not constitute valuation advice