ASC 350 compliant impairment analysis that satisfies auditors and protects your financial statements.
Goodwill impairment testing is a GAAP requirement under ASC 350. Companies must test goodwill at least annually—and more frequently if triggering events occur—to determine whether the carrying value of goodwill exceeds its implied fair value.
Unlike other intangible assets, goodwill is not amortized. Instead, companies must perform impairment tests at the reporting unit level. If the fair value of a reporting unit is less than its carrying amount, an impairment loss is recognized.
The stakes are high. Impairment charges directly reduce earnings and can signal to investors that prior acquisitions haven't performed as expected. Conversely, failing to recognize impairment when warranted creates audit risk and potential restatement exposure.
Annual requirement plus interim testing for triggering events
ASC 350 requires annual impairment testing for all goodwill, typically performed at fiscal year-end or a consistent interim date.
Recessions, market disruptions, or industry-specific downturns may trigger interim testing requirements.
Actual results significantly below projections, loss of major customers, or margin compression may indicate impairment.
Departure of key executives or significant restructuring may require fresh assessment of reporting unit values.
New regulations affecting your industry or specific products may impact reporting unit value.
Changes to reporting unit structure require reallocation of goodwill and fresh impairment analysis.
Simplified one-step test under current ASC 350 guidance
We can first perform a qualitative "Step 0" assessment to determine if quantitative testing is necessary, potentially reducing cost and effort.
We confirm reporting unit definitions and ensure goodwill is properly allocated among units—critical for meaningful impairment testing.
We determine the fair value of each reporting unit using income approach (DCF), market approach, or both, with reconciliation to market cap if applicable.
We analyze the carrying amount of each reporting unit, including allocated goodwill and identifiable assets.
If fair value is less than carrying amount, we measure impairment as the difference (limited to goodwill balance).
We provide comprehensive documentation supporting our analysis, ready for auditor review and SEC comment letters.
Companies can assess qualitative factors to determine if it's more likely than not that fair value exceeds carrying amount. If so, no quantitative test is required. This can reduce cost for units with comfortable cushion.
At least annually, at a consistent date. Additionally, interim testing is required when events or circumstances indicate potential impairment (triggering events).
For public companies, we reconcile the sum of reporting unit values to market capitalization, explaining any control premium or other differences.
No. Under GAAP, once goodwill is impaired, the loss cannot be reversed even if circumstances improve.
ASC 350 covers goodwill and indefinite-lived intangibles. ASC 360 covers long-lived assets (PP&E, finite-lived intangibles). Different testing approaches and triggers.
When reporting units change, goodwill must be reallocated based on relative fair values. This often triggers fresh impairment analysis for the reorganized units.
Get audit-ready documentation for your goodwill testing.