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Consulting Services • Published 3/27/2020 Impairment Testing: Assessing COVID-19 Impacts on Financial Statements


Last updated on 3/27/2020

As COVID-19 continues to have a major impact on global economics, many companies within adversely-affected industries may need to assess how their financial statements will be impacted. As part of this process, companies will need to consider the recoverability of their property, plant and equipment, intangible assets, and goodwill.

ASC 350 - Goodwill & Indefinite-Lived Intangibles

Goodwill and indefinite-lived intangibles are tested annually for impairment, however, testing may be required between annual testing dates if events or circumstances indicate that the fair value of the entity or asset may be below its carrying amount. Impairment occurs if the fair value of the entity or asset is less than its carrying value.

ASC 360 – Long-Lived Assets

Long-lived assets or asset groups are tested for recoverability whenever events or circumstances indicate that the carrying amount may not be recoverable. The recoverability test determines if impairment exists by comparing the sum of the asset or asset group’s undiscounted cash flows over its remaining life to the asset or asset group’s carrying value. If the sum of the undiscounted cash flows is less than the carrying value, the impairment amount will be determined by the difference in the fair value and carrying value of the asset or asset group.

Triggering Event Examples (ASC 360-10-35-21)

Triggering Event Examples (ASC 350-20-35-3C)

A significant decrease in the market price of a long-lived asset (asset group).

Macroeconomic conditions (e.g., deterioration in general economy).

A significant adverse change in the extent or manner in which a long-lived asset (asset group) is being used or in its physical condition.

Industry and market considerations (e.g., deterioration in the environment in which the company operates).

A significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset (asset group), including an adverse action or assessment by a regulator.

Cost factors (e.g., increases in raw materials, labor).

An accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset (asset group).

Overall financial performance (e.g., negative or declining cash flows).

A current-period operating or cash flow loss combined with a history of operating or cash flow losses, or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset (asset group).

Other relevant entity-specific events (e.g., changes in management or key personnel).

A current expectation that, more likely than not, a long-lived asset (asset group) will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. The term “more likely than not” refers to a level of likelihood that is more than 50 percent.

Events affecting a reporting unit (e.g., change in composition of net assets, expectation of disposing all or a portion of the reporting unit).

If your organization needs help conducting impairment testing or understanding how these triggering events apply to your company’s assets or asset groups, please speak with your P&N advisor or contact us to discuss your circumstances.

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