Assessing goodwill impairment amid COVID-19

Written by promotiondept

March 5, 2021

Assessing goodwill impairment amid COVID-19 In addition to the serious public health threat it poses, the COVID-19 pandemic has affeCTed the current and future financial performance of many entities, with its impaCT showing on both projeCTions of future cash flows and estimated earnings. As a result, goodwill impairment has been an area of increased focus […]

Joy is for the individuals who plan well and seek after. A significant among us have been demonstrated the individuals who have genuine dream to live for likely REALIZE IT. It is just the individual pursuing the DREAM days and night until achievement. There is an expression of proficiency a head of you. Steps and obstructions from the outset appear to be enormous. Be that as it may, just for certain occasions those troublesome advances and difficulties are so natural execution for you. There are too a lot of instruments including VISUALIZATIONS and helps are around you. Pete Tran is here my adored. These are the devices to understand ANY of your HIGH DREAMS come True. I went additional miles for you. It I a take for you. They are the 'Enchantment WONDERS" you can call on. Happiness will be with you. Worldwide has improved numerous perspectives this season of return. Do you recall.. these means well? It will be my actual satisfaction too!

life changing solutions NOW

Assessing will impairment amid COVID-19

In addition to the serious public health threat it poses, the COVID-19 pandemic has affected the current and future financial performance of many entities, with its impact showing on both projections of future cash flows and estimated earnings.

As a result, will impairment has been an area of increased focus when it comes to financial reporting since the onset of the pandemic. FASB also has ongoing projects that look not only to broadly change the accounting for will but also to provide optional relief to private companies and certain not-for- entities from monitoring will triggering events throughout their fiscal year.

Under current U.S. GAAP, a public company or an eligible entity that has not elected the accounting alternative for will is required to assess will for impairment annually or when a triggering event occurs that would more likely than not reduce the fair value of a reporting unit below its rying amount, including will. Private companies and not-for- entities that have elected the accounting alternative to amortize will are still required to test it for impairment (at either the entity level or the reporting-unit level) if a triggering event occurs. Companies are required to monitor for and evaluate will triggering events as they occur throughout the year.

As previously noted, the pandemic has affected almost all entities in some way. Although hope is on the horizon with the development and approval of several vaccines, as well as third-party intervention from governments and central banks to stabilize economic conditions, impacts of the COVID-19 outbreak continue to evolve. As a result, many companies have had to take a hard, fresh look at their processes around will impairment. This process has been complicated by uncertainty around how much longer the pandemic will last and what the long-term effects will be, making assessing the amount of an impairment more challenging and subjective. The ongoing deterioration in general economic conditions and the resulting negative effect on earnings and cash flows also triggered the need for an interim will impairment test for many companies.

Financial statement rs typically begin considering if a triggering event occurred by evaluating macroeconomic changes. In some cases, geography plays a role. In the beginning of the pandemic, management teams based in the United States understandably didn’t know the severity of the issue as it was developing in Asia. Therefore, if an organization has operations in Asia or Europe, the risk of impairment occurring there may not have been obvious in the early days, which could have slowed down the “triggering event” analysis required under the guidance.

A company’s industry was also relevant, as some have been affected more than others. For example, the large technology and e-commerce companies saw heightened demand for their offerings as people shifted to shopping online and working remotely. On the flip side, retail, restaurant, fitness, travel, and commercial real estate businesses experienced huge drops in demand. Across the spectrum, evaluating potenl impairment indicators may not have been as obvious in some industries as it was in others.

Companies also recognized the importance of timely and frequent communication between management, the board, and the audit committee. For companies that had to complete an interim impairment exercise, making sure the board and audit committee had current with the benefit of management’s analysis in real time was key. It wasn’t an option to wait for the next regularly scheduled meeting, which could have been several weeks later.

A pivotal element of the will impairment analysis is valuation, the quality of which depends upon the quality of the projections. Due to the prevailing uncertainty, many companies had to rethink their approach to valuation as it relates to will impairment. For companies whose “cushion” (that is, the excess of the reporting unit’s fair value over its rying amount) decreased from historically high levels, the monitoring needs and level of rigor went up. For instance, a company with a lot of cushion in the past may have been required to go back to the drawing board and build a fresh set of projections. In many cases, this led the finance teams that typically own the will impairment process to interact holistically with other parts of the business, like the sales and operations teams or procurement department, to capture the relevant data needed to refine and calibrate their impairment models in real time.

Many financial statement rs faced forecasting challenges, primarily because now past performance was unexpectedly not necessarily indicative of future results. Previous economic downturns, such as the real estate crisis of 2008, do not provide a precedent for the current pandemic situation. The long-term impact of prolonged strain on industries such as financial lending, commercial real estate, aerospace, entertainment, and hospitality is still un. There is no relevant historical data that could be used when making projections, as the last severe pandemic, the influenza pandemic of 1918, occurred more than a century ago and in a different economy that bears little resemblance to the current . In addition, many companies are facing resource constraints due to layoffs or furloughs that affect their overall workforce, including the finance department.

As a result, companies and their valuation experts have recently focused on scenario-based forecasting, in which multiple projection scenarios are developed with appropriate weighting placed on each of the scenarios, because one static forecast may no longer be enough. For example, many companies have applied a Monte lo simulation model, which projects the probability of different outcomes in a process that cannot easily be predicted due to high risk or random variables.

Additionally, it is critical that financial statement rs and their valuation experts understand the key drivers in any estimate and how reliable those inputs are. Finance teams should identify which inputs are more subjective and should apply rigorous sensitivity analysis to support the final judgment. Some factors to consider include the expected timeline for recovery, short- and long-term effects on margins, and shifting cost assumptions.

For example, many companies quickly invested in technology to enable effective remote-work arrangements, which may become the new norm moving forward. Those companies would need to consider efficiency levels and various other ways that costs are affected by the change. Other companies may be considering moving operations to a different state or jurisdiction to take advantage of tax incentives because employees can now telecommute. Even companies that continued to see demand during the pandemic should review assumptions to ensure they still make sense, also keeping in mind the requirement to use market participation assumptions in determining the fair value of a reporting unit. For example, despite improved revenues, online retailers may have experienced some margin erosion due to increased shipping costs.

Finally, the importance of strong internal controls around the estimation process cannot be overstated. Due to the inherent uncertainty associated with key assumptions used in impairment testing, controls should be designed and updated to ensure the highest-quality data available is identified, likely possibilities are considered, and appropriate individuals are reviewing the inputs, assumptions, and estimates.

FASB has two projects underway to improve the subsequent accounting for will.

In one project, FASB decided to allow private companies and not-for- entities the option to perform the will impairment triggering event assessment at the reporting date any time that they report financial , including interim reports. FASB’s staff has been directed to a final standard for a written vote by the board.

This decision responds to stakeholder concerns, accentuated by the COVID-19 pandemic, that there is undue cost and complexity in evaluating triggering events and projecting cash flows for potenlly measuring a will impairment at a date that is not a reporting date. Because the facts and circumstances that led to the potenl triggering event may have changed by the end of the reporting period, those stakeholders also assert that performing a will impairment evaluation at another date may not provide useful to financial statement users. For more on this project, visit FASB’s website.

The other FASB project is broader in scope and is still in its early stages. Stakeholders expressed concerns in a -implementation review of FASB’s business combinations guidance about the cost to perform the will impairment test. Since then, FASB has issued various Accounting Standards to respond to those stakeholders’ concerns. Some of these , including the option to perform a qualitative assessment and the removal of Step 2 from the impairment analysis, apply to all entities. Others are alternatives for private companies and not-for- entities — for example, the options to amortize will and assess it for impairment at either the entity or reporting-unit level and to subsume certain intangible assets into will. The option to amortize will is not currently available to public companies. For more on this project, refer to the FASB website.

The objective of the current project is to revisit the subsequent accounting for will and certain identifiable intangible assets broadly for all entities. Based on stakeholder feedback, FASB has tentatively determined to require all entities to amortize will on a straight-line basis, generally over a 10-year period. The staff is conducting additional research and outreach on the proposed model.

Potenlly affected organizations should keep up with the most recent FASB guidance and closely follow the impacts of the COVID-19 pandemic to ensure they comply with the latest requirements and avail themselves of any relief provided.

Gautam Goswami, CPA, is a partner, and Jennifer Kimmel, CPA, is a director, both in the National Assurance office of BDO USA LLP. To comment on this article or to suggest an idea for another article, contact Ken Tysiac, the JofA’s editorial director, at Kenneth.Tysiac@aicpa-cima.com.


Source

How To Really REALIZE DREAMS COME TRUE?

Happiness is for those who plan well and pursue. A profound among us have been proven those who have true dream to live for likely REALIZED IT. It is just simply the person working toward the DREAM days and night until accomplishment. There is a phrase of efficiency a head of you. Steps and obstacles at first seem tremendous. However, just with some times those difficult steps and challenges are so easy performance for you. There are also plenty of tools including VISUALIZATIONS and helps are around you.

COVID-19 – Effective Tips For You!

COVID-19
HOW TO DEFEAT DEADLY CORONAVIRUS EVERY TIME?

The Greatest Virus Surviving 10 Steps Guide

Free Risks Helps & COVID-19 Solutions

Here Are Great Free Tips For You.

Please Order If See Anything You Need? Mutual Reciprocal & Have Great Days!

 

Amazon Best Sellers

Assessing goodwill impairment amid COVID-19 In addition to the serious public health threat it poses, the COVID-19 pandemic has affected the current and future financial perfORMance of many entities, with its impact showing on both projections of future cash flows and estimated earnings. As a result, goodwill impairment has been an area of inCReased focus […]

Block Reveal Text

How To Really REALIZE DREAMS COME TRUE?

Happiness is for those who plan well and pursue. A profound among us have been proven those who have true dream to live for likely REALIZED IT. It is just simply the person working toward the DREAM days and night until accomplishment. There is a phrase of efficiency a head of you. Steps and obstacles at first seem tremendous. However, just with some times those difficult steps and challenges are so easy performance for you. There are also plenty of tools including VISUALIZATIONS and helps are around you.

Congratulations

COVID-19 – Effective Tips For You!

COVID-19
HOW TO DEFEAT DEADLY CORONAVIRUS EVERY TIME?

The Greatest Virus Surviving 10 Steps Guide

Free Risks Helps & COVID-19 Solutions

Here Are Great Free Tips For You.

Please Order If See Anything You Need? Mutual Reciprocal & Have Great Days!

 

Amazon Best Sellers

You May Also Like…

0 Comments

Submit a Comment