ARTICLE
4 May 2020

Coronavirus Market Volatility – Goodwill Impairments Should Not Be A Foregone Conclusion (Video)

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Duff and Phelps

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Duff & Phelps is the global advisor that protects, restores and maximizes value for clients in the areas of valuation, corporate finance, investigations, disputes, cyber security, compliance and regulatory matters, and other governance-related issues. We work with clients across diverse sectors, mitigating risk to assets, operations and people. With Kroll, a division of Duff & Phelps since 2018, our firm has nearly 3,500 professionals in 28 countriesaround the world.
The World Health Organization (WHO) announced that COVID-19 (also known as coronavirus) has become a pandemic on March 11.
United States Accounting and Audit

The World Health Organization (WHO) announced that COVID-19 (also known as coronavirus) has become a pandemic on March 11. This outbreak has contributed to market volatility causing substantial declines in market capitalization, one of many factors for consideration as to whether a triggering event for an impairment test has occurred. Company projections may be affected by disruptions in its supply chain, a shift in demand for its products or services, or the loss of customers. While some industries and companies may be more vulnerable than others, both the effects of a pandemic and aggressive COVID-19 containment measures may affect social and economic behavior, increasing overall uncertainty. In the aggregate, these factors can result in a negative impact on the outlook and valuation of businesses, and the recoverability of any associated goodwill. This necessitates an assessment of whether a triggering event has occurred that requires goodwill impairment testing. An evaluation of potential impairment of other assets, including intangibles, prior to conducting the goodwill impairment test is also required, if a triggering event has arisen.

Distinguishing a temporary drop in stock price from a sustained decline is a critical element in concluding whether a triggering event has occurred. Share price volatility in and of itself may not be determinative, and all facts and circumstances require careful evaluation as the events unfold over time. A goodwill impairment in an extremely volatile market should not be a foregone conclusion.

Duff & Phelps can help companies navigate through the impairment triggers and in the event an impairment analysis is required we can assist with valuations of goodwill, indefinite-lived intangibles and long-lived assets for impairment testing purposes pursuant to ASC 350, Intangibles – Goodwill & Other, ASC 360 -10, Impairment or Disposal of Long-lived Assets, as well as International Accounting Standard 36: Impairment of Assets.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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