June 16, 2024


Make Every Business

Is COVID-19 a Triggering Event for Impairment Testing?

The longest-operating bull sector since Earth War II started in March 2009, and in excess of the past number of several years, several debated “when, not if,” a downturn would occur. But no a person could have predicted that a world-wide pandemic would lead to unparalleled disruption and dislocation in the funds markets and the fastest finish to a bull sector in record.

As of March 23, the S&P 500 had fallen approximately 30{79e59ee6e2f5cf570628ed7ac4055bef3419265de010b59461d891d43fac5627} from its February highs. While the markets have recovered somewhat, several industries have been strike hard. Reporting entities will now require to look at irrespective of whether the affect of COVID-19 and the resultant sector downturn constitutes a triggering celebration for functions of goodwill, intangible asset, and fixed-asset impairment testing.

Ahead of we delve into opportunity triggering occasions, we believed a fast recap on impairment testing needs below U.S. Generally Acknowledged Accounting Rules (GAAP) for different asset lessons would be handy.

Impairment Screening Specifications
Goodwill Indefinite-Lived Intangibles Very long-Lived Belongings (which includes Finite-Lived Intangibles)
Relevant Steerage ASC 350 ASC 350 ASC 360
Screening Specifications  

On a yearly basis and on triggering celebration (for private corporations electing accounting substitute, only on triggering celebration)

On a yearly basis and on triggering celebration On triggering celebration
Amount of Screening Reporting device (working phase or component) Particular person asset Asset group (most affordable degree of impartial hard cash flow)
Process of Screening  

Just one phase on a truthful price (e.g., discounted hard cash flow) foundation


Just one phase on a truthful price (e.g., discounted hard cash flow) foundation


Two measures – to start with phase on an undiscounted hard cash flow foundation, 2nd phase on a truthful price foundation

Get of Screening (Belongings Held and Employed) Third Very first 2nd
Get of Screening (Belongings Held for Sale) 2nd Very first Third


Triggering Occasions

Triggering occasions differ for goodwill/indefinite-lived intangibles and long-lived property. That said, an impairment of goodwill or indefinite-lived intangibles may well induce the require to perform impairment testing for long-lived property. In addition, and when not especially discovered in ASC 360, important entity-degree occasions may well induce impairment testing for long-lived property. Under are illustrations of triggering occasions for goodwill/indefinite-lived intangibles and long-lived property, respectively.

Goodwill and Indefinite-Lived Intangibles Very long-Lived Belongings (which includes Finite-Lived Intangibles)

Macroeconomic ailments (deterioration in common economic ailments)


Substantial lessen in sector price of a long-lived asset (asset group)

Business and sector considerations (deterioration in the natural environment in which a organization operates) Substantial adverse alter in the extent or way in which a long-lived asset (asset group) is being utilised or in its bodily ailment

Expense elements (will increase in raw materials, labor, etcetera.)


Substantial adverse alter in legal elements or in the enterprise climate


In general fiscal efficiency (detrimental or declining hard cash flows, decline in real or planned profits or earnings)


Accumulation of charges considerably in excessive of the amount of money originally predicted for the acquisition or development of a long-lived asset group

Other related entity-unique occasions (alterations in management, key personnel, approach, etcetera.) Recent-time period, historic, or projected working or hard cash-flow reduction involved with the use of a long-lived asset group

Occasions impacting a reporting device (alter in composition of web property, expectation of disposing all or a portion of the reporting device)

Expectation of disposing a long-lived asset or asset group in advance of the finish of its handy existence
Sustained lessen in share price (in absolute terms or relative to friends)


Naturally, particular triggering occasions listed over will be much more related to the latest natural environment than some others. With regard to COVID-19, we believe corporations ought to especially look at the adhering to opportunity triggering occasions.

Macroeconomic ailments such as a deteriorating on in common economic ailments, limits on accessing funds, fluctuations in foreign exchange charges, or other developments in fairness and credit markets

Evidently, COVID-19 has impacted macroeconomic ailments globally. Fairness markets have viewed spectacular decreases in price in a shorter time period of time. We have also witnessed unparalleled volatility in the world-wide markets it is tough to predict how markets will look tomorrow, allow alone a person to two months from now.

Governments have started to intervene as they try to stop a extended economic downturn. From a U.S. viewpoint, it is not known irrespective of whether or when efforts to “flatten the curve” will be successful and allow the state to get back again to enterprise as usual. As this continues to unfold and a higher info established is readily available for evaluation, we will have a better feeling as to the shorter-, medium-, and long-expression impacts on the world-wide economic climate.

Business and sector considerations involve things such as a deterioration in the natural environment in which an entity operates, an elevated aggressive natural environment, a decline in sector-dependent multiples or metrics (regarded as in equally absolute terms and relative to friends), a alter in the sector for an entity’s goods or expert services, or a regulatory or political advancement

While approximately all corporations have been influenced in some way by COVID-19, particular industries have been much more adversely impacted than some others. The airline industry was down approximately sixty{79e59ee6e2f5cf570628ed7ac4055bef3419265de010b59461d891d43fac5627} in the final thirty day period, primarily based on the S&P 500 Airlines Business Index. Cruise line stocks are down as significantly as 87{79e59ee6e2f5cf570628ed7ac4055bef3419265de010b59461d891d43fac5627} year-to-date. In addition, bar and cafe stocks are down in excess of forty{79e59ee6e2f5cf570628ed7ac4055bef3419265de010b59461d891d43fac5627} in the final thirty day period, primarily based on the Dow Jones U.S. Restaurants & Bars Index, with person cafe stocks down as significantly as 90{79e59ee6e2f5cf570628ed7ac4055bef3419265de010b59461d891d43fac5627}. Conversely, particular corporations have viewed an improve in demand from customers for their goods and expert services in the course of this time.

With this context, it is apparent particular industries will require to look at impairment testing faster than some others and most likely prior to their once-a-year testing date. In pinpointing irrespective of whether a triggering celebration has happened, corporations ought to look at all facts and situations, which includes the near- and medium-expression outlook for demand from customers for goods and expert services in their distinct industry.

In general fiscal efficiency includes such elements such as detrimental or declining hard cash flows or a decline in real or planned profits or earnings compared with real and projected outcomes of related prior periods

In gentle of the COVID-19 crisis, several corporations have previously warned that earnings will be reduce than forecasted. Community corporations symbolizing a broad spectrum of industries have considerably reduced or eliminated earnings assistance. It will most likely choose some time for corporations to evaluate the affect of COVID-19 on their unique enterprise and to update their forecasts to account for it. At the time corporations are ready to evaluate impacts to real and forecasted outcomes, they ought to look at irrespective of whether such impacts represent a triggering celebration.

In accomplishing so, the threshold for pinpointing irrespective of whether a triggering celebration has happened may well differ by reporting entity. For example, reporting entities that consummated a new content acquisition or had a new occurrence of goodwill impairment are at much more chance. Any lessen in long term hard cash flow anticipations would most likely cause an incremental impairment as opposed to a reporting entity that handed its most new impairment exam by a huge margin.

If applicable, a sustained lessen in share price (look at in equally absolute terms and relative to friends)

To be apparent, a decline in the overall stock sector is not, in and of by itself, necessarily a triggering celebration. The stock sector can be highly unstable, and the intent of the assistance is not to induce a wave of impairments each and every time the stock sector swings. This is why ASC 350 especially utilizes the phrase “sustained lessen.”

Regretably, the assistance does not define or prescribe what is meant by “sustained.” Selected corporations and industries may well previously be ready to assert, with a higher degree of self-assurance, that their latest share price declines will be “sustained,” but we do not have the requisite info established to decide irrespective of whether this will be genuine for the overall sector or much less specifically impacted corporations and industries.

No matter of irrespective of whether or not it is decided that an immediate triggering celebration has happened, it is vital that public corporations involve proper disclosures as to the threats presented by COVID-19 and the latest economic natural environment. To the extent that such ailments persist and develop into an impairment induce, the SEC will anticipate that corporations have offered an proper degree of foreshadowing in their public filings.

Steve Hills is a running director and head of the complex accounting consulting observe at Stout,a world-wide advisory organization. Dave Lindstrom is a director in the valuation advisory group.

contributor, goodwill, impairment testing, Stout, triggering celebration