Goodwill Impairment Trends - Part Two

Business Advisors|Business Valuation

By Jennifer Doering

This Insight is a follow-up to a previous Insight, “Goodwill Impairment Trends” and discusses the 2013 results of the annual goodwill survey of FEI members as released in the 2013 U.S. Goodwill Impairment Study, prepared by Duff & Phelps and the Financial Executives Research Foundation (FERF).  Survey respondents represented both public and private companies.

Included among the findings and contrary to industry expectations was the fact that 71% of public companies and 78% of private companies still perform the quantitative test for impairment instead of the optional qualitative impairment analysis introduced in 2011 and often referred to as Step 0.  Companies cited a lack of cost effectiveness and a lack of practical guidance as some reasons for not using Step 0.

According to the survey, for companies that have recorded indefinite-lived intangible assets on the balance sheet, 68% of public company respondents and 48% of private company respondents still use the traditional annual fair value test for indefinite-lived assets.

Other highlights of the survey include:

  • Macroeconomic and industry conditions appeared to improve compared to the 2012 survey.  The proportion of respondents citing factors specific to the reporting unit as the reason for impairment (as opposed to overall market downturn and general industry downturn) has increased from the prior year’s survey, nearing 60% of companies in the survey.
  • The number of reporting units did not affect the probability of engaging a valuation consultant.
  • 80% of the entities that performed the goodwill impairment analysis in-house did not have impairment.
  • Large public companies were twice as likely to have recognized impairment. 
  • Companies that recognized impairment were twice as likely to use a valuation consultant.
  • Companies that used a qualitative test for indefinite-lived assets were more likely to have used the Step 0 qualitative test for goodwill.
  • Those entities that used Step 0 were almost twice as likely to hire a third-party valuation consultant.

Please contact Joel Rosenthal at 412-697-5387 or jrosenthal@schneiderdowns.com or Tom Claassen at 412-697-5330 or tclaassen@schneiderdowns.com of the Schneider Downs Business Advisory Group to further discuss how we can assist you with your goodwill analysis needs.

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