COVID-19 Accounting Implications for CFOs: Impairment of Intangible Assets and Goodwill

This Accounting Alert is issued to provide insights on issues management should consider in assessing impairment, as well as some direction as to how best respond to them.

Background

Given the uncertainty with respect to the duration and severity of the COVID-19 pandemic and its related economic impacts, it is likely that many businesses will continue to be affected for some time and this has related consequences for their value and the value of many of their commercial assets. These affected companies will need to employ even more careful considerations and judgment as they work through impairment assessments, since any impairment of goodwill and other long-lived assets has the potential to materially reduce reported earnings. This accounting alert provides ten key considerations for management in assessing impairment and some guidance as to how to best respond to them.

Ten Key Questions for CFOs

The alert answers 10 key questions management should ask in assessing the impact of COVID-19 in the impairment of goodwill and other long-lived assets:

• Is COVID-19 an impairment indicator at the reporting date?
• What are the most relevant indicators to the COVID-19 pandemic?
• Which assets are likely to be impacted?
• How is COVID-19 likely to impact the impairment test?
• How is COVID-10 likely to impact the discount rate?
• How will it impact the cash flow forecasts?
• What about fair value less cost of disposal?
• What about useful life?
• What is the impact to the interim period?
• Is PAS 36 the only standard that should be taken into consideration when considering impairment?

These questions are by no means exhaustive, or indeed listed in any order of priority, because their applicability will depend on facts and circumstances. Preparers of financial statements will need to be agile and responsive as the COVID-19 situation unfolds.

 

See attached Accounting Alert for further details.