Goodwill resulting from an acquisition and intangible assets with indefinite useful lives are generally subject to an annual impairment test.
Especially in economically difficult times, the impairment test represents a major challenge, since companies are forced to rethink their financial planning and react to the change in material parameters which might eventually lead to impairments. It is thus essential to identify and quantify potential impairment risks at an early stage, so that possible effects may be dealt with in good time. We support our clients in structuring and conducting the typical impairment test process.
This process usually consists of four elements:
- Automatic data generation for input parameters, including the monitoring of indicators for impairment
- IFRS, US GAAP, or HGB compliant impairment model
- Alignment of key model assumptions with market parameters
- Drawing conclusions from the results
The impairment test for fixed assets is required by national and international accounting rules and follows the lower of cost or market principle. Accounting rules demand a regular assessment of indicators for permanent impairment of assets. The goal is to prevent assets to be recorded at a value higher than their recoverable amount.