The requirement for impairment testing
Companies accounting under International Financial Reporting Standards (IFRS) are required to test at least annually for impairment of goodwill and intangible assets with indefinite useful life.
The process requires assets to be valued at the higher of ‘fair value’ and ‘value-in-use’ and this value to be compared to the carrying value. Any shortfall in the value meaning that there is an impairment and the value of the assets must be written down in the company’s books.
IFRS standards set out certain requirements as to the performance of the impairment testing including definition of cash flows, valuation methodology and discount rate.
Other GAAPS including US GAAP and UK GAAP also have requirements for regular impairment testing of assets including goodwill and intangibles.
How City Valuation Advisory can help
City Valuation Advisory provides a range of services for clients looking for assistance with impairment testing from ad hoc guidance to providing an independent valuation report.
When City Valuation Advisory provides clients with an independent opinion on value for impairment testing purposes, the output of our work would typically be a report which sets out the following:
- Consideration of triggers for impairment;
- Benchmark data analysis including for discount rates and brand royalty rates;
- Valuation calculation schedules for each cash generating unit or asset based on ‘value in use’ or ‘fair value’;
- Valuation conclusions; and
- Calculation of pre-tax discount rates.
For more ad-hoc assistance, the client will typically run the valuation model and prepare any supporting accounting memo or report for the company’s records and review by its auditors. City Valuation Advisory provides help and guidance as needed; for instance, on details of the ‘fair value’ or ‘value in use’ calculations or the provision of data benchmarking analysis to support valuation inputs such as risk free rate, market risk premium, beta factors and brand royalty rates.