Goodwill and impairments challenges from COVID-19

29 June 2020: With cashflow projections proving challenging as the pandemic continues, it's crucial to get to grips with goodwill impairments testing.

The ongoing economic disruption caused by COVID-19 is impacting businesses in almost every sector. As future trading volumes remain uncertain, cash flow forecasting is proving to be exceptionally challenging for entities of all sizes.

The challenging economic outlook is impacting the value of many businesses. The FTSE 250 declined by 30% between late February and the end of March 2020.

As a result, there is a heightened focus on goodwill balances, particularly for those businesses with a reporting date of 31 March. Reporting entities will now need to consider whether the impact of COVID-19 constitutes a triggering event for impairment testing, which will be the subject of an upcoming ICAEW webinar.

However, identifying whether or not a triggering event has occurred is not the only challenge valuers face. The difficulty in adjusting cash flow projections and selecting inputs to discount rate calculations will be made all the more challenging due to the impact of COVID-19. Valuers will need to ensure that they don't double-count the effect of the pandemic in the adjustments they make to cash flow projections and discount rates.

These challenges will be compounded for some valuers who may also have to factor in the impact of IFRS 16 on the cash flow projections and cost of capital assumptions on the businesses they are valuing and the comparables they use.

To discuss these issues and to share insights on best practice, James Palmer, Managing Director, Valuation Advisory, Duff & Phelps and Chair of ICAEW's Valuations Community Advisory Group, will be joined by colleagues in a free webinar on Tuesday 30 June (13:00 – 14:00). He will cover:

background on how the COVID-19 economic environment is impacting goodwill impairment testing;
identifying triggering events and deciding whether an impairment test is appropriate;
adjusting cash flow projections;
selecting discount rate assumptions;
addressing stock market price fluctuations and reconciling value conclusions;
highlighting similarities and differences between U.S. GAAP and IFRS.