The business and operations of many entities have already been seriously affected by the rapid global spread of COVID-19 and related government actions. Unfortunately, many businesses will continue to be affected for some time. This has consequences for their value and the value of many of their commercial assets.
In this volatile environment, any impairment of goodwill and other long-lived assets has the potential to materially reduce reported earnings. While impairment losses provide only a lagging indicator of negative developments, this does not reduce the importance of ensuring that the reported values for goodwill and other intangibles reflect an appropriate value. This includes any impairment in value reflecting economic impact of COVID-19.
Management teams that perform impairment testing fully in-house may find this requirement a significant addition to their role at a time when, more than ever, management’s full attention on operations is crucial. This is also an area that will likely be subject to particular scrutiny and challenge by external auditors.