Description
Impairments - pwc
Impairments
Volatile fnancial markets and shifting economic conditions can impact the value of a company’s assets across
the balance sheet. As a result, companies are often challenged in making the best decisions for measuring and
reporting impairment charges. Improper decisions can adversely impact earnings or prompt unwanted scrutiny
from regulators.
Impairment testing involves more than “determining a number to book.” Consider the strategic areas of fnancial
reporting that intersect with annual testing required for goodwill and other assets. A more informed approach can
strengthen your company’s fnancial position and help avoid unnecessary risks or surprises.
Strategic considerations
A number of key areas to consider regarding your approach to impairment testing include:
• Timing and controls around forecasting. Impairment assessments depend on the
quality and timeliness of performance forecasts. Therefore, strengthening controls
over the forecasting process and allowing adequate time for management to review
performance forecasts can improve impairment testing. Regular evaluation of controls and
processes in this area are essential for effective impairment compliance.
• Impact of changing impairment profle following a merger or acquisition. As part of
your M&A strategy, consider how changes to your company’s impairment profle
post-transaction will impact earnings. What are the risks—and the impact—of future
impairments, given various transaction structures? Performing an analysis pre-acquisition
can help you make more informed decisions about how goodwill is allocated. At the very
least, you will be able to advise stakeholders of the impact that any potential impairments
will have on earnings post-acquisition.
• Potential link between structural or organizational changes and impairments. Tax
planning and reorganization or restructuring changes are examples of corporate strategies
that can reveal potential impairment issues. By keeping a broader perspective when
implementing these types of plans, you can uncover information that will help you better
determine when impairment testing is required.
• Different rules for International Financial Reporting Standards (IFRS). Multinational
companies may be subject to different accounting rules for impairment testing for
reporting units that are based in different countries. Despite regulators’ efforts to converge
accounting standards, different rules apply for US GAAP and IFRS. For example, IFRS
requires the use of entity-specifc discounted cash fows or a fair value measure in tests
for the recoverability of an asset. Earlier impairment recognition may result for long-lived
assets held for use. Additional differences exist, such as what qualifes as an impairment
indicator or how recoveries in previously impaired assets are treated.
© 2010 PricewaterhouseCoopers LLP. All rights reserved. “PricewaterhouseCoopers” refers to PricewaterhouseCoopers LLP, a Delaware limited liability
partnership, or, as the context requires, the PricewaterhouseCoopers global network or other member frms of the network, each of which is a separate legal
entity. This document is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
AT-11-0095
One company’s approach
The challenge: A Fortune 500 public company required
an interim impairment testing date for goodwill and other
indefnite-lived assets as well as testing for impairment
of long-lived assets due to adverse changes in the
macroeconomic climate. The company had limited time to
address these issues prior to releasing its public fling and
was concerned about how to communicate the impact of
impairment charges.
The approach: PwC worked closely with management to
understand all the issues related to the triggering event,
the potential impairment of certain indefnite-lived and
long-lived assets, and the need for an expedited approach
to address these issues for fnancial reporting purposes. By
researching impairment charges reported by the company’s
peer group, the team advised management on disclosures
and helped prepare the CFO to address questions on the
impact of impairments.
Employing an integrated valuation and accounting
advisory approach, we met with the company and their
audit team regularly to propose alternative approaches
regarding the accounting, valuation and disclosure of
potential impairment as well as the pros and cons of
each alternative. We also advised management on the
timing and controls used in performance forecasting to
help improve the impairment assessment process. An
innovative methodology for recording an initial estimate of
impairment was developed, which also assisted in with an
impairment true-up in a subsequent reporting period.
The result: The company was able to meet its fnancial
reporting deadlines, and the CFO was well prepared for
the earnings announcement. Management effectively
and effciently measured and documented the true-up
of impairment of indefnite-lived and long-lived assets in
a subsequent period and was able to deliver a hands-on
response to auditor inquiries. The company also improved
its processes and controls around performance forecasting,
which will help facilitate future impairment testing.
How PwC can help
The Transaction Services professionals at PwC offer a
combination of accounting, valuation, fnancial reporting and
industry expertise to assist with your company’s impairment
testing challenges. We can help you analyze your approach to
impairment testing required for goodwill and other indefnite-
lived intangible assets and consider strategies for improvement.
PwC has deep experience assisting companies in a range of
industries that require specialized techniques to determine the
fair value of assets.
Our professionals can help you:
• Anticipate the needs of auditors, lenders, markets,
regulators and tax authorities
• Lower restatement risks, IRS issues, and SEC comments
• Preserve and improve shareholder value/market
capitalization in the longer term
• Reduce ongoing exposure to impairments by optimizing
the timing of charges
• Set your balance sheet for improved return on assets and
return on equity metrics going forward
• Ensure M&A transactions close more smoothly with fewer
delays, surprises or adverse consequences
• Better communicate issues regarding impairment charges
throughout the executive levels of your organization
For more information contact
John Glynn
Valuation Transaction Services Leader
(646) 471-8420
[email protected]
Andreas Ohl
Partner, Valuation Transaction Services
(646) 471-2947
[email protected]
Alberto Dent
Partner, Valuation Transaction Services
(678) 419-1170
[email protected]
doc_294676345.pdf
Impairments - pwc
Impairments
Volatile fnancial markets and shifting economic conditions can impact the value of a company’s assets across
the balance sheet. As a result, companies are often challenged in making the best decisions for measuring and
reporting impairment charges. Improper decisions can adversely impact earnings or prompt unwanted scrutiny
from regulators.
Impairment testing involves more than “determining a number to book.” Consider the strategic areas of fnancial
reporting that intersect with annual testing required for goodwill and other assets. A more informed approach can
strengthen your company’s fnancial position and help avoid unnecessary risks or surprises.
Strategic considerations
A number of key areas to consider regarding your approach to impairment testing include:
• Timing and controls around forecasting. Impairment assessments depend on the
quality and timeliness of performance forecasts. Therefore, strengthening controls
over the forecasting process and allowing adequate time for management to review
performance forecasts can improve impairment testing. Regular evaluation of controls and
processes in this area are essential for effective impairment compliance.
• Impact of changing impairment profle following a merger or acquisition. As part of
your M&A strategy, consider how changes to your company’s impairment profle
post-transaction will impact earnings. What are the risks—and the impact—of future
impairments, given various transaction structures? Performing an analysis pre-acquisition
can help you make more informed decisions about how goodwill is allocated. At the very
least, you will be able to advise stakeholders of the impact that any potential impairments
will have on earnings post-acquisition.
• Potential link between structural or organizational changes and impairments. Tax
planning and reorganization or restructuring changes are examples of corporate strategies
that can reveal potential impairment issues. By keeping a broader perspective when
implementing these types of plans, you can uncover information that will help you better
determine when impairment testing is required.
• Different rules for International Financial Reporting Standards (IFRS). Multinational
companies may be subject to different accounting rules for impairment testing for
reporting units that are based in different countries. Despite regulators’ efforts to converge
accounting standards, different rules apply for US GAAP and IFRS. For example, IFRS
requires the use of entity-specifc discounted cash fows or a fair value measure in tests
for the recoverability of an asset. Earlier impairment recognition may result for long-lived
assets held for use. Additional differences exist, such as what qualifes as an impairment
indicator or how recoveries in previously impaired assets are treated.
© 2010 PricewaterhouseCoopers LLP. All rights reserved. “PricewaterhouseCoopers” refers to PricewaterhouseCoopers LLP, a Delaware limited liability
partnership, or, as the context requires, the PricewaterhouseCoopers global network or other member frms of the network, each of which is a separate legal
entity. This document is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
AT-11-0095
One company’s approach
The challenge: A Fortune 500 public company required
an interim impairment testing date for goodwill and other
indefnite-lived assets as well as testing for impairment
of long-lived assets due to adverse changes in the
macroeconomic climate. The company had limited time to
address these issues prior to releasing its public fling and
was concerned about how to communicate the impact of
impairment charges.
The approach: PwC worked closely with management to
understand all the issues related to the triggering event,
the potential impairment of certain indefnite-lived and
long-lived assets, and the need for an expedited approach
to address these issues for fnancial reporting purposes. By
researching impairment charges reported by the company’s
peer group, the team advised management on disclosures
and helped prepare the CFO to address questions on the
impact of impairments.
Employing an integrated valuation and accounting
advisory approach, we met with the company and their
audit team regularly to propose alternative approaches
regarding the accounting, valuation and disclosure of
potential impairment as well as the pros and cons of
each alternative. We also advised management on the
timing and controls used in performance forecasting to
help improve the impairment assessment process. An
innovative methodology for recording an initial estimate of
impairment was developed, which also assisted in with an
impairment true-up in a subsequent reporting period.
The result: The company was able to meet its fnancial
reporting deadlines, and the CFO was well prepared for
the earnings announcement. Management effectively
and effciently measured and documented the true-up
of impairment of indefnite-lived and long-lived assets in
a subsequent period and was able to deliver a hands-on
response to auditor inquiries. The company also improved
its processes and controls around performance forecasting,
which will help facilitate future impairment testing.
How PwC can help
The Transaction Services professionals at PwC offer a
combination of accounting, valuation, fnancial reporting and
industry expertise to assist with your company’s impairment
testing challenges. We can help you analyze your approach to
impairment testing required for goodwill and other indefnite-
lived intangible assets and consider strategies for improvement.
PwC has deep experience assisting companies in a range of
industries that require specialized techniques to determine the
fair value of assets.
Our professionals can help you:
• Anticipate the needs of auditors, lenders, markets,
regulators and tax authorities
• Lower restatement risks, IRS issues, and SEC comments
• Preserve and improve shareholder value/market
capitalization in the longer term
• Reduce ongoing exposure to impairments by optimizing
the timing of charges
• Set your balance sheet for improved return on assets and
return on equity metrics going forward
• Ensure M&A transactions close more smoothly with fewer
delays, surprises or adverse consequences
• Better communicate issues regarding impairment charges
throughout the executive levels of your organization
For more information contact
John Glynn
Valuation Transaction Services Leader
(646) 471-8420
[email protected]
Andreas Ohl
Partner, Valuation Transaction Services
(646) 471-2947
[email protected]
Alberto Dent
Partner, Valuation Transaction Services
(678) 419-1170
[email protected]
doc_294676345.pdf