Goodwill Impairment Analysis – Is Your Goodwill Impaired?

If you are like many companies these days, odds are the answer to that question is “yes.”  In the current weakened economic environment, companies are learning that the goodwill that they carry on the balance sheet is impaired due to the diluted value of the entire enterprise.

 

The process of evaluating goodwill for impairment really is based in a very simple mathematic equation under current accounting guidance outlined in Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”) and Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS 142”).  Is the Company’s book value of equity greater than the fair value of its equity?  If so, then impairment exists, resulting in a laborious process in which most accounts on the entity’s balance sheet must be revalued.  While measuring the book value of equity is a rather simple task, measuring the fair value of the equity can be complex.  It involves consideration of common methods to valuation, such as the income and market approaches.