PJ Patel, Co-CEO and Senior Managing Director of VRC, was quoted in The Wall Street Journal. The disruptions of the coronavirus pandemic have extended into financial reporting complications, forcing financial executives to contend with a need to perform interim impairment tests for goodwill. As the article notes, “Companies usually conduct impairment tests in the third quarter. But if a so-called triggering event—something that will likely cause the carrying amount of a segment of the business to exceed its fair market value—occurs, companies must conduct the test sooner.”
“During the first quarter, many companies looked for a simple way to determine the need for an impairment: by adjusting their previous impairment test for changes in the stock market or by comparing their market capitalization with the book value of equity,” said Patel. “In the second quarter, companies will likely run multiple scenarios on the timing and extent of the recovery and determine values based on probabilities. Q3 and beyond seem like a lifetime away at this point.”
Commentary from Patel has also recently been featured in Bloomberg Tax as the financial impact from the virus has been leaving its mark on company risk factors, revenue, earnings, goodwill impairments, and other financial reporting areas.
Patel and other VRC valuation professionals are continuously monitoring this rapidly changing environment. We encourage you to visit our COVID-19 Resource Center for the latest news and updates.
Measuring Triggering Event Impacts and Subsequent Impairment Testing
Some of the most significant financial consequences of the novel coronavirus will be seen in both current and coming company disclosures. Accurately identifying the potential triggering events for the impairment of goodwill and other assets, in light of COVID-19, is a necessary approach that companies should take now with their trusted partners.
Anxious Times for Financial Statement Preparers Worried About Goodwill Impairment
The impact of the proliferation of coronavirus cases on financial markets is creating challenges for companies attempting to wrap up quarterly reporting. On top of concerns about the outlook for the economy and implementation of the CARES Act, companies with goodwill on the books are questioning whether they need to test for impairment and, if so, what parameters to adjust in a rapidly changing environment. VRC Co-CEO PJ Patel briefed financial reporting and SEC professionals on how companies are dealing with impairment questions in Q1 and planning for Q2.
Bulls vs. Bears vs. COVID-19: How do Control Premiums Change?
COVID-19 is impacting global markets and triggering a potential for interim goodwill impairment testing. In light of the current market downturn, can we anticipate the impact on control premiums? VRC analyzed control premium data vs. the DJIA over the 24-years from 1996 through 2019, to understand how sharp changes in the stock market impacted control premiums.
Questions About Goodwill Impairment Testing?
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VRC's COVID-19 Resource Center
Our professionals are continuously monitoring the rapidly changing environment and proactively discussing impacts and solutions with clients. Visit our COVID-19 Resource Center for continued updates and coverage related to valuation impacts.