I was consulting with a valuation colleague from another firm who presented me with my first opportunity to review a company-prepared memo in which a company applied the FASB’s new “Step Zero” process to qualitatively determine whether goodwill impairment exists. The highlights (or lowlights, as they may be) of the company’s memo are presented below:
My comment: since when is this a criterion for not having impairment? If a company posted $10 million of profit for 10 years in a row, then posted $1 of profit for the next three years, are we saying that there would not be impairment because $1 is a positive number?
Clearly, if this is the type of support auditors will rely upon to support companies’ goodwill values (i.e., with no discussion of valuation, carrying values, comparable companies, discounted cash flows, etc.), then the integrity of the entire goodwill impairment testing process has been comprised by the FASB’s new rule.