March 2020

Find out why the recent downward volatility in crude oil and gas prices may be a catalyst for goodwill and asset impairment testing.

By Kevin Cannon

Market equity prices and indices, along with commodity prices, have seen significant downward volatility over the past several weeks. This volatility comes on the heels of continued uncertainty related to the spread of the coronavirus (COVID-19) worldwide, as well as tensions in the oil and gas markets between Russia and Saudi Arabia. Because of these larger, external market forces, there’ll very likely be a renewed focus among auditors and regulators around impairment testing for goodwill and long-lived assets on the balance sheets of energy-focused companies in the near future.

"Publicly- and privately-held companies need to adequately address their goodwill and long-lived asset impairment testing procedures."

Under Accounting Standards Codification Topic 350, Intangibles: Goodwill and Other (ASC 350), goodwill is tested for impairment at least annually or when a triggering event dictates. For more information about how amendments to ASC 350 in 2017 simplified the process of testing goodwill for impairments, CLICK HERE.

Under Accounting Standards Codification Topic 360, Property, Plant and Equipment (ASC 360), long-lived assets are tested for impairment when a triggering event dictates. The market forces that have impacted energy supply and demand during the first quarter of 2020 may affect enough companies to qualify as a triggering event for both goodwill and long-lived asset impairment testing.

Publicly- and privately-held companies need to adequately address their goodwill and long-lived asset impairment testing procedures. Doing so in a timely manner will ensure that quarterly financial statement audits and reviews will proceed as smoothly as possible and will also lead to greater shareholder and stakeholder transparency.

Kevin Cannon is a Director in Opportune’s Valuation practice based in Houston. He has 15 years of experience performing business and asset valuations and providing corporate finance consulting. His specific experience includes valuations of businesses and intangible assets for purchase price allocations, impairment, tax planning and portfolio valuation purposes for companies in a variety of industries, including upstream oil and gas, oilfield services, petrochemicals and industrial manufacturing.