Impairment for Non-Financial Assets — Which Should You Test First?– December 15, 2020 by Beth Reho

Are you trying to determine whether your company has impairment concerns as a result of the pandemic or due to the economic environment in general? If so, did you know you might have to look at more than just the goodwill on your books, including looking at your non-financial assets — in the right order? Below we touch on the assets subject to impairment testing and the proper sequencing for performing it.

What Non-Financial Assets Do You Need to Test for Impairment?

We all know goodwill needs to be considered for impairment at least annually, under ASC 350-20, or if a triggering event occurs under the Private Company Council alternative ASU No. 2014-02, but what about the other non-financial assets on the balance sheet? Have you considered items such as trademarks, customer lists, brand names, PP&E or patents? These items are broken down into two different buckets:

  • Indefinite life intangible assets. These assets represent intangible assets that are not amortized because there is no foreseeable limit to the cash flows they generate, such as trademarks, customer lists and brand names. These assets need to be tested at least annually and more often if events indicate it is more likely than not the asset is impaired. They are tested at the asset level.
  • Long-lived assets and finite lived intangibles. These assets represent tangible assets and intangible assets that have a useful life and are either depreciated or amortized, respectively, over their useful life, such as PP&E and patents). These assets need to be tested for impairment if a triggering event occurs. A few examples of triggering events include significant decrease in the asset’s market value; significant adverse change in legal factors or the business climate; historical and current period operation or cash flow losses or projection or forecast of continuing loss; as well as others included in the guidance.

In What Order Must You Perform Impairment Testing?

As noted above, there is an order to perform impairment testing. Most of us have considered goodwill and indefinite lives intangible assets for impairment, as required; however, not everyone has considered the entire balance sheet for impairment. Therefore, it is important to point out there is an order for such testing if you are seeing an overall decline in value in your company. The order prescribed in ASC-360-10-35-27 and ASC 350-20-35-31 is as follows:

  1. Adjust the carrying value of any assets or liabilities not included in the groups noted above, if their carrying value exceeds its fair value. This would include accounts receivables, inventory, accounts payable, debt and others.
  2. Test for impairment and adjust the carrying value of the indefinite lives intangible assets on the balance sheet at an asset level, if the carrying value exceeds its fair value.
  3. Test for impairment and adjust the carrying value of the long lived assets and finite lived intangible assets on the balance sheet at an asset group level, if the carrying value exceeds its fair value.
  4. Test goodwill for impairment at the reporting unit/entity level and adjust the carrying value, if the carrying value exceeds its fair value.

Again, the order is important because you want the reporting unit/entity individual assets to be properly stated, after impairment considerations, prior to the impairment assessment of goodwill.


2020 has been a very unusual year for many of us and might even be considered unprecedented from an impairment assessment consideration. It’s important to take into consideration the impact it has had to your financial statements and consider the need for impairment testing at each individual asset level. Knowing the sequence to the impairment testing will enable you to not only perform the testing properly but also be prepared for any action you need to take now as a result of a potential impairment.

Contact Beth Reho at breho@cohencpa.com or a member of your service team to discuss this topic further.


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Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.