In 2001, the Financial Accounting Standards Board (FASB) issued SFAS 141 and 142 regarding accounting for business combinations and intangible assets. The new rules eliminate goodwill amortization.
Under the new rules, goodwill remains on the balance sheet but must be tested at least annually for impairment in a two-step process. The first step (Step 1) of a company’s impairment test requires all companies to determine (usually with help from a financial advisor) the fair value of each of their reporting units and then to compare that fair value to the value on the books. If the fair value has fallen below the value on the books, companies must perform a second (Step 2) test, which will determine whether some or all goodwill must be written off.
Drawing on our valuation skills and on our knowledge of the financial markets, Burnham’s investment bankers perform Step 1 tests on a regular basis. If Step 1 indicates a possible impairment, we can then introduce you to firms that regularly perform Step 2 testing.
We can also advise you proactively on the goodwill-related implications that your M&A plans may have on your future reported results.