Services : ASC 350 Goodwill Impairment Testing

ASC 350 states that if a reporting unit’s fair value is greater than its book value (including goodwill) then no impairment has occurred.  What metric to use as the fair value measure, e.g. current market capitalization, premiums paid in comparable M&A transactions, or other evidence, is an open question, however.

MPS impairment testing compares the current fair value of the institution with book value equity plus goodwill and intangibles.  Fair value is established using multiple market based and institution specific tests.  If the institution’s fair value is greater than its book value equity plus goodwill and intangibles, no impairment has occurred and the analysis is complete.  If the fair value is less than the required level, then a separate step 2 impairment test of the must be completed.

MPS provides both Step 1 and Step 2 testing for ASC 350 compliance. 

With this MPS service, your institution is empowered to:

  • Positively demonstrate goodwill non-impairment even if the current market capitalization level is below necessary mandates
  • Prove out non-impairment using market-based empirical evidence and key institution specific indicators of ongoing fair value
  • Document key asset and liability fair values if impairment is found

MPS Step 1 Goodwill Impairment Test

This report satisfies the FASB mandate to screen for potential impairment.  Market based tests of fair value are (a) current market capitalization and (b) proxy market capitalization estimated via using deal value/equity ratios from recent whole bank merger and acquisition (M&A) activity.  Geographically comparable transactions and national data are employed in creating M&A-based measures of long term market value.  Institution specific information, for example relating to the stability of balance sheet size and net interest margin, provides added contextual support for proof of ongoing institution long term economic value.  Where valuable, peer group performance measures are provided for comparison.

MPS Step 2 Goodwill Impairment Test

A Step 2 goodwill impairment test requires determining the implied fair value of the appropriate operating unit and comparing this result to the carrying value of the unit plus goodwill.  This report provides key asset and liability fair values to support that calculation, with the institution providing other inputs.

The valuations provided include estimates of current core deposit intangible, its economic life, and the fair values of CD’s and loans.  All reported values are fully documented and have direct audit trails to their underlying sources.