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Goodwill Impairments Becoming All Too Common

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December 8, 2009

Over two-thirds of companies have recognized an impairment of goodwill, according to a recent study by Financial Executives International’s Financial Executives Research Foundation and Duff & Phelps.

The study surveyed a sample of 2,500 members of FEI in October and found that 67.9 percent of the respondents indicated that their companies had recognized an impairment of goodwill, while 32.1 percent said their companies had not. Of those companies that recognized an impairment, about one-third were from the manufacturing sector. 

“Clearly in the latter half of 2008 and through the first six months of 2009, we saw a very significant decline in the market capitalizations of all publicly traded companies, and as a result of that, there were a lot of impairment triggers,” said Duff & Phelps managing director Greg Franceschi, who leads the investment banking and financial advisory firm’s financial reporting valuation advisory practice. “I don’t think anyone was immune to the issue. The only companies that were shielded to some extent were the ones that did not have a significant amount of goodwill on their balance sheet.”

Franceschi is a co-chair of the AICPA’s Impairment Task Force, and he noted that the AICPA plans to provide new suggested guidance on how to apply the requirements of FAS 142, which involves standards for goodwill and other intangible assets. He does not expect there to be a fundamental change in the number of impairments reported or the number of triggering events. The AICPA hopes to release the suggested guidance by next summer.

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