Gain clarity and compliance with robust goodwill impairment testing. Whether triggered by annual reporting requirements or specific indicators of impairment, our independent valuations help you meet IFRS and audit standards with confidence.

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How Often is Goodwill Tested for Impairment?

Goodwill must be tested for impairment at least annually, in line with IAS 36 – Impairment of Assets. This is a mandatory requirement for any entity that is IFRS compliant and carries goodwill on its balance sheet following a business combination under IFRS 3.

However, impairment testing may need to be performed more frequently if there are indicators that the value of goodwill may have declined. These are known as “triggering events” and include:

  • A significant decline in the business’s market value or profitability
  • Deterioration in industry or economic conditions
  • Changes in management, strategy, or operations
  • Unexpected underperformance of a cash-generating unit (CGU)
  • Adverse legal or regulatory developments

Regular impairment testing ensures that financial statements reflect the true recoverable value of goodwill, helping companies maintain audit readiness, support investor confidence, and comply with international reporting standards.

What Steps Are Part of Goodwill Impairment Testing?

1. Identify Cash-Generating Units (CGUs)

Goodwill must be allocated to the appropriate CGUs — the smallest group of assets that generates independent cash inflows. This sets the foundation for accurate testing.

4. Recognise and Record Any Impairment Loss

If impairment is identified, the goodwill value is reduced, and the impairment loss is recorded in the financial statements in accordance with IFRS.

2. Estimate the Recoverable Amount

For each CGU, calculate the recoverable amount, which is the higher of its fair value less costs of disposal or its value in use. This typically involves forecasting future cash flows and applying an appropriate discount rate.

5. Prepare Supporting Documentation

Compile a valuation memorandum and supporting data to justify the assumptions used, ready for audit and stakeholder review. Documentation should align with IFRS 3 and IAS 36 standards.

3. Compare to the Carrying Amount

Assess whether the CGU’s recoverable amount is less than its carrying amount (including allocated goodwill). If it is, an impairment may exist.

Goodwill Impairment Test Calculation Example

Understanding how a goodwill impairment test is calculated is essential for accurate financial reporting and compliance with IAS 36. Below is a simplified example that illustrates the key steps involved in assessing and recognising a goodwill impairment.

The Scenario

A company acquires a subsidiary for R10 million. At acquisition, the fair value of the identifiable net assets is R7 million, resulting in R3 million of goodwill recognised on the balance sheet.

Each year, the company must perform a goodwill impairment test to ensure the carrying amount remains recoverable.

Step-by-Step Goodwill Impairment Test

1. Determine the Carrying Amount of the CGU
  • The cash-generating unit (CGU) includes goodwill and relevant assets.
  • Carrying amount of CGU: R10 million (includes R3 million goodwill)
2. Calculate the Recoverable Amount

The recoverable amount is the higher of:

  • Value in Use (VIU): based on projected discounted cash flows
  • Fair Value Less Costs to Sell
    • Let’s assume VIU is determined at R8.5 million
3. Compare Carrying Amount vs Recoverable Amount
  • Carrying amount: R10 million
  • Recoverable amount: R8.5 million
    • Impairment loss identified: R1.5 million
4. Allocate the Impairment

According to IFRS guidelines, the impairment loss is first allocated to goodwill.

  • New goodwill value: R3 million – R1.5 million = R1.5 million

Result

An impairment loss of R1.5 million is recognised in the income statement. Goodwill is reduced accordingly on the balance sheet.

SARB, LEGAL AND STATUTORY VALUATIONS

This service is aimed at clients who need the opinion of an expert valuer for statutory, regulatory, or legal purposes or for arriving at negotiated settlements of disputes.

Our SARB, Legal and Statutory Valuations experience includes:

  • Expert Witness Services
  • Intellectual Property Valuations
  • Divorce Proceedings
  • Exchange Control Approvals
  • Companies Act Section 38 Requirements
  • Taxation Valuations

To find out more about our these services, get in touch.

Frequently Asked Questions

Goodwill impairment testing assesses whether the carrying value of goodwill on your balance sheet exceeds its recoverable amount. Under IFRS and local regulations, companies must perform this annually, or when indicators suggest impairment, to ensure accurate financial reporting.

Goodwill impairment testing typically 3–4 weeks, depending on the complexity of your business and available data.

We quantify the impairment loss, which must be recorded in your financial statements.

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