Greater transparency, rigorous impairment testing and additional disclosure will result in more scrutiny by the market and will have a significant impact on the way companies plan their acquisitions.
Intellectual property (IP) managers must ensure that they have the necessary skills to satisfy the new requirements and to withstand market scrutiny.
More regular impairment testing is likely to result in a greater volatility in financial results. Analysts will need to be convinced that a company's impairment review process is robust.
In the case of brand and other intangible asset valuation, where a high degree of subjectivity can exist, it will be important to demonstrate that best practice techniques are being applied.
The use of independent experts may help convince analysts that the impairment testing process is not overtly subjective.
In terms of planning prior to acquisition, a detailed analysis of all potential assets and liabilities is recommended to assess the impact on the consolidated group balance sheet and P&L post-acquisition.
For further information on goodwill impairment reviews or Purchase Price Allocations; please contact Brand Finance.