Impairment testing has become increasingly complex as entities confront volatile current and forecasted economic trends. Under U.S. GAAP, impairment of long‑lived assets is governed primarily by FASB ASC 360, while goodwill itself is addressed in ASC 350; however, the analytical challenges are similar and closely intertwined, particularly when economic uncertainty affects both asset groups and reporting units. As macroeconomic conditions shift rapidly, through inflation, interest rate changes, tariffs, geopolitical risk, and evolving consumer behavior, management faces significant difficulties in assessing whether the carrying amount of goodwill is impaired or long‑lived assets remain recoverable.
A central challenge lies in forecasting future cash flows, the cornerstone of impairment analyses. ASC 360 requires entities to evaluate long‑lived assets for recoverability using undiscounted cash flows and, if necessary, measure impairment based on fair value, while ASC 350 focuses on fair value of reporting units, often derived from discounted cash flow models. Both approaches depend on robust projections of revenue growth, margins, capital expenditures, and working capital needs. In a stable economic environment, these estimates are inherently judgmental but manageable; in a setting characterized by uncertainty, they become highly subjective and can be prone to significant error.
Several macroeconomic conditions are increasing impairment exposure:
- Persistently higher interest rates relative to pre-2022 levels
- Slower GDP growth expectations
- Margin compression due to labor and supply chain costs
- Uncertainty around AI-related capital investments
- Increased geopolitical and trade-related volatility
- More selective M&A markets, reducing observable transaction multiples
While inflation has moderated from peak levels, weighted average cost of capital (WACC) assumptions remain materially above the exceptionally low-rate environment that supported acquisition pricing during 2019 to 2021. Rising or persistently high interest rates increase discount rates used in fair value measurements, reducing the present value of expected cash flows and heightening the likelihood of impairment for goodwill and other assets.
Inflation pressures and tariff‑driven cost increases can compress margins if entities cannot fully pass higher costs to customers, undermining profitability projections. These forces may not move in tandem across industries or geographies, requiring nuanced, segment‑specific assumptions. Lower profitability can translate into reduced cash flow, also increasing the risk of impairment.
Further, goodwill often arises from acquisitions premised on strategic synergies and long‑term positioning within these trends. When near-term economic stress leads to underperformance, management must evaluate whether the original acquisition thesis remains valid. If long‑term drivers are intact, a temporary downturn may not justify impairment; if structural changes have undermined the acquired business model, impairment may be necessary even if short‑term results appear stable.
Yet, the principal impairment risk in the near term is not necessarily deteriorating economic conditions alone. Rather, it is the combination of elevated acquisition goodwill balances, higher costs of capital, increased forecasting uncertainty, and rapid technological disruption. Companies that acquired businesses during the peak valuation environment of 2020 to 2022 may be especially vulnerable as growth expectations normalize and investors place greater emphasis on profitability and cash generation. As a result, management may see the following during annual impairment testing:
- Reduced fair values of reporting units
- Smaller “headroom” between fair value and carrying value
- Greater sensitivity to forecast revisions
- Increased likelihood of impairment upon even minor adverse performance trends
Adding to the challenge is that auditors, regulators, and investors increasingly scrutinize the reasonableness of inputs used in impairment models, such as forecasted cash flows, particularly when external indicators, such as industry forecasts, trade data, or market multiples, suggest different expectations than management’s internal projections. For example, if an entity’s goodwill impairment analysis assumes a rapid recovery and strong long‑term growth while external forecasts predict prolonged weakness due to persistent tariff regimes or trade restrictions, the credibility of the impairment conclusions may be questioned.
Engaging an experienced valuation expert can materially improve the quality and defensibility of goodwill impairment analyses. Valuation specialists bring technical expertise in applying income, market, and, where relevant, cost approaches consistent with ASC 350, ASC 360, and ASC 820. They can also help management calibrate discount rates to current capital market conditions, benchmark assumptions against industry data and macroeconomic forecasts, and appropriately reflect market participant perspectives. Valuation experts typically provide robust documentation of key assumptions, sensitivity analyses, and reconciliation to observable market indicators, which supports audit review.
As economic and policy uncertainty persist, entities must strengthen their forecasting processes, enhance documentation of key judgments, and ensure that impairment analyses reflect both near-term realities and credible long‑term expectations. When done with the support of experienced valuation experts who can help align methodologies and assumptions with evolving market, trade, and economic evidence, the risk of both under‑recognizing and over‑recognizing impairment is reduced.
© Copyright 2026. The views expressed herein are those of the author(s) and not necessarily the views of Ankura Consulting Group, LLC, its management, its subsidiaries, its affiliates, or its other professionals. Ankura is not a law firm and cannot provide legal advice.
