Impairment test

An impairment test is the formal procedure under IAS 36 for determining whether the carrying amount of an asset or cash-generating unit (CGU) exceeds its recoverable amount, requiring a write-down. For goodwill, the test is conducted at the CGU level using discounted cash flow projections or market multiples to estimate value in use or fair value less costs to sell. The test requires management to determine the appropriate discount rate, terminal growth assumptions and CGU boundaries — all of which are subject to auditor scrutiny. In post-acquisition contexts, impairment testing validates whether the premium paid at acquisition is justified by subsequent operating performance.

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Example: following the acquisition of a Swiss technology company, the acquirer conducts an annual goodwill impairment test on the technology CGU. Using a WACC of 11.0% and cash flow projections consistent with the latest budget, the recoverable amount (CHF 22.5 million) exceeds the carrying value (CHF 18.0 million) by CHF 4.5 million of headroom — sufficient to pass the test without impairment for the current year.

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Hectelion performs goodwill impairment tests and CGU valuations compliant with IAS 36, providing documentation that meets Big Four auditor standards.