A Focus on Goodwill & Asset Impairment Testing

Market equity prices and indices continued to decrease for many energy companies during 2020. For instance, between January 13, 2020, and December 31, 2020, the S&P Oil & Gas Exploration and Production Select Industry Index decreased by approximately 36

Under Accounting Standards Codification Topic 350, Intangibles: Goodwill and Other (ASC 350), goodwill is tested for impairment at least annually or when a triggering event dictates. Under Accounting Standards Codification Topic 360, Property, Plant and Equipment (ASC 360), long-lived assets are tested for impairment when a triggering event dictates. Continued declines in market prices such as those that occurred during most of 2020, along with associated changes in industry fundamentals (e.g., changes in drilling plans for E&P companies and changes in customer buying patterns for oilfield services companies), may qualify as triggering events.

In summary, publicly and privately held companies need to adequately address their year-end 2020 goodwill and long-lived asset impairment testing procedures. Doing so in a timely manner will ensure that year-end and quarterly financial statement audits and reviews will proceed as smoothly as possible and will also lead to greater shareholder and stakeholder transparency.