2020 Year-End Audit Reminders

Companies must evaluate their goodwill for impairment at least annually; however, during interim periods (for those reporting interim results), a goodwill impairment analysis could be necessary if the entity has an indication that the fair value of a reporting unit has fallen below its carrying value, a condition defined by the guidance as a triggering event. 

Similarly, companies may need to test long-lived assets for impairment as events or changes in circumstances indicate that the carrying amount of an asset(s) may not be recoverable.

Both impairment analyses require a great deal of judgement, and oftentimes significant effort.

For more information on fixed asset impairment, please visit:

• COVID-19 and the Sequence of Asset Impairment Testing

For more information on goodwill impairment, please visit:

• Goodwill Impairment Considerations During COVID-19
• GrowthCast: Triggering Events for Interim Goodwill Impairment Evaluation and Other Intangible Assets
• Potential Interim Goodwill Impairment Testing Relief

Many companies are reevaluating their real estate needs as the pandemic extended beyond their original predictions. Some companies may not require the same amount of space they used to occupy, while others may need to increase space to maintain social distancing. As some companies rationalize their square footage and consider sub-leasing some of their unused office space, they should consider, among other things, if this would trigger an impairment and the subsequent accounting.

For more information on lease concessions, please visit:

• GrowthCast: Lease Concession Considerations
• Accounting for Lease Modifications Resulting from COVID-19
• Lease Accounting: Reassessments and Remeasurements
• Subleasing Accounting Implications: Is My Lease Impaired?

Companies may encounter challenges in supporting accounting estimates that are derived from or based on certain models and inputs. Depending on the estimate, most companies either use a “retrospective” or “prospective” approach. The retrospective approach uses a model based on some period of historical data, essentially saying that history is the best predictor of the future. The prospective model seeks to project future financial performance (projections supporting the going concern assertion, or recoverability of intangibles, fixed assets and deferred tax assets) and usually relies on some historical data. Companies should consider how the economic impact of 2020 will impact their estimates.

For more on estimates, please visit the following:

• Supporting Accounting Estimates at Year End in the COVID-19 Era

The pandemic’s impact will vary from company to company, but there have most likely been changes in people, process or technology. When there have been changes in any of these areas, it can be expected that controls have changed (or perhaps should have) in some manner as well. Almost all companies should review their internal control documentation, including their risk and control matrices, flowcharts, testing scripts, etc., based on changes in their processes.

For more information on Internal Control considerations, please visit:

• Internal Control over Financial Reporting (ICFR) and COVID-19
• Webinar Recording: Internal Control Considerations in the COVID-19 New Normal
• From DHG Healthcare: Establishing Strong Leadership Teams for the Next Crisis
• From DH Construction: Internal Controls in the Wake of COVID-19

In the immediate aftermath of the economic shutdown, many small businesses across America were concerned about liquidity and the survival of their business. Now many are asking questions regarding the accounting for loans under the Paycheck Protection Program (PPP).

For more information on PPP loans and the CARES Act, please visit:

• SBA Releases PPP Loan Details for all PPP Borrowers
• GrowthCast: Updates on the Payroll Protection Program (PPP) – Nov 13
• Accounting for PPP Loans Under the CARES Act
• SBA Issues Loan Forgiveness Application and Instructions for Borrowers
• SBA Issues Forms to Document Loan Necessity Under PPP
• PPP & Loan Necessity
• PPP Clarity and Updates Included with Consolidated Appropriations Act

The pandemic’s resulting travel and on-site visit restrictions has forced companies to explore alternative ways to perform inventory counts. For example, remote inventory observations may be performed effectively and safely utilizing Facetime, Zoom or a similar video conferencing application. Additionally, many companies are considering issues with forecasting future demand for products as they calculate reserves and consider what manufacturing variances to capitalize. Finally, some companies are also struggling with how to account for idle or partially used space and capacity in their factories. Companies that shut down lines and operate at reduced capacity must account for these costs.

For more information on inventory considerations, please visit:

• Supply Chain and Third-Party Risk Management Considerations
• Inventory Costing Considerations for using FIFO Method
• GrowthCast: Virtual Inventory Observations