Goodwill impairment testing checks whether goodwill recorded on a company's balance sheet — almost always created by a past acquisition — still reflects what the underlying business is worth. Because goodwill is not amortized under most current standards, the impairment test is the only mechanism that reduces it, and getting the test wrong means the balance sheet quietly overstates value that no longer exists.
This guide covers what the test does, how ASPE and IFRS differ on when and how it applies, and the practical indicators that trigger one. It follows on directly from a purchase price allocation, which is where most goodwill balances originate, and connects to the broader topic of valuation for financial reporting.
Why goodwill needs a special test
Most assets are depreciated or amortized on a schedule that gradually reduces their carrying value. Goodwill is different: under most current accounting standards it is not amortized, so its carrying value stays fixed on the balance sheet until an impairment test says otherwise. That makes the test the only thing standing between a stale acquisition-era number and a balance sheet that reflects how the acquired business has actually performed since.
ASPE Section 3064 vs IAS 36
| ASPE — Section 3064, Goodwill and Intangible Assets | IFRS — IAS 36, Impairment of Assets | |
|---|---|---|
| When goodwill is tested | Trigger-based: when events or circumstances indicate it may be impaired | Generally annually, regardless of whether an indicator exists, plus whenever an indicator arises |
| Unit of account | Reporting unit | Cash-generating unit (CGU), or smallest group of CGUs to which goodwill is allocated |
| Underlying idea | Goodwill can lose value and must be written down when it does | Same underlying idea, applied under a different testing cadence and unit of account |
The two frameworks share the same purpose but diverge on cadence and unit of account, and the mechanics of how the impairment amount itself is calculated can also differ between the two standards. Where the specific test method matters to your entity's numbers, that is a question to confirm against the standard you report under and, where the analysis is not routine, with the practitioner performing the test — this guide describes the concepts, not a substitute for that confirmation.
Reporting unit vs cash-generating unit — why the unit of account is judgment-heavy
Neither framework tests goodwill against the whole company as a single block. ASPE assigns goodwill to reporting units; IFRS assigns it to cash-generating units (CGUs) or the smallest group of CGUs that benefits from the synergies of the combination that created the goodwill. Identifying the right unit is one of the more judgment-heavy parts of impairment testing — a business can reasonably be divided several different ways, and the unit chosen affects whether an impairment shows up at all, because losses in one part of the business can be offset by strength in another if they are tested together. Reasonable, well-supported approaches can differ here, and that is expected rather than a sign something has gone wrong.
What triggers a test
Under ASPE's trigger-based approach — and as one input into an IFRS entity's ongoing monitoring between annual tests — the indicators that typically prompt an impairment test include:
- A sustained decline in the acquired business's actual performance relative to what was assumed at the time of acquisition.
- Loss of a major customer, contract or key supplier relationship.
- Adverse changes in the industry, market or broader economy the business operates in.
- A significant increase in competition or a structural shift in the business's competitive position.
- Adverse legal, regulatory or contractual developments affecting the business.
A company that has just closed an acquisition should keep the assumptions from its purchase price allocation on file, because those assumptions are the natural benchmark against which later performance — and any impairment indicator — gets measured.
How RN Canada helps
RN Canada supports goodwill and long-lived asset impairment testing for Alberta and BC businesses, confirming which framework and unit of account applies, building the cash-flow and discount-rate analysis the applicable standard requires, and documenting the conclusion so it is ready for your auditor's or reviewer's procedures. Our founder, Ozgur Duymaz, holds a Ph.D. in accounting and finance and is a CPA (Canada), ACCA (UK) and CMA (US). For the full service, see valuations for financial reporting, or talk to us if an indicator of impairment has emerged in your business.
This page is general information, not personalized advice. Speak to us about your specific situation.
Frequently asked questions
Goodwill impairment testing checks whether the goodwill recognized on a company's balance sheet — usually created by a past acquisition — still holds its recorded value. Because goodwill is not amortized under most current standards, an impairment test is the mechanism that reduces it when the underlying business no longer supports the recorded amount.
Private Canadian companies reporting under ASPE follow ASPE Section 3064, Goodwill and Intangible Assets. Entities reporting under IFRS follow IAS 36, Impairment of Assets. The two frameworks share the same underlying idea — goodwill can lose value and has to be written down when it does — but differ in when testing is triggered and at what level it is performed.
This is one of the clearer differences between the two standards. IFRS generally requires an annual goodwill impairment test regardless of whether any indicator of impairment exists. ASPE is trigger-based: a private enterprise tests goodwill for impairment when events or changed circumstances indicate that it may be impaired, not on a fixed annual schedule. Confirm which regime applies to your entity before assuming either approach.
Both terms describe the level at which goodwill impairment is assessed rather than testing the whole company at once. ASPE tests goodwill at the reporting-unit level; IFRS tests it at the cash-generating unit (CGU) level, or the smallest group of CGUs to which goodwill can be allocated. Identifying the right unit involves judgment, and reasonable practitioners can reach different conclusions on how a business should be divided for this purpose.
Common indicators include a sustained decline in the acquired business's performance relative to what was assumed at acquisition, loss of a key customer or contract, adverse changes in the industry or economy, increased competition, or a significant adverse change in the legal or regulatory environment the business operates in.