In recent years, the risk of goodwill impairment of listed companies has caused great concern in the capital market, and the goodwill impairment test appraisal business has faced more practice risks. The China Appraisal Society (CAS) reminds asset appraisal firms and their asset appraisal professionals to strengthen the risk prevention and control of goodwill impairment test appraisal business.

I. Compliance with relevant standards and documents

In the practice of goodwill impairment test appraisal, it is necessary to strictly abide by the Accounting Standards for Enterprises No. 8 - Impairment of Assets and the Guidance on Appraisal for Financial Reporting Purposes, as well as other relevant accounting standards for enterprises and asset appraisal standards, and refer to the Asset Appraisal Expert Guideline No. 11 - -Valuation of Goodwill Impairment Test. The goodwill impairment test appraisal business of listed companies should also pay due attention to the appraisal issues involved in the Accounting Regulatory Risk Alert No. 8 - Goodwill Impairment issued by the Accounting Department of CSRC.

II. Pay attention to risks in project undertaking

1. It is necessary to pay attention to the risk factors for undertaking goodwill impairment test appraisal, such as whether the asset appraisal firm is replaced and the reasons for the replacement, and whether there is a significant decline in performance after the expiration of the performance commitment, etc.

2. When undertaking appraisal service, it is necessary to fully understand and communicate with the principal regarding the purpose of the appraisal, the appraisal date and other appraisal factors as well as the impairment of goodwill in previous accounting periods.

3. When undertaking goodwill impairment test appraisal for listed companies, securities appraisal firms need to carefully analyze whether they have professional competence and fully consider the impact of the industry development status in which the goodwill asset group is included on the goodwill impairment test appraisal. In particular, newly registered securities appraisal firms need to carefully analyze their own business experience and professional competence.

III. Proper management of important risk points in business operations

(i) Identification of asset group containing goodwill

1. The identification of goodwill-related asset groups is essential for enterprises to reasonably determine the impairment of goodwill, and it is necessary to pay attention to the nature of the business that forms goodwill and the provisions of corporate accounting standards related to the identification of goodwill-related asset groups.

2. Goodwill-related businesses are subject to the principle of consistency in accounting, and it is necessary to pay attention to whether there is a difference between the asset group for subsequent measurement of goodwill and the asset group for initial recognition of goodwill, and it is necessary to know that an enterprise should not arbitrarily expand or reduce the composition of the asset group for goodwill-related businesses.

3. When an enterprise changes the composition of its business operations due to factors such as reorganization, and subsequently affects the composition of the asset group to which goodwill has been allocated, it is necessary to pay attention to whether the enterprise reallocates the book value of goodwill to the affected asset group.

4. As for the appraisal scope of the asset group containing goodwill declared by the enterprise, attention should be paid to whether the goodwill includes the goodwill attributable to minority shareholders.

(ii) Calculation of the fair value of the asset group containing goodwill

1. When the appraisal of goodwill impairment test requires the calculation of the net amount of fair value less disposal costs, attention needs to be paid to the applicability of the market approach, the income approach and the cost approach and the priority of the input value.

2. When the market approach is used to calculate the fair value of the asset group containing goodwill, attention needs to be paid to whether the actual market in which the comparable subjects are traded and the major market or the most favorable market in which the appraised subjects are simulated to be traded in an orderly manner are consistent.

3. When the income approach is used to calculate the fair value of the asset group containing goodwill, attention needs to be paid to the difference and connection between the expected return and the discount rate for calculating the present value of expected future cash flows.

(iii) The determination of the discount rate

1. Need to pay attention to whether the specification of discount rate calculation is consistent with the the expected future cash flows.

2. Be aware that the discount rate indicator should not be calculated on the basis of the level of return on the goodwill asset group itself.

(iv) Verification and validation

1. It is necessary to know that the purpose of verification and validation of goodwill impairment test appraisal is different from the purpose of verification and validation of enterprise value appraisal for transaction purposes.

2. It is necessary to pay attention to the impact of changes in four aspects, such as legal ownership, physical condition, technical condition and economic condition, on the calculation of the recoverable amount in non-first-time goodwill impairment test appraisal business.

3. Attention needs to be paid to the forecast principles of capital expenditure as stipulated in the accounting standards for enterprises related to goodwill impairment testing.

4. Attention needs to be paid to the feasibility of the financial forecast data provided by the enterprise containing the goodwill asset group approved by management.