Impairment Testing

Impairment testing is a process used by companies to assess whether the value of their assets, such as equipment or goodwill, has decreased significantly. This occurs when the market value of an asset drops below its recorded value on the balance sheet. If an asset is deemed impaired, the company must adjust its value downward, reflecting the loss. This ensures financial statements provide an accurate picture of the company’s worth and helps investors make informed decisions. Regular impairment testing promotes transparency and accountability in financial reporting.