Goodwill Impairment Testing & Value in Use Modelling: Building an Audit-Ready VIU Model from the Ground Up

• Client: Australian Multi-Entity Group
• Service Provider: Sapphire Digital Accounting
• Service Area: Goodwill Impairment & Financial Modelling

As part of its financial reporting requirements, the client needed to assess whether the carrying value of goodwill remained recoverable.

A Value in Use assessment was required to support the annual impairment review. However, there was no existing VIU model or established impairment framework available, meaning the valuation approach, supporting calculations and documentation needed to be developed from the ground up.

The exercise required a technically sound model capable of supporting both management review and external audit scrutiny. Key challenges included:

• Developing a VIU framework without an existing model
• Forecasting future cash flows
• Determining appropriate valuation assumptions
• Developing an appropriate discount rate
• Supporting assumptions with verifiable evidence
• Performing present-value and recoverable-amount calculations
• Assessing sensitivity to changes in key assumptions
• Ensuring complete transparency and traceability for audit review

Sapphire developed the model around three core principles: accuracy, transparency and auditability.

Cash-Flow Forecasting

The process began by establishing the financial information required for the valuation. Sapphire supported the review of:

• Historical financial performance
• Management forecasts
• Business growth expectations
• Market and industry conditions
• Key operational drivers

Forecast data was gathered, reviewed for reasonableness and structured into cash-flow projections suitable for the impairment assessment.

Discount Rate and WACC Analysis

A Weighted Average Cost of Capital model was developed to support the discount-rate assessment. The analysis incorporated factors including:

• Risk-free rates
• Market risk premiums
• Cost of equity
• Cost of debt
• Capital structure
• Entity-specific risk considerations

Valuation Calculations

Future cash flows were discounted to present value using the relevant discount rate. The model included:

• Discounted Cash Flow calculations
• Present-value computations
• Terminal value analysis
• Forecast-period analysis
• Recoverable-amount determination

Sensitivity Analysis

Sensitivity testing was performed to assess how changes in significant assumptions could affect the valuation conclusion.

Variables tested included discount rates, long-term growth rates, forecast cash flows and terminal value assumptions.

Building Auditability into the Model

Audit traceability was treated as a core design requirement rather than an afterthought.

Supporting schedules were prepared for valuation assumptions, hyperlinks and cross-references were embedded within the model, and key calculations were linked back to their supporting source information.

The engagement resulted in a complete VIU model developed specifically for the client's impairment assessment. Supported outcomes included:

• Successful support for annual goodwill impairment testing
• A structured valuation methodology
• Fully traceable calculations and assumptions
• Greater transparency for management and reviewers
• Improved efficiency of management and audit review
• Reduced time spent responding to audit queries through stronger supporting documentation
• A repeatable framework for future impairment assessments

This engagement demonstrates Sapphire Digital Accounting's ability to combine technical accounting with detailed financial modelling and audit-ready documentation in areas involving significant professional judgement.

Key expertise demonstrated: Goodwill Impairment | VIU Modelling | DCF Analysis | WACC | Financial Valuation | Sensitivity Analysis | IFRS Compliance | Excel Modelling | Audit Support