3 Key Business Impairment Valuation Steps

The Sarbanes-Oxley Act and other federal laws have increased the scrutiny auditors face in identifying impairment issues when the book value of an entity's assets exceeds its fair value, according to healthcare appraisal firm Principle Valuation.

Here are three steps auditors and valuations experts take in accounting for the impairment or disposal of long-lived assets.

1. Determining the value of the business entity by examining revenues, expenses, market capitalization rates and other metrics; comparing the subject operation to market benchmarks; and using a discounted cash-flow analysis to determine long-term worth.

2. Determining the value of tangible assets, such as buildings and equipment.

3. Identifying how assets should be reallocated to the books, if an impairment exists.

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