Impairment Calculator
for Professional Services
Calculate value in use for acquired client portfolios, practice goodwill, and IT platform assets. Designed for accounting firms, law practices, consultancies, and other professional services businesses that grow through acquisition.
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IAS 36 impairment testing for Professional Services
Professional services firms have asset-light balance sheets compared to manufacturing or energy, but those that grow through acquisition can carry significant goodwill and client relationship intangibles. An accounting firm that acquires a smaller practice pays for the client book, the trained workforce, and the recurring fee base. Under IFRS 3, the acquirer recognises client relationship intangibles separately from goodwill, then tests both for impairment under IAS 36. For a mid-market firm with five acquisitions over a decade, accumulated goodwill and intangibles might represent 60% to 80% of non-current assets. Because these assets are not supported by hard collateral (no factory, no fleet), impairment testing is the primary mechanism for ensuring the balance sheet reflects reality.
The VIU model for a professional services CGU runs on projected fee income and staff costs. Client retention is the single most important variable: a 5 percentage point drop in annual client retention can halve the present value of a client book over a five-year forecast. IAS 36.33(a) requires projections based on reasonable and supportable assumptions. For a professional services firm, this means the retention assumption must be benchmarked against actual historical retention data, not aspirational targets. The discount rate should reflect people-business risk: key-person dependency, client concentration, and the ease with which clients can switch providers. Professional services WACCs in Europe typically range from 10.0% to 13.0% for mid-market firms, higher than many asset-heavy industries because the "assets" (people and relationships) can walk out the door. IAS 36.55 requires this risk to be reflected in the rate.
Audit findings in professional services impairment often focus on the distinction between goodwill from the acquisition and the ongoing investment in the business. A common error is including the benefit of post-acquisition investment (new hires, new service lines, cross-selling into the acquired client base) in the VIU for the acquired CGU. IAS 36.44 excludes cash flows from enhancing asset performance. If the acquirer has doubled the acquired firm's revenue by introducing new services, the VIU for testing the original goodwill should reflect only the cash flows attributable to the acquired business as it was, not the enhanced version. In practice, separating "acquired" from "organic" cash flows years after the acquisition is difficult, which is why IAS 36.81 requires goodwill to be tested at the CGU level, not the individual asset level. Auditors should challenge management when VIU models include growth rates that can only be explained by post-acquisition investment.
For professional services CGUs, input the carrying amount of goodwill, client relationship intangibles, capitalised IT platforms, and office ROU assets. Set the discount rate between 10.0% and 13.0%, with the higher end for firms with high key-person risk and client concentration. Terminal growth at 1.5% to 2.5% reflects long-term fee income growth in European professional services. The critical sensitivity to test is client retention: model the impact of a 5 percentage point decline in annual retention on VIU. If that change eliminates headroom, the disclosure under IAS 36.134(f) should quantify the retention rate at which impairment would arise.