What typically leads to Goodwill impairment on a company's Balance Sheet?

Goodwill impairment arises when the carrying amount of goodwill on a company's balance sheet exceeds its fair value, indicating that the goodwill may no longer be justified. The most common scenario that leads to this situation is a failure to generate expected cash flows. When a company acquires another business, it often pays a premium, reflected as goodwill. If the acquired business underperforms or fails to generate the cash flows initially projected, this can signal that the goodwill associated with that acquisition is overstated and may need to be impaired.

While reassessing intangible assets after an acquisition is important, it does not directly lead to goodwill impairment as the primary cause; instead, it is typically a reassessment of fair value that might occur if the cash flows prove to be lower than anticipated. Discontinuation of a business unit can lead to impairment but is usually a consequence of the inability to generate expected cash flows rather than the direct trigger. Changes in dividend policy do not typically have a direct relationship with goodwill impairment and relate more to a company's cash management and shareholder returns rather than the valuation of goodwill itself.

Thus, the key factor leading to goodwill impairment is the failure to generate expected cash flows, reflecting a decline in the value of the associated business unit.