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US GAAP versus IFRS - Impairment of long-lived assets, goodwill and intangible assets - Ernst & Young - United States

US GAAP versus IFRS

Impairment of long-lived assets, goodwill and intangible assets

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Similarities

Under both US GAAP and IFRS, long-lived assets are not tested annually, but rather when there are similarly defined indicators of impairment. Both standards require goodwill and intangible assets with indefinite lives to be reviewed at least annually for impairment and more frequently if impairment indicators are present.

In addition, both US GAAP and IFRS require that the impaired asset be written down and an impairment loss recognized. ASC 350, Intangibles — Goodwill and Other, and the Impairment or Disposal of Long-Lived Assets subsections of ASC 360-10, Property, Plant and Equipment, and IAS 36, Impairment of Assets, apply to most long-lived and intangible assets, although some of the scope exceptions listed in the standards differ. Despite the similarity in overall objectives, differences exist in the way in which impairment is reviewed, recognized and measured.

Significant differences


 US GAAPIFRS
Method of determining impairment — long-lived assetsTwo-step approach requires that a recoverability test be performed first (carrying amount of the asset is compared with the sum of future undiscounted cash flows generated through use and eventual disposition). If it is determined that the asset is not recoverable, impairment testing must be performed.One-step approach requires that impairment testing be performed if impairment indicators exist.
Impairment loss calculation — long-lived assetsThe amount by which the carrying amount of the asset exceeds its fair value, as calculated in accordance with ASC 820.The amount by which the carrying amount of the asset exceeds its recoverable amount; recoverable amount is the higher of: (1) fair value less costs to sell and (2) value in use (the present value of future cash flows in use, including disposal value).
Allocation of goodwillGoodwill is allocated to a reporting unit, which is defined as an operating segment or one level below an operating segment (component).Goodwill is allocated to a cash-generating unit (CGU) or group of CGUs that represents the lowest level within the entity at which the goodwill is monitored for internal management purposes and cannot be larger than an operating segment as defined in IFRS 8, Operating Segments.
Method of determining impairment — goodwill Companies have the option to qualitatively assess whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If so, a two-step approach requires a recoverability test to be performed first at the reporting unit level (carrying amount of the reporting unit is compared with the reporting unit fair value). If the carrying amount of the reporting unit exceeds its fair value, then impairment testing must be performed. One-step approach requires that an impairment test be done at the CGU level by comparing the CGU's carrying amount, including goodwill, with its recoverable amount.
Impairment loss calculation — goodwill The amount by which the carrying amount of goodwill exceeds the implied fair value of the goodwill within its reporting unit.Impairment loss on the CGU (amount by which the CGU's carrying amount, including goodwill, exceeds its recoverable amount) is allocated first to reduce goodwill to zero, then, subject to certain limitations, the carrying amount of other assets in the CGU are reduced pro ratably, based on the carrying amount of each asset.
Impairment loss calculation — indefinite-lived intangible assetsThe amount by which the carrying value of the asset exceeds its fair value.The amount by which the carrying value of the asset exceeds its recoverable amount.
Reversal of loss Prohibited for all assets to be held and used.Prohibited for goodwill.Other long-lived assets must be reviewed annually for reversal indicators. If appropriate, loss may be reversed up to the newly estimated recoverable amount, not to exceed the initial carrying amount adjusted for depreciation.

Convergence

No further convergence is planned at this time.

The FASB has a project to simplify how an entity tests indefinite-lived intangible assets (other than goodwill) for impairment.


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