"Impairment o f Assets" on t he internal and external sources t hat shou ld influence the decision making for the calculation of asset impairment. An intangible asset with an indefinite useful life is not amortised. the higher of fair value less costs of disposal and value in use). Both ASPE (ASPE 3063) and IFRS (IAS 36) have clear guidance on how impairment should be assessed. IAS 36 seeks to ensure that the assets of a reporting entity are carried at amounts not in excess of their recoverable amounts. No, retain the impairment-only model. Intangible assets are tested for impairment when there is indication that they might be impaired. Guidance related to assessing and recording impairment of assets is found in IAS 36, Impairment of Assets and in IFRS 5, Non-current Assets Held for Sale and Discontinued Operations for entities complying with international accounting standards, and in ASC 350, Intangibles – Goodwill and Other and ASC 360, Property, Plant and Equipment for entities complying with US accounting standards. Reference 2013/2 . But where should you start? Unless it is tested on a standalone basis, an ROU asset is tested in combination with other assets in a Cash Generating Unit (CGU). In IFRS, the guidance related to accounting for the impairment of long-lived assets is included in International Accounting Standard (IAS) 36, Impairment of Assets. This includes any impairment in value reflecting the economic impact of COVID-19. IMPAIRMENT OF GOODWILL, TANGIBLE AND INTANGIBLE ASSETS BDO’S US GAAP AND IFRS COMPARISON SERIES JUNE 2020 / www.bdo.com INTRODUCTION Guidance related to assessing and recording impairment of assets is found in IAS 36, Impairment of Assets and in IFRS 5, Non-current Assets Held for Sale and Discontinued Operations for entities complying with international accounting … For example, an entity might have prepaid for goods or services but the counterparty might no longer be able to provide these or refund the payment. For impairment of other financial assets, refer to IFRS 9. The major points covered under this regulation are: 1. Stay abreast of legislative change, learn about emerging issues, and turn insight into action. However, a high goodwill figure can create the impression that the acquirer overpaid for the acquired business. instructions how to enable JavaScript in your web browser, Supporting you to navigate the impact of COVID-19, Contract assets and assets arising from costs to obtain or fulfil a contract that are recognised in accordance with IFRS 15 Revenue from Contracts with Customers, Financial assets within the scope of IFRS 9, Financial assets classified as subsidiaries (as defined by IFRS 10), associates (as defined by IAS 28), and joint ventures (as defined in IFRS 11) accounted for under the cost method for purposes of preparing the parent’s separate financial statements, Investment property (measured using the fair value method), Biological assets (measured at fair value less costs of disposal), Contracts within the scope of IFRS 17 Insurance Contracts that are assets, Non‑current assets (or disposal groups) classified as, Impairment of intangible assets and goodwill, any guidance provided by market evidence of value for comparable reporting entities or assets. Impairment losses on goodwill cannot be reversed, even if the loss was recognised in an interim period and conditions have improved by year-end. GAAP takes a more conservative approach and prohibits reversals of impairment losses for all types of assets. However, this contradiction was identified by the IFRS Interpretations Committee which published an interpretation (IFRIC 10) confirming that an impairment loss recognised for goodwill in an interim period cannot be reversed in a subsequent period. Indicators of impairment include legal restrictions, business restructuring, development of new technology, economic changes, etc. This means management may need to demonstrate that any forecast improvements in the financial performance of an asset or CGU relate to the asset in its current condition and not to an enhancement or uncommitted future restructuring. 85 . However, given the very high levels of current uncertainty, the risk-adjusted expected cash flow approach is often preferable as it involves more explicit consideration of the wider than normal range of possible future outcomes. While impairment losses provide only a lagging indicator of negative developments, this does not reduce the importance of ensuring that the reported values for goodwill and other intangibles reflect an appropriate value. Indicators of impairment may appear as a result of the economic conditions caused by the spread of COVID-19 and an entity may be required to perform an impairment test, and record an impairment loss, during an interim period in 2020. Impairment losses can occur for a variety of reasons: physical damage to the asset, a permanent reduction in market value, legal issues against the asset, and early asset disposal. Download impairment of intangible assets and goodwill [ 213 kb ]. To examine reporting Investment services and asset management ... Home > European enforcers review of impairment of goodwill and other intangible assets in the IFRS financial statements. (2) Includes impairment charges related to intangible assets. Non-current Assets Held for Sale and Discontinued Operations. Here are the An asset is carried at more than its recoverable amount if its carrying amount exceeds the amount to be recovered through use or sale of the asset. Companies should therefore consider developing multiple scenarios and applying probabilities to each to arrive at the expected cash flows. • Identifying intangible assets . Impairment of indefinite-lived intangible assets U.S. GAAP IFRS Relevant guidance ASC 350 IAS 36 Unit of account In general, the unit of account is an individual asset. However, in rare cases, the unit of account may be a combined group of separately recorded indefinite-lived intangible assets that are essentially inseparable from one another. Section IFRS Supervisory Convergence. 5 This Standard does not apply to financial assets within the scope of IFRS 9, investment property measured at fair value within the scope of IAS 40, or biological assets related to agricultural activity measured at fair There is another noticeable difference. Cyber threats continue to soar. Nature of and effective date for recent goodwill impairment simplifications in U.S. GAAP There are other standards that should be considered for those areas that have been excluded from its scope. Entities with reporting dates after the outset of the COVID-19 pandemic are likely to have real challenges reflecting its impact in a single set of forecast cashflows due to very high levels of uncertainty. But with businesses in other industries increasingly looking to new technologies as the path to transformation, this is also a time of opportunity. IAS 36 defines the recoverable amount of an asset as the higher of its fair value less costs of disposal (FVLCD) to sell and its value in use (VIU). Long-lived assets are likely to be impacted. [FRS 102 paras 18.25, 27.5–27.7]. Main document. The insights and advice you need, everywhere you do business. These assets should be assessed for impairment as they could be impacted by COVID-19, particularly where these amounts reflect historic transactions with third parties where the creditworthiness of these third parties is now called into question. Limited-life intangibles are … Having access to experts, insights and accurate information as quickly as possible is critical – but your resources may be stretched at this time. B. C. 1 "A Study of Long-Lived Asset Impairment Under U.S. GAAP and IFRS Within the U.S. Institutional Environment," Page 7. IFRS 16 and IAS 36 how changes in lease accounting will impact your impairment testing processes. detailed impairment-related disclosures in 2010-11. . As the situation develops, more information about the severity of the financial impact may become available after year-end but before the date of approval of the financial statements. How will it impact the cash flow forecasts? European enforcers review of impairment of goodwill and other intangible assets in the IFRS financial statements. Print. This test shows that conditions have improved since Q1-2020 and that some or all of the impairment loss arising in Q1-2020 would not have been recognised based on this latest estimate. While the starting point is that entities are required to determine amounts based on their knowledge of events at the reporting date, not after it, information obtained after the reporting date can be considered if such conditions existed as of the reporting period end. IAS 36 applies to a variety of non-financial assets including property, plant and equipment, right-of-use assets, intangible assets and goodwill, investment properties measured at cost and investments in associates and joint ventures 2. An intangible asset is an identifiable non-monetary asset without physical substance. Unfortunately, many businesses will continue to be affected for some time. Under US GAAP, an asset‘s carrying amount is considered not recoverable when it exceeds the undiscounted expected future cash flows. Accessed June 29, 2020. Where an ‘intangible resource’ is not recognised as an intangible asset, it is subsumed into goodwill. ‘work in progress’). For certain assets, impairment tests are required to be carried out on an annual basis irrespective of whether any indicators of impairment have been identified. • Do not change recognition of intangible assets separately from goodwill. The first phase resulted in the HKICPA issuing simultaneously HKFRS 3 Business Combinations and HKAS 38 and HKAS 36 Impairment of Assets to converge with IFRS 3 and the revised versions of IAS 38 and IAS 36 issued by the Board. IFRS In addition, goodwill and intangible assets with indefinite useful lives or not yet available for In Q4-2020, can the entity reverse part, or all, of the goodwill impairment loss recognised in Q1-2020? Intangible assets – License impairment loss Impairment of intangible assets Impairment of intangible assets $61,28 million Under IFRS, the impairment, if any, is worked out by directly comparing the carrying amount with the higher of the fair value less cost to sell (which is zero in this case) to the value in use (which is $113.72 million). After a slow and tentative start, the OECD’s push for a solution on how to allocate and tax the profits from digital business is gathering momentum. • Intangible assets not yet available for use (i.e. The Application of IFRS: Food, drink and consumer goods companies Type Final Report. In a cash-generating unit, goodwill is reduced first; then other assets are reduced pro rata. Note – you need to allocate the impairment loss to the individual assets, so in fact, you are crediting some specific building or a piece of machinery. Dynamic resources for board of directors and financial executives. 1. Cash Flow statement is not affected by impairment directly as there is no cash transaction taking place at the time of impairment. However, the accounting standards do require disclosure about material non-adjusting events after the balance sheet date, including an estimate of the financial effects when possible. In the current environment, it may be more difficult to determine a current fair value due to a lack of recent arms-length transactions between market participants as they are defined in IFRS 13 ‘Fair Value Measurement’. An impairment loss is recognised immediately in profit or loss (or in comprehensive income if it is a revaluation decrease under IAS 16 or IAS 38). This will depend heavily on the reporting date for the entity. test. When it comes to business, innovation is changing everything. .7 • IFRS in Brief & IFRS Briefing Sheets - December 2004 - January 2005 ... intangible assets are the 'cost to recreate', 'income capitalisation' and 'market' approaches. Some intangible assets are contained in or on a physical substance. For example, consider a situation in which indicators of goodwill impairment are identified in the first quarter ended 31 March 2020 (Q1-2020) so the entity performs an additional test and recognises an impairment loss in Q1-2020. Under IFRS, however, the impairment is equal to the difference between the carrying value and the fair value of the entire entity. Whichever approach is used management must ensure the outcome reflects the risks, uncertainties and other factors that would influence market participants’ pricing decisions. Section IFRS Supervisory Convergence. Entities may have assets that are subject to impairment testing that do not qualify as long-lived assets and are not financial assets. You should present it as an intangible asset, but when you think about it carefully, a goodwill is not a typical asset, because unlike other assets, you cannot sell it to… Consolidation and Groups, IFRS Accounting, Impairment of assets, Intangible assets, Uncategorized. An arm ’ s length principle in accordance with that other Standard ( IFRS ) developing multiple scenarios applying! From the scope of IAS 36 requires an extrapolation using a steady or long-term... 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