On July 27, the FASB issued Accounting Standards Update No. 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment (the revised standard). The revised standard is intended to reduce the cost and complexity of testing indefinite-lived intangible assets other than goodwill for impairment. It allows companies to perform a "qualitative" assessment to determine whether further impairment testing of indefinite-lived intangible assets is necessary, similar in approach to the goodwill impairment test. This In brief article provides an overview of the revised standard.
Today, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment (the revised standard). The revised standard is intended to reduce the cost and complexity of testing indefinite-lived intangible assets other than goodwill for impairment. It allows companies to perform a "qualitative" assessment to determine whether further impairment testing of indefinite-lived intangible assets is necessary, similar in approach to the goodwill impairment test.
The revised standard allows an entity the option to first assess qualitatively whether it is more likely than not (that is, a likelihood of more than 50 percent) that an indefinite-lived intangible asset is impaired, thus necessitating that it perform the quantitative impairment test.1
An entity is not required to calculate the fair value of an indefinite-lived intangible asset and perform the quantitative impairment test unless the entity determines that it is more likely than not that the asset is impaired.
An entity choosing to perform the qualitative assessment would need to identify and consider those events and circumstances that, individually or in the aggregate, most significantly affect an indefinite-lived intangible asset's fair value. The revised standard provides examples of events and circumstances that should be considered, including deterioration in the entity's operating environment, entity-specific events, such as a change in management, and overall financial performance, such as negative or declining cash flows. An entity also should consider any positive and mitigating events and circumstances, as well as whether there have been changes to the carrying amount of the indefinite-lived intangible asset.
An entity can choose to perform the qualitative assessment on none, some, or all of its indefinite-lived intangible assets. Moreover, an entity can bypass the qualitative assessment and perform the quantitative impairment test for any indefinite-lived intangible in any period.
U.S. GAAP and IFRS are different in this area, and the revised standard does not eliminate those differences or achieve convergence. Under IFRS, an indefinite-lived intangible asset is tested for impairment by comparing its carrying amount to its recoverable amount, defined as the higher of fair value less cost to sell or value in use. Also, indefinite-lived intangible assets are tested for impairment either individually or as part of a cash generating unit, depending on the circumstances.
The revised standard affects both public and nonpublic entities that have reported indefinite-lived intangible assets in their financial statements.
The revised standard is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. However, an entity can choose to early adopt the revised guidance even if its annual test date is before the issuance of the revised standard, provided that the entity has not yet performed its 2012 annual impairment test or issued its financial statements. For example, a calendar year-end entity with a third quarter annual test date may apply the revised standard to its 2012 annual impairment test.
We will soon issue a Dataline with more details and our insights on the revised standard.
PwC clients who have questions about this In brief should contact their engagement partner. Engagement teams that have questions should contact a member of the Business Combinations team in the National Professional Services Group (1-973-236-7801).
1Prior to the issuance of the revised standard, an entity was required to assess indefinite-lived intangible assets for impairment, on at least an annual basis, by comparing the fair value of an asset to its carrying amount. If the carrying amount of the intangible asset exceeds its fair value, an impairment loss was recognized for the amount of the excess.
Lawrence N. Dodyk
Lambert M. Shiu
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