In such cases, IAS 36 states that an impairment loss recognised in prior periods for an asset other than goodwill should be reversed if, and only if, there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. Examples of intangible assets to be accoun… When preparing interim and annual financial statements in accordance with IFRS ® Standards, management will need to assess whether there is any indication that the company’s non-financial assets may be impaired. Comparison The significant differences between U.S. GAAP and IFRS with respect to the accounting for intangible assets other than goodwill are summarized in the following table. When to start depreciation? 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). The answer is no because of the explicit prohibition in IAS 36. This is because if VIU exceeds carrying value there is no need to determine FVLCD (and vice versa). Practical guide to Phase 2 amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 for interest rate benchmark (IBOR) reform The IASB has issued amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 that address issues arising during the reform of benchmark interest rates including the replacement of one benchmark rate with an alternative one. Under IFRS reporting, an impairment loss for intangible assets with indefinite lives is the difference between the book value and the recoverable amount. For identifiable intangible assets that cannot be amortized and goodwill, the companies are required to test these for impairment at least annually. IAS 36 requires that both intangible assets with an indefinite useful life (and any intangibles not yet ready for their intended use) and goodwill be tested for impairment at least annually. Fully updated guide focusing on each area of the financial statement in detail with illustrative examples. Values for assumptions which were somewhat settled in the past, such as the use of long-term government bond yields as a proxy for the risk-free rate, may no longer be appropriate. 1. IAS 36 Impairment of Assets 2017 - 07 2 An assets value in use is the present value of the future cash flows expected to be derived from an asset or cash generating unit. Cash flow projections must also relate to the asset in its current condition. 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. 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. . Impairment losses need to be recognized when the asset’s Book Value > asset’s Recoverable amount.Where Asset’s Recoverable Amount = higher of (Fair value – Selling costs) OR value in use.The value in use is calculated by discounting future cash flows expected from the continued use of the asset. The carrying amount of the asset (or cash-generating unit) is reduced. However, because adoption of this election requires that fair value be determined by reference to an active market, it is rarely used. Nature of and effective date for recent goodwill impairment simplifications in U.S. GAAP Some intangible assets are contained in or on a physical substance. For other assets and goodwill, testing is mainly by reference to the CGU that the asset belongs to. test. IAS 36 therefore applies to property, plant and equipment, right of use assets, intangible assets, goodwill, and investment property carried at cost. Any impairment loss of a revalued asset shall be treated as a revaluation decrease in accordance with that other Standard. Conversely, long-term growth rate assumptions applied previously may no longer be suitable, particularly if the economic impact of COVID-19 is viewed as being more than short-lived. This is also an area that will likely be subject to particular scrutiny and challenge by external auditors. Intangible Assets IAS 36 – Impairment of Assets IAS 38 –Intangible Assets IFRS 8 –Operating Segments Overview of Major Differences ASPE and IFRS have several significant differences in their treatment of asset impairment. . The VIU cash forecasts must nonetheless reflect assumptions about these impacts based on facts and circumstances at the year-end. [FRS 102 paras 18.25, 27.5–27.7]. For those with a year-end of 31 December 2019 or earlier the answer is likely no because COVID-19 was not considered to be a significant issue for most economies and businesses on that date. Our selection is again driven by the degree of impairment intensity. Home > European enforcers review of impairment of goodwill and other intangible assets in the IFRS financial statements. Download impairment of intangible assets and goodwill [ 213 kb ]. 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. How is COVID-19 likely to impact the impairment test? 2. .7 • IFRS in Brief & IFRS Briefing Sheets - December 2004 - January 2005 ... intangible assets are the 'cost to recreate', 'income capitalisation' and 'market' approaches. In IFRS, the guidance related to intangible assets other than goodwill is included in International Accounting Standard (IAS) 38, Intangible Assets. Entities may have assets that are subject to impairment testing that do not qualify as long-lived assets and are not financial assets. IAS 36 allows these adjustments to be reflected in one of two ways: by adjusting the discount rate or by adjusting the cash flows (including the long-term growth assumptions). US GAAP and IFRS contain similar impairment indicators for assessing the impairment of long-lived assets (“non-current assets” in IFRS). Impairment losses on goodwill cannot be reversed, even if the loss was recognised in an interim period and conditions have improved by year-end. Reporting entities applying the risk-adjusted expected cash flow approach should give more weight to the downside scenario(s) to achieve the objective of incorporating a market view of risk and uncertainty. Significant professional judgement of all relevant facts and circumstances will be required to make this assessment. IFRS 16 and IAS 36 how changes in lease accounting will impact your impairment testing processes. In a cash-generating unit, goodwill is reduced first; then other assets are reduced pro rata. The current volatility in financial markets introduces additional challenges to this process as the parameters used to estimate discount rates become more unpredictable. 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. Companies should therefore consider developing multiple scenarios and applying probabilities to each to arrive at the expected cash flows. In this volatile environment, any impairment of goodwill and other long-lived assets has the potential to materially reduce reported earnings. Dynamic resources for board of directors and financial executives. BDO is continuously finding new ways to help your organization thrive. TMT outlook: Can tech spend buoyancy keep the industry airborne? If the asset‘s carrying amount is considered not recoverable, … Instead it should be tested for impairment at least annually under IAS 36 (IAS 38.107-108). GTIL does not provide services to clients. Some acquirers might be motivated to report fewer intangibles, and higher goodwill, because most intangible assets must be amortised whereas goodwill is measured under an impairment only approach. impairment considerations Revaluations of intangible assets to fair value are prohibited. intangible assets, goodwill, property, plant, and equipment may not be recoverable. These adjustments will also be affected by COVID-19. Impairment of Assets: ... requirements for goodwill and indefinite life intangible assets (including those not ready for use) when compared to all other assets. Now more than ever the need for businesses, their auditor and any other accounting advisors to work closely together is essential. What are the most relevant indicators to the COVID-19 pandemic? indefinite useful life for impairment by comparing its recoverable amount with its carrying amount. 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. Intangible assets are tested for impairment when there is indication that they might be impaired. Boards’ High Stakes Balancing Act: Navigating Through Crisis. ‘work in progress’). We focus on disclosures relating to three classes of non-current non-financial assets: property, plant and equipment (PP&E), intangible assets other than goodwill (hereafter intangible assets) and goodwill. © 2020 Grant Thornton International Ltd (GTIL) - All rights reserved. .2 • Impairment testing of ... • Developments in IFRS . Yes, provide relief from the annual impairment test and simplify value in use. Both ASPE (ASPE 3063) and IFRS (IAS 36) have clear guidance on how impairment should be assessed. Impairment of long-lived assets, goodwill and intangible assets 3 A company reporting under IFRS follows the principles in IAS 36, Impairment of Assets (IAS 36). • Identifying intangible assets . Reference 2013/2 . 85 . Prices for fire-sales of assets or asset groups may not reflect an orderly transaction. 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. These assumptions should be explicit, clear and supportable. 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. The major points covered under this regulation are: 1. (2) Includes impairment charges related to intangible assets. As a reminder, recoverable amount is the higher of VIU and FVLCD. Detailed examples of indicators of impairment are included in IAS 36.12. IFRS 16 and IAS 36. 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. Impairment exists when the carrying amount exceeds the asset’s fair value. 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. The Application of IFRS: Food, drink and consumer goods companies The business and operations of many entities have already been seriously affected by the rapid global spread of COVID-19 and related government actions. There are two categories of fixed assets: tangible and intangible fixed assets. How will it impact the cash flow forecasts? When a fair value estimate uses unobservable inputs, management therefore needs to assess how information about COVID-19 available at the reporting date would influence market participants’ pricing decisions. [IAS 36.2, 4] An impairment loss shall be recognised immediately in profit or loss, unless the asset is carried at revalued amount in accordance with another Standard (for example, in accordance with the revaluation model in NZ IAS 16). 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). For other assets or cash generating units, in circumstances in which indicators of impairment are identified, a formal impairment test is required to be carried out. An asset is identifiable if either: it is separable (that is, it is capable of being separated or divided from the entity and sold, transferred, licensed, rented or exchanged); or it arises from contractual or legal rights. 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Accounting for the acquired business, 4 ] Home > European enforcers review of are.