U.S. GAAP vs. IFRS: Impairment of Long-Lived Assets: Prepared by
U.S. GAAP vs. IFRS: Impairment of Long-Lived Assets: Prepared by
U.S. GAAP vs. IFRS: Impairment of Long-Lived Assets: Prepared by
Prepared by:
Richard Stuart, Partner, National Professional Standards Group, RSM US LLP
richard.stuart@rsmus.com, +1 203 905 5027
February 2020
Introduction
Currently, more than 120 countries require or permit the use of International Financial Reporting
Standards (IFRS), with a significant number of countries requiring IFRS (or some form of IFRS) by
public entities (as defined by those specific countries). Of those countries that do not require use
of IFRS by public entities, perhaps the most significant is the U.S. The U.S. Securities and
Exchange Commission (SEC) requires domestic registrants to apply U.S. generally accepted
accounting principles (GAAP), while foreign private issuers are allowed to use IFRS as issued by
the International Accounting Standards Board (which is the IFRS focused on in this comparison).
While the SEC continues to discuss the possibility of allowing domestic registrants to provide
supplemental financial information based on IFRS (with a reconciliation to U.S. GAAP), there does
not appear to be a specified timeline for moving forward with that possibility.
Although the SEC currently has no plans to permit the use of IFRS by domestic registrants, IFRS
remains relevant to these entities, as well as private companies in the U.S., given the continued
expansion of IFRS use across the globe. For example, many U.S. companies are part of
multinational entities for which financial statements are prepared in accordance with IFRS, or may
wish to compare themselves to such entities. Alternatively, a U.S. company’s business goals might
include international expansion through organic growth or acquisitions. For these and other
reasons, it is critical to gain an understanding of the effects of IFRS on a company’s financial
statements. To start this process, we have prepared a series of comparisons dedicated to
highlighting significant differences between U.S. GAAP and IFRS. This particular comparison
focuses on the significant differences between U.S. GAAP and IFRS when accounting for the
impairment of long-lived assets.
The guidance related to accounting for the impairment of goodwill and indefinite-lived intangible
assets in U.S. GAAP is included in the Financial Accounting Standards Board’s (FASB)
Accounting Standards Codification (ASC) Topic 350, Intangibles—Goodwill and Other, and the
guidance related to accounting for the impairment or disposal of other long-lived assets in U.S.
GAAP is included in ASC 360, Property, Plant, and Equipment. 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.
and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The simplifications in this ASU are
effective for public business entities that are SEC filers (other than those eligible to smaller reporting
companies [as defined by the SEC]) for annual and interim goodwill impairment tests performed for
periods beginning after December 15, 2019. For all other entities, the simplifications are effective for
annual and interim goodwill impairment tests in periods beginning after December 15, 2022. Early
adoption of the simplifications is permitted.
Under the simplified guidance in ASU 2017-04, Step 2 of the goodwill impairment test is eliminated. Step
2 had required entities to compute the implied fair value of goodwill, which in turn had required entities to
determine the fair value at the testing date of their assets and liabilities. Under the simplified guidance, an
entity performs its goodwill impairment test by comparing the fair value of the reporting unit with its
carrying amount. If the carrying amount of the reporting unit exceeds the fair value, the entity recognizes
an impairment loss in the amount of that excess, with an upper limit on that loss of the amount of goodwill
allocated to the reporting unit. Under the simplified guidance, an entity may still elect to apply the
qualitative assessment as to whether goodwill is impaired before undertaking the otherwise required
quantitative assessment as to whether goodwill is impaired.
The simplifications in ASU 2017-04 also eliminate the requirement for any reporting unit that has a zero or
negative carrying amount to perform a qualitative assessment, and if necessary, to perform Step 2 of the
impairment test. As a result of this elimination, the same impairment test applies regardless of whether
the reporting has a zero or negative carrying amount.
Once adopted, the simplifications will make goodwill impairment testing under U.S. GAAP more similar to
that under IFRS; although, the unit of account for the impairment testing will continue to be a reporting
unit under U.S. GAAP and a cash-generating unit (CGU) under IFRS.
Comparison
The significant differences between U.S. GAAP and IFRS related to accounting for the impairment of
goodwill, indefinite-lived intangible assets and long-lived assets to be held and used are summarized in
the following tables.
Impairment of goodwill
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Impairment of goodwill
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Impairment of goodwill
Unit of account In general, the unit of account is When possible, the impairment
an individual asset. However, in test should be carried out at the
rare cases, the unit of account individual asset level. If the test
may be a combined group of cannot be performed at the
separately recorded indefinite- individual asset level, it should
lived intangible assets that are be performed at the CGU level.
essentially inseparable from one
another.
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Unit of account The unit of account is an asset When possible, the impairment
group, which is defined in the test should be carried out at the
Master Glossary of the ASC as individual asset level. If the test
“the lowest level for which cannot be performed at the
identifiable cash flows are largely individual asset level, it should
independent of the cash flows of be performed at the CGU level.
other groups of assets and
liabilities.” An asset group almost
always includes multiple assets.
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Measurement of impairment The impairment loss is the The impairment loss is the
loss excess of the carrying amount of excess of the carrying amount of
an asset group over its fair value. the asset over its recoverable
amount.
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These are the significant differences between U.S. GAAP and IFRS related to accounting for the
impairment of long-lived assets. Refer to ASC 350 and 360 and IAS 36 for all of the specific requirements
applicable to accounting for the impairment of long-lived assets. In addition, refer to our U.S. GAAP vs.
IFRS comparisons series for more comparisons highlighting other significant differences between U.S.
GAAP and IFRS.
Consult your RSM US LLP service provider concerning your situation and any specific questions you may
have. You may also contact us toll-free at 800.274.3978 for a contact person in your area.
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U.S. GAAP vs. IFRS: Impairment of long-lived assets resulted from the efforts and ideas of various
RSM US LLP professionals, including members of the National Professional Standards Group, as
well as contributions from RSM UK and RSM Canada professionals.
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