Consider the example of a company that has long-lived assets that are recoverable under ASC 360-10: Property, Plant and Equipment—but the fair value of its fixed assets or finite-lived intangible assets have fallen below their carrying amounts. © 2010 - Thu Dec 24 18:45:42 UTC 2020 PwC. Generally, except for brands, these assets have a definite useful life. US GAAP does not require the use of an enterprise or equity premise. • An intangible asset with an indefinite useful life is not amortised but tested for impairment. Intangible assets with finite useful lives are considered for impairment when there is an indication that the asset has been impaired. All rights reserved. Topics include: 1:09 - Right-of-use asset impairment model. An impairment loss takes place when a company makes a judgment call that the carrying value of an intangible asset on the company balance sheet is less than fair value, or what an unpressured person would pay for the asset in an open marketplace. The amount of impairment recorded or reversed must be disclosed, including the circumstances leading to that impairment or reversal. Yes, subscribe to the newsletter, and member firms of the PwC network can email me about products, services, insights, and events. While the approach for measuring the amount of goodwill impairment has been simplified, there are nuances in how the revised impairment guidance will interact with the subsequent measurement of other assets (not goodwill) governed by other accounting standards. An intangible asset is an identifiable non-monetary asset without physical substance. The impairment models for assets other than goodwill may not require an impairment charge to be recognized under certain circumstances, even when the fair value is less than carrying value. Under the new guidance, if the equity premise is used for a reporting unit with a negative carrying amount, the reporting unit cannot have an impairment since the reporting unit’s fair value will always be greater than its carrying value. This is specifically relevant to cases in which an entity has a zero or negative carrying amount for any of its reporting units. This chapter includes a discussion on key clarifications on the implementation issues on applying the standards on non-financial assets. Under IFRS, an impairment loss is recognized if the carrying amount exceeds the recoverable amount of the asset. Where an ‘intangible resource’ is not recognised as an intangible asset, it is subsumed into goodwill. Upon adoption of the revised guidance, a goodwill impairment loss will be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of goodwill. intangible assets, for which an annual impairment test is required, IAS 36 requires reporting entities to assess at the end of each reporting period whether there is any indication of impairment for all assets (within the scope). Two valuation approaches are typically employed. The Business combinations and noncontrolling interests guide discusses the definition of a business and transactions in the scope of accounting for business combinations under ASC 805.It also provides guidance on identifying the acquirer, determining the acquisition date, and recognizing and measuring the net assets acquired. 'result' : 'results'}}. The Property, plant, equipment and other assets guide discusses the accounting for acquisition transactions determined to be asset acquisitions under US GAAP. Additionally, recognition of the impairment of the long-lived asset that contributed to the goodwill impairment may occur at a later date. As the pandemic moved essential activities and services online, including education, jobs and training, the challenges for global youth to get or stay connected have only grown. An impairment review of a CGU should cover all of its tangible assets, intangible assets and attributable goodwill. and long-lived assets are assessed for impairment prior to testing goodwill. Alternatively, when there is unrecognized appreciation in the fair value of other recognized or unrecognized assets in the reporting unit, the amount of the goodwill impairment charge will be less than under the current guidance. and impairment of acquired programming rights under the applicable IFRS standards IAS 2 Inventories and IAS 38 Intangible Assets. Realistic assumptions; Key assumptions should be disclosed; 2. These complexities will be important for management and stakeholders to understand when adopting and applying the revised guidance. Intangible assets with indefinite useful lives and intangible assets not yet in use are tested annually for impairment and whenever there is an indication of impairment. Intangibles Assets Non-financial assets recognised by an entity under Ind AS may include, tangible fixed assets such as Property, Plant and Equipment (PPE), investment property and intangible assets such as technology, brands, etc. Another example often seen is with companies that hold significant portfolios of financial assets which are carried at amortized cost. Reversal of Impairment Loss. For example, for assets that are held and used, other assets (e.g. Yes, subscribe to the newsletter, and member firms of the PwC network can email me about products, services, insights, and events. Under the new guidance, the goodwill impairment charge would capture the decline in fair value of the long-lived assets. Fig 3. Step 2 requires a hypothetical purchase price allocation to measure the amount of a goodwill impairment. Intangible assets that are acquired by an entity and having finite useful lives are measured at cost less accumulated amortisation and any accumulated impairment losses. Increases in value in excess of prior impairment loss are debited directly to the asset and credited to a … If the asset‘s carrying amount is considered not recoverable, … 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. intangible assets) requires a detailed understanding of the value chain of the business and the extent to which the services play an important role within this value chain. The amount of the impairment loss reduces the carrying amount of the asset on the balance sheet and reduces net income on the income statement. Please see www.pwc.com/structure for further details. Under the new guidance, the goodwill impairment charge would capture the decline in fair value of the long-lived assets. These valuations will require significant professional judgement. Where the RoU asset is part of a CGU that contains goodwill, indefinite-life intangible assets, or intangible assets that are not yet ready for use, it will be included as part of the annual impairment requirement. A simultaneous equation is required to adjust the goodwill impairment and deferred tax impact when tax deductible goodwill is present. As the new single-step approach for assessing goodwill impairment compares the fair value and carrying value of the entire reporting unit, the goodwill impairment charge (if any) may capture fair value declines, below their carrying values, for non-goodwill assets. The IC was unable to reach a consensus on Under the old guidance, a more precise determination of goodwill impairment would have been addressed in Step 2 by determining the implied fair value of the goodwill. We also touch on the new accounting Intangible assets with finite useful lives are considered for impairment when there is an indication that the asset has been impaired. The FASB’s new goodwill impairment testing guidance—ASU 2017-04, required for public SEC filers for periods beginning after December 15, 2019—while intended as a simplification, could result in less precise goodwill impairments for reporting entities. In the context of the far-reaching economic consequences of COVID-19, a significant number of entities face indicators of impairment. This includes clearly outlining information and data requirements, as well as key decision points to effectively test goodwill for impairment. Companies have to periodically test intangible assets to see whether there’s potential for any loss due to impairment. The general requirement of IAS 36 is that assets are tested for impairment where there is an impairment indicator, and this includes RoU assets. Under the equity premise of value, all liabilities (including debt) associated with the reporting unit are assigned to the reporting unit and included in the valuation of the reporting unit. As with the existing model, getting the sequencing right can help avoid potential errors in assessing impairment. Each Each member firm is a separate legal entity. Given the unique nature of such services, a suffi-ciently reliable comparable transaction may be difficult to identify and therefore other TP methods may be more reliably applied. This in turn increases the carrying value of the reporting unit and may trigger further goodwill impairment. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Under IFRS, comparison is made between the carrying amount of the asset and the higher of fair value (less cost to sell) and value in use and any excess is recognized as impairment. Trigger for impairment testing. Standards >> FRS 102 - The Financial Reporting Standard applicable in the UK and Republic of Ireland >> Section 27 Impairment of assets For more insights on the new goodwill impairment testing standard, please contact PwC to request a meeting. It is highly recommended that entities consult with their technical accounting advisors and valuation professionals when assessing the potential effects of a choice in valuation methodology. Impairment of assets (IAS 36) Financial instruments - Hedge accounting (IFRS 9) ... Intangible assets (IAS 38) Regulatory deferral accounts (IFRS 14) ... PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. The standard states that it is acceptable to perform impairment tests at any time in the financial year, … [IAS 36.2, 4] Consider the example of a company that has long-lived assets that are recoverable under ASC 360-10: Property, Plant and Equipment—but the fair value of its fixed assets or finite-lived intangible assets have fallen below their carrying amounts. Observations from the front lines provides PwC’s insight on current economic issues, our perspective regarding the financial reporting complexities, and what companies should be thinking about to effectively address those issues. Disclosures are split between CGUs where an impairment has been recognised and CGUs with goodwill or indefinite-lived assets allocated to them. Companies should take a fresh look at existing processes and controls for assessing asset impairment, as proper identification of triggering events is integral to appropriately measuring goodwill impairment. All rights reserved. and impairment Best wishes Sam Tomlinson PwC UK Chairman, PwC Media Industry Accounting Group Sam Tomlinson PwC’s Global entertainment and media outlook 2015-2019 forecasts global film revenues to grow at 4.1% annually, reaching US$105 billion in 2019. Each member firm is a separate legal entity. Generally, except for brands, these assets have a definite useful life. COVID-19 can be seen as a triggering event for impairment testing for a significant number of entities. Without the more involved calculation that would have been performed when applying Step 2 (i.e., the implied fair value of goodwill is no longer calculated), there is a higher potential for a less precise amount of goodwill impairment. the higher of fair value less costs of disposal and value in use). PwC refers to the US member firm, or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. 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