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6.8 Impairment of indefinite-lived intangible assets
Publication date: 30 Nov 2020
us IFRS & US GAAP guide
Impairment testing and measurement of indefinite-lived intangible assets are different under US GAAP and IFRS.
6.8.1 Indefinite-lived intangible assets—assessment level
Under US GAAP, the assessment is performed at the asset level. Under IFRS, the assessment may be performed at a higher level (i.e., the CGU level). The varying assessment levels can result in different conclusions as to whether an impairment exists.
US GAAP |
IFRS |
Separately recorded indefinite-lived intangible assets, whether acquired or internally developed, shall be combined into a single unit of accounting for purposes of testing impairment if they are operated as a single asset and, as such, are essentially inseparable from one another.
Indefinite-lived intangible assets may be combined only with other indefinite-lived intangible assets; they may not be tested in combination with goodwill or with a finite-lived asset.
US GAAP provides a number of indicators that an entity should consider to determine if indefinite lived intangible assets should be combined for impairment testing purposes. See ASC 350-30-35-21 through ASC 350-30-35-28.
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As most indefinite-lived intangible assets (e.g., brand name) do not generate cash flows independently of other assets, it might not be possible to calculate the value in use for such an asset on a standalone basis. Therefore, it is necessary to determine the smallest identifiable group of assets that generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets, (i.e., the CGU), in order to perform the test.
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6.8.2 Indefinite-lived intangible assets—impairment testing
Under US GAAP, an entity can choose to first assess qualitative factors in determining if further impairment testing is necessary. This option does not exist under IFRS.
US GAAP |
IFRS |
ASC 350-30-35-18 requires an indefinite-lived intangible asset to be tested for impairment annually, or more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. Similar to goodwill impairment testing, current practice is to perform the annual impairment test for indefinite-lived intangible assets at the same time each year (although not specifically required by ASC 350).
An entity may first assess qualitative factors to determine if a quantitative impairment test is necessary. Further testing is only required if the entity determines, based on the qualitative assessment, that it is more likely than not that an indefinite-lived intangible asset's fair value is less than its carrying amount. Otherwise, no further impairment testing is required.
An entity can choose to perform the qualitative assessment on none, some, or all of its indefinite-lived intangible assets. An entity can bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to the quantitative impairment test and then choose to perform the qualitative assessment in any subsequent period.
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IAS 36, Impairment of Assets, requires an entity to test an indefinite-lived intangible asset for impairment annually. The impairment test may be performed at any time during the annual period, but it must be performed at the same time every year. It also requires an impairment test in between annual tests at the end each reporting period whenever there is an indication of impairment.
IAS 36 allows an entity to carry forward the most recent detailed calculation of an asset's recoverable amount when performing its current period impairment test, provided the following criteria are met: (i) the indefinite-lived intangible asset does not generate cash inflows independent of other assets and is reviewed for impairment as part of a CGU); (ii) the CGU’s assets and liabilities have not changed significantly since the last impairment test; (iii) the most recent impairment test resulted in an amount that exceeded the asset's carrying amount by a substantial margin; and (iv) an analysis of events that have occurred and changes in circumstances since the last review indicate that the likelihood that the asset's current recoverable amount would be less than its carrying amount is remote.
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6.8.3 Indefinite-lived intangible assets—impairment measurement
Even when there is an impairment under both frameworks, the amount of the impairment charge may differ.
US GAAP |
IFRS |
The quantitative impairment test for indefinite-lived intangible assets compares the fair value of the asset to its carrying amount. If the carrying amount exceeds the fair value of the asset, an impairment loss is recognized for the difference. |
Indefinite-lived intangible asset impairments are calculated by comparing the recoverable amount to the carrying amount (see above for determination of level of assessment). The recoverable amount is the higher of fair value less costs of disposal or value in use. If the carrying amount exceeds the recoverable amount of the asset, an impairment loss is recognized for the difference. |
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