U.S. GAAP v. IFRS: The Basics - Financial Executives International

Impairment of Assets
Similarities
Both U.S. GAAP and IFRS contain similarly defined impairment indicators for assessing the
impairment of long-lived assets. Both standards require goodwill and intangible assets with
indefinite lives to be reviewed at least annually for impairment regardless of the existence of
impairment indicators. Additionally, both GAAPs require that an asset found to be impaired be
written down and an impairment loss recognized. FAS 142, FAS 144 Accounting for the Impairment
of Disposal of Long-Lived Assets, and IAS Impairment of Assets apply to most long-lived and
intangible assets, although some of the scope exceptions listed in the standards differ. Despite
the similarity in overall objectives, differences exist in the way in which impairment is reviewed,
recognized, and measured.
Significant Differences
Review for impairment
indicators–-long-lived
assets
Method of determining
impairment — long-lived
assets
Impairment loss
calculation — long-lived
assets
Method of determining
impairment — goodwill
U.S. GAAP IFRS
Performed whenever events or changes in
circumstances indicate that the carrying
amount of the asset may not be recoverable.
Two-step approach requires a recoverability
test be performed first (carrying amount
of the asset is compared to the sum of
future undiscounted cash flows generated
through use and eventual disposition). If it is
determined that the asset is not recoverable,
an impairment loss is calculated.
The amount by which the carrying amount
of the asset exceeds its fair value, as
calculated in accordance with FAS 157.
Two-step approach requires a recoverability
test to be performed first at the reporting
unit level (carrying amount of the reporting
unit is compared to the reporting unit fair
value), then an impairment loss is calculated.
Assessed at each reporting date.
One-step approach requires that impairment
loss be calculated if impairment indicators
exist.
The amount by which the carrying amount of
the asset exceeds its recoverable amount;
recoverable amount is the higher of: (i) fair
value less costs to sell, and (ii) value in use
(the present value of future cash flows in
use including disposal value). (Note that the
definition of fair value in IFRS has certain
differences from the definition in FAS 157.)
One-step approach requires that an
impairment test be done at the cash
generating unit (CGU) level by comparing the
CGU’s carrying amount, including goodwill,
with its recoverable amount.
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