Comparison between U.S. GAAP and International ... - Grant Thornton

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Comparison between U.S. GAAP and International Financial Reporting Standards 50 IFRS there is an indicator of impairment, an entity shall annually test for impairment those intangible assets that are not yet available for use or that have an indefinite useful life (IAS 36.9-.11). U.S. GAAP Other matters Computer software is an intangible asset subject to the guidance in IAS 38 unless it is an integral part of related hardware in which case IAS 16 would apply (IAS 38.4). An expenditure on an intangible item shall not be capitalised unless it forms part of the cost of an intangible asset that meets the recognition criteria in IAS 38 or is acquired in a business combination and cannot be recognised as an intangible asset in which case it is recognised as part of the goodwill (IAS 38.68). Some expenditures may be incurred to provide a future economic benefit, but an intangible asset or other asset is not created or acquired that can be recognised (IAS 38.69). In these situations, the expenditure is recognised as an expense when it is incurred. Examples of such expenditures include the following: Computer software costs may be capitalized as an intangible asset in certain specific circumstances. Separate guidelines are provided for internal-use software (ASC 350-40) and software to be sold, leased, or otherwise marketed (ASC 985-20). Similar to IFRS, except for certain advertising expenditures. Under ASC 340-20, direct-response advertising costs shall be capitalized if certain criteria are met (ASC 340-20-25-4). In addition, advertising costs shall be expensed as incurred (similar to IFRS) or the first time the advertising takes place (unlike IFRS) (ASC 720-35-25-1). • Start-up activities unless the expenditure is included in the cost of property, plant and equipment under IAS 16 • Training activities • Advertising and promotional activities • Relocation or reorganisation activities A web site developed for internal or external access is an internally generated intangible asset that is subject to the guidance in IAS 38. SIC-32 provides interpretive guidance on the application of IAS 38 for web site development costs. For example, SIC-32 discusses the different stages in the development of a web site and the accounting for the costs incurred in those stages. Similar to IFRS, web site costs shall be capitalized as an intangible asset in certain specific circumstances. Generally, ASC 350-50 discusses the different stages in the development of a web site and the accounting for the costs incurred in those stages. For example, ASC 350-50 refers to ASC 350-40 for internal-use software and ASC 985-20 for software to be marketed externally. 4.4 Impairment IFRS U.S. GAAP Relevant guidance: IAS 36 Relevant guidance: ASC 350, 360, and 820 © 2011 Grant Thornton LLP All rights reserved U.S. member firm of Grant Thornton International Ltd
Comparison between U.S. GAAP and International Financial Reporting Standards 51 IFRS U.S. GAAP Introduction For goodwill, intangible assets that are not amortised and intangible assets not yet available for use, an impairment review shall be performed annually or more frequently if indications of impairment exist (IAS 36.10). Note: If a cash generating unit includes goodwill, it is subject to annual impairment reviews and whenever there is an indication that the unit may be impaired (IAS 36.90). For other long-lived assets an impairment review shall be performed when an indication of impairment exists (IAS 36.9). The impairment test is a one-step process. If the recoverable amount is below the carrying amount, an impairment loss shall be recognised (IAS 36.59). Recoverable amount is the higher of value in use and fair value less costs to sell. Value in use is future discounted cash flows from an asset or cash-generating unit (IAS 36.6). Similar to IFRS except an intangible asset not yet available for use shall be reviewed for impairment when an indicator of impairment exists. There are some differences in the indicators of impairment. For example, under IAS 36 a change in market interest rates or other market rates of return is an indicator of impairment (ASC 350-30-35-18 through 35-20 and ASC 350-20-35-28). Similar to IFRS (ASC 360-10-35-21). In general, an impairment loss shall be recognized if the carrying amount exceeds fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (ASC Master Glossary, “Fair Value”). The impairment test for goodwill and long-lived assets other than indefinite-lived intangible assets is a two-step process. The first step is used to identify potential impairment. Consequently, an impairment loss may be recognized earlier under IFRS than U.S. GAAP. Impairment review Goodwill acquired in a business combination shall be allocated to cash-generating units (CGU) pursuant to the guidance in IAS 36.80-.85. Each unit or group of units that goodwill is allocated to shall represent the lowest level within the entity that goodwill is monitored for internal management purposes and shall not be larger than an operating segment as defined by paragraph 5 of IFRS 8, Operating Segments, before aggregation. A CGU is the smallest identifiable group of assets generating cash flows largely independent of cash inflows of other assets or group of assets (IAS 36.6). Goodwill is tested for impairment at the CGU level using a one-step approach. If the carrying amount of the unit exceeds the recoverable amount of the unit, an impairment loss shall be recognised and allocated as follows (IAS 36.104): • First, reduce the carrying amount of any goodwill allocated to the CGU • Then, reduce the carrying amount of the other assets of the group on a pro rata basis Goodwill acquired in a business combination shall be assigned to one or more reporting units at the acquisition date (ASC 350-20-35-41). A reporting unit is an operating segment or one level below an operating segment (a component) (ASC 350-20-35-33 through 35-38). Goodwill is tested for impairment at the reporting unit level using a two-step process (ASC 350-20-35-4 through 35-19). The first step of the impairment test compares the carrying amount of the reporting unit to its fair value. If the carrying amount exceeds fair value, the second step is performed to measure the amount of impairment loss, if any. In the second step, the implied fair value of reporting unit goodwill is compared to its carrying amount. If the carrying amount of goodwill exceeds the implied fair value of that goodwill, an impairment shall be recognized. The implied fair value of goodwill shall be determined in the same manner as the amount of goodwill recognized in a business combination (ASC 350-20-35-14 through 35-17). Therefore, an entity shall assign the fair value of the reporting unit (assumed purchase price) to all of the identifiable assets and liabilities of the reporting unit (assumed acquiree). The excess of the fair value of the © 2011 Grant Thornton LLP All rights reserved U.S. member firm of Grant Thornton International Ltd
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Comparison between U.S. GAAP and International ... - Grant Thornton

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