Intangibles and IFRS

Goodwill and IFRS

A. IFRS IAS 36 requires goodwill impairment testing to use a single step quantitative test that is performed at the cash-generating unit (or group of cash-generating units). A company is likely to have more cash-generating units than reporting units. Therefore, more "buckets" of goodwill will be tested under IFRS than under U.S. GAAP within a given entity.

Intangibles and IFRS

A. IFRS defines intangible asset as "an identifiable nonmonetary asset without physical substance." This definition has three key characteristic (The definition and characteristics are very similar to U.S. GAAP.) The asset: 1. is controlled by the entity and the entity expects to derive future economic benefits; 2. lacks physical substance; 3. is identifiable to be distinguished from goodwill.

Under IFRS, at what value can you report intangible assets?

Amortized cost or fair market value.

Intangible Assets Revaluations

B. IFRS allows the intangible assets to be revalued to fair market value if there is an active market for the intangible asset. If the intangible is valued at fair value, the entire class of of intangible assets must be valued this way, not just select individual intangible assets. U.S. GAAP does not allow this.

Goodwill and IFRS

B. The test must be performed at least annually or whenever there is evidence that an impairment may have occurred. IFRS requires a one step impairment test. The carrying value of the cash-generating unit is compared to its recoverable amount. The impairment loss is the excess of the carrying amount of the cash-generating unit over the recoverable amount. The calculated value of the impairment loss reduces goodwill to zero. If there is additional value associated with the impairment loss, it is allocated to the other assets of the unit pro rata based on the carrying amount of each asset in the group. The unit is not reduced below the highest amount of its fair value less cost to sell, its value in use, or zero.

IFRS Intangible Reversals

C. IFRS allows reversal of impairment losses on intangible assets to the carrying value that would have been recognized had the impairment not occurred.

Goodwill and IFRS

C. IFRS for small and medium-sized companies require goodwill to be amortized over the estimated useful life. If an estimate useful life is not reliably determinable, the goodwill should be assigned a life of 10 years.

Goodwill and IFRS

D. Although other types of impairment loss are reversible under IFRS, goodwill impairment loss cannot be reversed. The IFRS believes that any subsequent increase in goodwill is more likely to be internally generated goodwill rather than a reversal of the impairment of the purchased goodwill. The IFRS (and U.S. GAAP) prohibit recording internally generated goodwill - therefore, goodwill impairment cannot be reversed.

Intangible Amortization

D. The method and amortization method of the intangible asset should be reviewed each annual reporting period. There is no requirement in U.S. GAAP that requires a review of the amortization method or life.

Provide examples of the class of assets can you carry at fair market value under IFRS?

Property, plant, and equipment; identifiable intangible assets; financial assets including investments and financial instruments.

How much of the impairment loss can be recovered under IFRS?

The recovery of an impairment loss is limited to the carrying value had the impairment not occurred.

At what level is goodwill impairment testing performed under U.S. GAAP and IFRS?

Under U.S. GAAP, goodwill impairment is tested at the reporting unit level. Under IFRS, goodwill impairment is tested at the cash generating unit.