Goodwill impairment testing is one of the most consequential accounting judgements for acquisition-heavy companies. IFRS and US GAAP both require annual testing (or more frequently if triggering events occur), but their approaches differ in meaningful ways. IFRS compares a cash-generating unit's recoverable amount to its carrying value. US GAAP compares a reporting unit's fair value to its carrying amount. These seemingly similar tests produce different outcomes because of differences in the unit of account, the impairment measure, and the treatment of reversals.
Accounting Framework
IFRS vs US GAAP Goodwill Impairment Testing
IFRS vs US GAAP goodwill impairment testing. Comparing the IAS 36 recoverable amount approach with the ASC 350 quantitative test — methodology, triggers, allocation, and reversal treatment.
| Criteria | IFRS (IAS 36) Goodwill Impairment | US GAAP (ASC 350) Goodwill Impairment |
|---|---|---|
| Testing unit | Cash-generating unit (CGU) or group of CGUs — smallest unit to which goodwill is allocated | Reporting unit — operating segment or one level below |
| Impairment measure | Carrying amount exceeds recoverable amount (higher of VIU and FVLCD) | Carrying amount exceeds fair value of reporting unit (since ASU 2017-04, one-step test) |
| Qualitative screening | Not formally available — quantitative test required annually | Optional qualitative assessment (Step 0) — quantitative test only if 'more likely than not' impaired |
| Impairment amount | Difference between carrying amount and recoverable amount of the CGU, limited to goodwill allocated | Difference between carrying amount and fair value of reporting unit, limited to goodwill balance |
| Reversal of impairment | Prohibited — goodwill impairment is permanent under IFRS | Prohibited — goodwill impairment is permanent under US GAAP |
| Discount rate requirement | Pre-tax rate for VIU (IAS 36.55) | No specific pre-tax requirement — typically uses post-tax WACC for fair value |
When to Use Each Approach
IFRS (IAS 36) Goodwill Impairment
- Companies reporting under IFRS (UK, EU, Australia, 140+ countries)
- CGU-level testing where goodwill has been allocated to identifiable groups
- Situations where VIU entity-specific synergies may exceed fair value
- Cross-border groups with both IFRS and local GAAP considerations
US GAAP (ASC 350) Goodwill Impairment
- Companies reporting under US GAAP (SEC registrants, US private companies)
- Reporting unit-level testing aligned with operating segment structure
- Entities wanting to apply the qualitative screening option to reduce testing burden
- Private companies that may elect the accounting alternative for goodwill amortisation
Our Verdict
Both frameworks prohibit reversal of goodwill impairment and require annual testing. The key practical differences are the testing unit (CGU vs reporting unit — CGUs are often smaller), the measurement approach (recoverable amount vs fair value), and the availability of qualitative screening under US GAAP. Companies operating in both jurisdictions must maintain parallel testing processes.
Related Glossary Terms
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