Goodwill Impairment Testing

A reduction in the carrying amount of an asset when its recoverable amount falls below that carrying amount. Under IAS 36, goodwill, indefinite-life intangibles and intangibles not yet available for use are tested every year, other assets only when there is an indication of impairment; under FRS 102 all assets, including goodwill, are tested only on indication.

The higher of an asset's (or cash generating unit's) fair value less costs of disposal and its value in use. Under IAS 36, an impairment loss is recognised when the carrying amount of an asset exceeds its recoverable amount.

The smallest identifiable group of assets that generates cash inflows largely independent of the cash inflows from other assets or groups of assets. Under IAS 36, when an individual asset's recoverable amount cannot be estimated in isolation, impairment testing is performed at the CGU level.

The US GAAP standard governing the recognition, measurement, and impairment of long-lived tangible and certain intangible assets. ASC 360 requires a two-step impairment test: first, a recoverability test comparing undiscounted future cash flows to carrying value; second, if impairment is indicated, measurement of the loss as the excess of carrying value over fair value.

The IFRS standard that establishes procedures to ensure assets are carried at no more than their recoverable amount — the higher of fair value less costs of disposal and value in use. IAS 36 requires impairment testing whenever there is an indication of impairment, and at least annually for goodwill and intangible assets with indefinite useful lives.

A controlled testing environment established by a financial regulator that allows fintech companies and other innovators to test new products, services, or business models with real customers under relaxed regulatory requirements for a limited period. The FCA launched the first regulatory sandbox in 2016, and the concept has since been adopted by over 50 jurisdictions globally.

The level at which goodwill is tested for impairment under US GAAP (ASC 350), defined as an operating segment or one level below an operating segment (a component). A component is a reporting unit if it constitutes a business for which discrete financial information is available and segment management regularly reviews its operating results.

The process of determining the period over which an intangible asset is expected to contribute to the cash flows of an entity, which governs the amortisation period under IAS 38 and ASC 350. Useful life may be finite (based on contractual, legal, regulatory, technological, or economic factors) or indefinite (when there is no foreseeable limit to the period over which the asset will generate net cash inflows).

What is the difference between amortisation and impairment of intangible assets?

Amortisation systematically allocates cost over the asset's useful life (predictable, planned). Impairment is an unplanned write-down triggered when the asset's carrying amount exceeds its recoverable amount.

What is the accounting treatment for intangible assets with indefinite useful lives?

Indefinite-life intangible assets are not amortised but must be tested for impairment at least annually under IAS 36. They include certain brands, trademarks, broadcasting rights, and perpetual licences with no foreseeable expiration.

What changed with ASU 2017-04 for goodwill impairment testing?

ASU 2017-04 simplified US GAAP goodwill impairment testing by eliminating Step 2 — companies now measure impairment as the excess of carrying amount over fair value of the reporting unit, without needing a hypothetical PPA.