Appendix A — Comparison of U.S. GAAP and IFRS Accounting Standards

Impairment models

Under U.S GAAP, individual assets, such as inventories, financial instruments, or indefinite-lived intangible assets, are tested for impairment in accordance with the relevant standards. Then, long-lived assets that are held and used, such as property, plant, and equipment and finite-lived intangible assets, are tested for impairment in accordance with ASC 360-10. Finally, goodwill is tested for impairment in accordance with ASC 350-20.

Under IAS 36, assets that are within the scope of other standards, such as inventories or biological assets, are tested for impairment. Then, long-lived assets, including goodwill, are tested for impairment by performing a one-step test. Impairment losses are first allocated to goodwill.

Unit of account for goodwill impairment testing

Goodwill is tested for impairment at the unit of account called the reporting unit. The ASC master glossary defines a reporting unit as either “an operating segment or one level below an operating segment (also known as a component).”

Goodwill is tested for impairment at the unit of account called the cash-generating unit (CGU). IAS 36 defines a CGU as “the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.”

In some cases, it may not be possible to allocate goodwill to individual CGUs on a reasonable basis. In that case, goodwill may be allocated to a group of CGUs if they together represent the lowest level within the entity at which goodwill is monitored for internal management purposes. However, the group of CGUs cannot be larger than an operating segment as defined in IFRS 8.

Qualitative assessment (step 0)

Entities have the option of assessing qualitative factors to determine whether it is more likely than not (i.e., a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount, including goodwill (step 0). If, after assessing the totality of events or circumstances, the entity determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, the quantitative goodwill impairment test is unnecessary.

IAS 36 has no equivalent optional qualitative assessment. Under IAS 36, entities must test each CGU (or group of CGUs) for impairment at least annually.

Measurement of a goodwill impairment loss

A goodwill impairment loss is measured as the amount by which the carrying amount of the reporting unit exceeds its fair value, limited to the total amount of goodwill allocated to the reporting unit.

The carrying amount of the CGU, including goodwill, is first compared with its recoverable amount, which IAS 36 defines as “the higher of [the CGU’s] fair value less costs of disposal and its value in use.” IAS 36 defines value in use as “the present value of the future cash flows expected to be derived from an asset or cash-generating unit.”

An impairment loss is measured as the amount by which the carrying amount of the CGU (or group of CGUs), including goodwill, exceeds its recoverable amount. The impairment loss is allocated:

• First, to the goodwill of the CGU (group of CGUs).
• Then, to the other long-lived assets of the CGU (group of CGUs) pro rata on the basis of the carrying amount of each asset. However, the carrying amount of an individual asset should not be reduced below the highest of (1) its fair value less cost to sell, (2) its value in use, or (3) zero.

Accounting alternatives available to private companies and NFPs

Private companies and NFPs may elect certain goodwill accounting alternatives.

First, private companies and NFPs may elect to amortize goodwill over a useful life of 10 years or less. Goodwill must only be tested for impairment if a triggering event occurs rather than annually. In addition, the entity may elect to perform the impairment test at the entity level rather than the reporting-unit level.

Second, private companies and NFPs may elect to only assess, as of the end of each reporting period, whether a goodwill impairment triggering event exists and, if so, whether it is more likely than not that goodwill is impaired. Therefore, such entities would only need to perform the goodwill impairment triggering event evaluation as of the end of an interim or annual reporting period, as applicable.

IFRS Accounting Standards have no equivalent goodwill accounting alternatives available to private companies and NFPs.

Initial measurement — IPR&D

An entity capitalizes IPR&D as an asset only when acquired in a business combination.

An entity capitalizes IPR&D as an asset in an asset acquisition or a business combination.

Subsequent measurement — revaluation

Intangible assets are carried at historical cost. Revaluation is not permitted.

Intangible assets may be revalued to fair value if fair value can be measured reliably in an active market. IFRS 13 defines an active market as “[a] market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.” It is rare for an active market to exist for intangible assets. Tgherefore, the revaluation of intangible assets is not common. If recognized, revaluation changes are recognized directly in equity.