Chapter 4 — Subsequent Accounting for Intangible Assets

4.4 Intangible Assets Not Subject to Amortization

ASC 350-30

35-15 If an intangible asset is determined to have an indefinite useful life, it shall not be amortized until its useful life is determined to be no longer indefinite.

Under ASC 350-30-35-15, an intangible asset would not be amortized while its useful life is indefinite. ASC 350-30-35-4 states that an indefinite useful life is one that is not limited by any “legal, regulatory, contractual, competitive, economic, or other factors.” Accordingly, entities are expected to analyze and document all relevant factors before determining that the useful life of an intangible asset is not limited by such factors and is therefore indefinite.

Entities are also required to reevaluate the useful life of their intangible assets in each reporting period. See Section 4.5 for more information.

4.4.1 Testing Indefinite-Lived Intangible Assets for Impairment

ASC 350-30

35-18 An intangible asset that is not subject to amortization shall be tested for impairment annually and more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired.

An entity must select a recurring annual testing date for each of its indefinite-lived intangible assets or each unit of account (see Section 4.4.5).

In testing indefinite-lived intangible assets for impairment, an entity may first elect to perform a qualitative assessment to determine whether it needs to perform a quantitative impairment test (see Section 4.4.3). The entity may, however, also elect to bypass the qualitative assessment and move directly to the quantitative test (see Section 4.4.4). If the entity decides to perform the qualitative assessment and determines that an indefinite-lived intangible asset might be impaired, the entity must proceed to the quantitative test.

When performing the quantitative test, an entity recognizes an impairment loss when the carrying amount of an indefinite-lived intangible asset exceeds its fair value; this amount is limited to the amount of the asset. Before testing an indefinite-lived intangible asset for impairment, an entity should assess the appropriate unit of account at which to test the asset, as discussed in the next section.

4.4.2 Unit of Account for Impairment Testing of Intangible Assets Not Subject to Amortization

ASC 350-30

35-21 Separately recorded indefinite-lived intangible assets, whether acquired or internally developed, shall be combined into a single unit of accounting for purposes of testing impairment if they are operated as a single asset and, as such, are essentially inseparable from one another.

35-22 Determining whether several indefinite-lived intangible assets are essentially inseparable is a matter of judgment that depends on the relevant facts and circumstances. The indicators in paragraph 350-30-35-23 shall be considered in making that determination. None of the indicators shall be considered presumptive or determinative.

35-23 Indicators that two or more indefinite-lived intangible assets shall be combined as a single unit of accounting for impairment testing purposes are as follows:

The intangible assets were purchased in order to construct or enhance a single asset (that is, they will be used together).
Had the intangible assets been acquired in the same acquisition they would have been recorded as one asset.
The intangible assets as a group represent the highest and best use of the assets (for example, they yield the highest price if sold as a group). This may be indicated if it is unlikely that a substantial portion of the assets would be sold separately or the sale of a substantial portion of the intangible assets individually would result in a significant reduction in the fair value of the remaining assets as a group.
The marketing or branding strategy provides evidence that the intangible assets are complementary, as that term is used in paragraph 805-20-55-18.

35-24 Indicators that two or more indefinite-lived intangible assets shall not be combined as a single unit of accounting for impairment testing purposes are as follows:

Each intangible asset generates cash flows independent of any other intangible asset (as would be the case for an intangible asset licensed to another entity for its exclusive use).
If sold, each intangible asset would likely be sold separately. A past practice of selling similar assets separately is evidence indicating that combining assets as a single unit of accounting may not be appropriate.
The entity has adopted or is considering a plan to dispose of one or more intangible assets separately.
The intangible assets are used exclusively by different asset groups (see the Impairment or Disposal of Long-Lived Assets Subsections of Subtopic 360-10).
The economic or other factors that might limit the useful economic life of one of the intangible assets would not similarly limit the useful economic lives of other intangible assets combined in the unit of accounting.

35-25 Paragraph superseded by Accounting Standards Update No. 2010-07.

35-26 All of the following shall be included in the determination of the unit of accounting used to test indefinite-lived intangible assets for impairment:

The unit of accounting shall include only indefinite-lived intangible assets — those assets cannot be tested in combination with goodwill or with a finite-lived asset.
The unit of accounting cannot represent a group of indefinite-lived intangible assets that collectively constitute a business or a nonprofit activity.
A unit of accounting may include indefinite-lived intangible assets recorded in the separate financial statements of consolidated subsidiaries. As a result, an impairment loss recognized in the consolidated financial statements may differ from the sum of the impairment losses (if any) recognized in the separate financial statements of those subsidiaries.
Subparagraph superseded by Accounting Standards Update No. 2017-04.

Pending Content (Transition Guidance: ASC 350-20-65-3)

35-26 All of the following shall be included in the determination of the unit of accounting used to test indefinite-lived intangible assets for impairment:

The unit of accounting shall include only indefinite-lived intangible assets — those assets cannot be tested in combination with goodwill or with a finite-lived asset.
The unit of accounting cannot represent a group of indefinite-lived intangible assets that collectively constitute a business or a nonprofit activity.
A unit of accounting may include indefinite-lived intangible assets recorded in the separate financial statements of consolidated subsidiaries. As a result, an impairment loss recognized in the consolidated financial statements may differ from the sum of the impairment losses (if any) recognized in the separate financial statements of those subsidiaries.
Subparagraph superseded by Accounting Standards Update No. 2017-04.

35-27 If, based on a change in the way in which intangible assets are used, an entity combines as a unit of accounting for impairment testing purposes indefinite-lived intangible assets that were previously tested for impairment separately, those intangible assets shall be separately tested for impairment in accordance with paragraphs 350-30-35-18 through 35-20 prior to being combined as a unit of accounting.

35-28 Examples 10 through 12 (see paragraphs 350-30-55-29 through 55-38) illustrate the determination of the unit of accounting to use in impairment testing.

ASC 350-30-35-21 states that “[s]eparately recorded indefinite-lived intangible assets, whether acquired or internally developed, shall be combined into a single unit of accounting for purposes of testing impairment if they are operated as a single asset and, as such, are essentially inseparable from one another.” An entity must use judgment and consider all relevant facts and circumstances in determining whether indefinite-lived intangible assets are “essentially inseparable” from one another. Indefinite-lived intangible assets cannot be combined with finite-lived assets (i.e., they must have the same useful lives to the entity). Further, if the intangible assets meet the conditions to be combined into a single unit of account, the entity is required to do so for impairment testing purposes. The entity cannot elect to continue to test the assets separately in such circumstances.

ASC 350-30-35-26 also clarifies that the unit of account cannot:

Include other assets such as goodwill or finite-lived assets.
Represent “assets that collectively constitute a business or a nonprofit activity.”

Two or more indefinite-lived intangible assets should be combined into a single unit of account if any of the indicators in ASC 350-30-35-23 are present (none of which are “presumptive or determinative”) but should not be combined into a single unit of account if any of the indicators in ASC 350-30-35-24 exist. The table below summarizes and expands on the indicators listed in those two paragraphs.

Indicators That Two or More Indefinite-Lived Intangible Assets Must Be Combined	Indicators That Two or More Indefinite-Lived Intangible Assets Cannot Be Combined
The intangible assets are used together as a single asset or were purchased to “construct or enhance a single asset.”	The intangible assets generate “cash flows independent of any other intangible asset.”
If the assets had been acquired in the same acquisition, “they would have been recorded as one asset.”	If the assets had been acquired in the same acquisition, they would not have been recognized as a single asset.
No “economic or other factors . . . limit the useful economic life of the intangible assets” (i.e., the intangible assets are determined to be indefinite-lived).	“[E]conomic or other factors . . . limit the useful life of one [or more] of the intangible assets” (i.e., finite-lived and indefinite-lived intangible assets cannot be combined).
“The intangible assets as a group represent the highest and best use of the assets.” For example, (1) the assets would “yield the highest price if sold as a group,” (2) “it is unlikely that a substantial portion of the assets would be sold separately,” (3) “the sale of a substantial portion of the intangible assets individually would result in a significant reduction in the fair value of the remaining assets as a group,” or (4) the entity has no past practice of selling similar assets separately.	If sold, each intangible asset would most likely be sold separately. For example, (1) the assets would yield the highest price if sold individually, (2) it is likely a substantial portion would be sold separately, (3) “the sale of a substantial portion of the intangible asset individually would [not] result in a significant reduction in the fair value of the remaining assets as a group,” or (4) the entity has a past practice of selling similar assets separately.
The entity has no history, and is not currently considering a plan, “to dispose of one or more intangible assets separately.”	The entity has a history, or is considering a plan, “to dispose of one or more intangible assets separately.”
The “marketing or branding strategy provides evidence that the intangible assets are complementary.”	The entity has different marketing or branding strategies for the intangible assets.
The assets are used by all of the entity‘s asset groups.	“The intangible assets are used exclusively by different asset groups.”

ASC 350-30-35-26 further clarifies that the unit of account “may include indefinite-lived intangible assets recorded in the separate financial statements of consolidated subsidiaries” and that, accordingly, “an impairment loss recognized in the consolidated financial statements may differ from the sum of the impairment losses (if any) recognized in the separate financial statements of those subsidiaries.” In this case, the unit of account would be tested for impairment at both the consolidated level (in the aggregate) and separately at the subsidiary level. As a result, different impairment losses could be recognized in the consolidated financial statements than are recognized in the subsidiary’s separate financial statements.

If, because of a change in how an entity uses its intangible assets, the entity subsequently determines that it should combine into a single unit of account two or more indefinite-lived intangible assets that were previously tested for impairment separately, the entity must first test those intangible assets individually for impairment in accordance with ASC 350-30-35-18 through 35-20.

Examples 10–12 in ASC 350-30-55-29 through 55-38 illustrate the determination of the unit of account to use in impairment testing of indefinite-lived intangible assets.

ASC 350-30

Example 10: Easements

55-29 This Example illustrates the guidance in paragraphs 350-30-35-21 through 35-24.

55-30 Entity A is a distributor of natural gas. Entity A has two self-constructed pipelines, the Northern pipeline and the Southern pipeline. Each pipeline was constructed on land for which Entity A owns perpetual easements that Entity A evaluated under Topic 842 and determined do not meet the definition of a lease under that Topic (because those easements are perpetual and, therefore, do not convey the right to use the underlying land for a period of time). The Northern pipeline was constructed on 50 easements acquired in 50 separate transactions. The Southern pipeline was constructed on 100 separate easements that were acquired in a business combination and were recorded as a single asset. Although each pipeline functions independently of the other, they are contained in the same reporting unit. Operation of each pipeline is directed by a different manager. There are discrete, identifiable cash flows for each pipeline; thus, each pipeline and its related easements represent a separate asset group under the Impairment or Disposal of Long-Lived Assets Subsections of Subtopic 360-10. While Entity A has no current plans to sell or otherwise dispose of any of its easements, Entity A believes that if either pipeline was sold, it would most likely convey all rights under the easements with the related pipeline.

55-31 Based on an evaluation of the circumstances, Entity A would have two units of accounting for purposes of testing the easements for impairment-the collection of easements supporting the Northern pipeline and the collection of easements supporting the Southern pipeline. The 50 easements supporting the Northern pipeline represent a single unit of accounting as evidenced by the fact that they are collectively used together in a single asset group (see paragraphs 360-10-35-23 through 35-26), if acquired in a single transaction, they would have been recorded as one asset, and if sold, they would likely be sold as a group with the related pipeline. For the same reasons, the easements supporting the Southern pipeline would represent a single unit of accounting.

55-32 Because the collective land easements underlying the Northern and Southern pipelines generate cash flows independent of one another and are used exclusively by separate asset groups under the Impairment or Disposal of Long-Lived Assets Subsections of Subtopic 360-10, they should not be combined into a single unit of accounting.

Example 11: Trade Name

55-33 This Example illustrates the guidance in paragraphs 350-30-35-21 through 35-24.

55-34 Entity B purchases an international vacuum cleaner manufacturer, Entity A, which sells vacuums under a well-known trade name. The operations of Entity A are conducted through separate legal entities in three countries and each of those legal entities owns the registered trade name used in that country. When the business combination was recorded, Entity B recorded three separate intangible trade name assets because separate financial statements are required to be prepared for each separate legal entity. There are separate identifiable cash flows for each country, and each country represents an asset group under the Impairment or Disposal of Long-Lived Assets Subsections of Subtopic 360-10. A single brand manager is responsible for the Entity A trade name, the value of which is expected to be recovered from the worldwide sales of Entity A’s products.

55-35 Based on an evaluation of the circumstances, three separately recorded trade name assets would be combined into a single unit of accounting for purposes of testing the acquired trade name for impairment. The three registered trade names were acquired in the same business combination and, absent the requirement to prepare separate financial statements for subsidiaries, would have been recorded as a single asset. The trade name is managed by a single brand manager. If sold, Entity C would most likely sell all three legally registered trade names as a single asset.

Example 12: Brands

55-36 This Example illustrates the guidance in paragraphs 350-30-35-21 through 35-24.

55-37 Entity Z manufactures and distributes cereals under two different brands, Brand A and Brand B. Both brands were acquired in the same business combination. Entity Z recorded two separate intangible assets representing Brand A and Brand B. Each brand represents a group of complementary indefinite-lived intangible assets including the trademark, the trade dress, and a recipe. Brand A has two underlying trade names for its Honey and Cinnamon cereals. The trade name and recipe of Cinnamon were internally generated subsequent to the acquisition of Brand A. Sales of Honey have decreased while sales of Cinnamon have increased over the past several years. Despite the decline in sales of Honey, the combined sales of Honey and Cinnamon have increased at the levels expected by management. Sales of Brand B also have increased at expected levels. There are discrete cash flows for Honey, Cinnamon, and Brand B, and each represents a separate asset group under the Impairment or Disposal of Long-Lived Assets Subsections of Subtopic 360-10. Both Honey and Cinnamon are managed by one brand manager. A separate brand manager is responsible for Brand B; however, there are some shared resources used by these groups, such as procurement. While Entity Z has no current plans to sell its brands or exit the cereal business, it believes if it ever did, it would exit the cereal business in its entirety.

55-38 Based on an evaluation of the circumstances, Entity Z would have two units of accounting for purposes of testing the acquired brands for impairment. Brand A's purchased Honey and internally generated Cinnamon trademarks should be combined as a single unit of accounting for purposes of impairment testing. The intangible asset associated with the Cinnamon trademark is simply a variation of the previously acquired Brand A Honey trademark. Although they are associated with different asset groups, they are managed by a single brand manager. Entity Z would consider Brand B to be a separate unit of accounting for purposes of testing impairment because that brand is managed separately from Brand A and is used exclusively by a separate asset group under the Impairment or Disposal of Long-Lived Assets Subsections of Subtopic 360-10.

4.4.3 Qualitative Assessment

ASC 350-30

35-18A An entity may first perform a qualitative assessment, as described in this paragraph and paragraphs 350-30-35-18B through 35-18F, to determine whether it is necessary to perform the quantitative impairment test as described in paragraph 350-30-35-19. An entity has an unconditional option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative impairment test as described in paragraph 350-30-35-19. An entity may resume performing the qualitative assessment in any subsequent period. If an entity elects to perform a qualitative assessment, it first shall assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that an indefinite-lived intangible asset is impaired.

Entities must test indefinite-lived intangible assets for impairment at least annually and more frequently if impairment indicators exist. In July 2012, the FASB issued ASU 2012-02 (codified in ASC 350-30), which gives entities the option of first performing a qualitative assessment to test their indefinite-lived intangible assets for impairment (this option is similar to that described in Section 2.3 for goodwill). If an entity concludes, on the basis of the qualitative assessment, that it is more likely than not (i.e., a likelihood of more than 50 percent) that the fair value of an indefinite-lived intangible asset is less than its carrying amount, the entity must perform the quantitative impairment test (see Section 4.4.4). Alternatively, if the entity concludes that it is not more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount, it does not need to perform the quantitative impairment test.

Because the qualitative assessment is optional, an entity may bypass it for any of its indefinite-lived intangible assets in any periods and may instead perform the quantitative test. Conversely, if an entity elects to perform the qualitative assessment, it may then choose to resume performing the quantitative test in a subsequent period.

Connecting the Dots

We have observed that many entities choose to bypass the qualitative assessment and proceed directly to performing a quantitative assessment because comprehensively assessing the qualitative factors can, at times, take more effort than measuring the fair value of an indefinite-lived intangible asset.

4.4.3.1 Performing the Optional Qualitative Assessment

ASC 350-30

35-18B In assessing whether it is more likely than not that an indefinite-lived intangible asset is impaired, an entity shall assess all relevant events and circumstances that could affect the significant inputs used to determine the fair value of the indefinite-lived intangible asset. Examples of such events and circumstances include the following:

Cost factors such as increases in raw materials, labor, or other costs that have a negative effect on future expected earnings and cash flows that could affect significant inputs used to determine the fair value of the indefinite-lived intangible asset
Financial performance such as negative or declining cash flows or a decline in actual or planned revenue or earnings compared with actual and projected results of relevant prior periods that could affect significant inputs used to determine the fair value of the indefinite-lived intangible asset
Legal, regulatory, contractual, political, business, or other factors, including asset-specific factors that could affect significant inputs used to determine the fair value of the indefinite-lived intangible asset
Other relevant entity-specific events such as changes in management, key personnel, strategy, or customers; contemplation of bankruptcy; or litigation that could affect significant inputs used to determine the fair value of the indefinite-lived intangible asset
Industry and market considerations such as a deterioration in the environment in which an entity operates, an increased competitive environment, a decline in market-dependent multiples or metrics (in both absolute terms and relative to peers), or a change in the market for an entity's products or services due to the effects of obsolescence, demand, competition, or other economic factors (such as the stability of the industry, known technological advances, legislative action that results in an uncertain or changing business environment, and expected changes in distribution channels) that could affect significant inputs used to determine the fair value of the indefinite-lived intangible asset
Macroeconomic conditions such as deterioration in general economic conditions, limitations on accessing capital, fluctuations in foreign exchange rates, or other developments in equity and credit markets that could affect significant inputs used to determine the fair value of the indefinite-lived intangible asset.

35-18C The examples included in the preceding paragraph are not all-inclusive, and an entity shall consider other relevant events and circumstances that could affect the significant inputs used to determine the fair value of the indefinite-lived intangible asset. An entity shall consider the extent to which each of the adverse events and circumstances identified could affect the significant inputs used to determine the fair value of an indefinite-lived intangible asset. An entity also shall consider the following to determine whether it is more likely than not that the indefinite-lived intangible asset is impaired:

Positive and mitigating events and circumstances that could affect the significant inputs used to determine the fair value of the indefinite-lived intangible asset
If an entity has made a recent fair value calculation for an indefinite-lived intangible asset, the difference between that fair value and the then carrying amount
Whether there have been any changes to the carrying amount of the indefinite-lived intangible asset.

35-18D An entity shall evaluate, on the basis of the weight of the evidence, the significance of all identified events and circumstances that could affect the significant inputs used to determine the fair value of the indefinite-lived intangible asset for determining whether it is more likely than not that the indefinite-lived intangible asset is impaired. None of the individual examples of events and circumstances included in paragraph 350-30-35-18B(a) through (f) are intended to represent standalone events and circumstances that necessarily require an entity to calculate the fair value of an intangible asset. Also, the existence of positive and mitigating events and circumstances is not intended to represent a rebuttable presumption that an entity should not perform the quantitative impairment test as described in paragraph 350-30-35-19.

35-18E If after assessing the totality of events and circumstances and their potential effect on significant inputs to the fair value determination an entity determines that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity need not calculate the fair value of the intangible asset and perform the quantitative impairment test in accordance with paragraph 350-30-35-19.

35-18F If after assessing the totality of events and circumstances and their potential effect on significant inputs to the fair value determination an entity determines that it is more likely than not that the indefinite-lived intangible asset is impaired, then the entity shall calculate the fair value of the intangible asset and perform the quantitative impairment test in accordance with the following paragraph.

To perform a comprehensive qualitative assessment, an entity should consider using the following approach, which is consistent with the framework discussed in Section 2.3.1 with respect to goodwill:

Identify relevant inputs that affect fair value.
Identify relevant events and circumstances that may affect fair value inputs.
Evaluate, both individually and in the aggregate, the impact of events and circumstances on the inputs related to determining whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount.

We believe that an entity should also consider the qualitative factors listed in ASC 350-30-35-18B between annual tests to determine whether it must perform an interim impairment test (see Section 4.4.5.5). In addition, ASC 350-30-35-18C also indicates that management should consider “other relevant events and circumstances that could affect the significant inputs used to determine the fair value of the indefinite-lived intangible asset” as well as ”the extent to which each of the adverse events and circumstances identified could affect the significant inputs used to determine the fair value of an indefinite-lived intangible asset.”

While not required to do so by ASC 350-30, an entity should consider establishing conditions under which it would proceed directly to performing the quantitative test rather than expending the effort to support its qualitative assessment. For example, it may be more cost-effective for an entity to proceed directly to performing a quantitative test if any of the following conditions exist:

There was only a small excess of fair value over carrying amount (i.e., cushion) in the last quantitative test.
There has been a decline in overall macroeconomic conditions.
The entity has experienced a loss of one or more significant customers.
The costs incurred by the entity have significantly increased.

While an entity is not specifically required to perform a quantitative test at any prescribed interval, conclusions reached solely about qualitative factors may become more difficult to defend as time elapses between fair value/quantitative calculations since a fair value measurement becomes less relevant as more time passes. An entity’s determination of when and how often to refresh the fair value analysis is based on management’s judgment and will depend on various factors, including, but not limited to, financial performance, changes in the operating or market environment, volatility in the underlying cash flows, and the amount of excess fair value as of the last quantitative assessment date.

4.4.3.2 Identifying the Inputs That Most Affect Fair Value

To identify the most relevant drivers of fair value, entities should understand the assumptions that are most likely to affect the fair value of an indefinite-lived intangible asset. An entity would typically begin with understanding the valuation method or methods used for the last quantitative test, assess whether that approach is still appropriate (e.g., the relief-from-royalty method or Greenfield method), and then consider the assumptions that are most likely to affect each method. For example, revenue stream, royalty rate, or the discount rate may be drivers of fair value for an indefinite-lived intangible asset that is valued by using the relief-from-royalty method. For more information, See Deloitte’s Roadmap Fair Value Measurements and Disclosures (Including the Fair Value Option).

4.4.3.3 Identifying Relevant Events and Circumstances That May Have an Impact on the Inputs and Assumptions

Once an entity has identified the relevant inputs that most affect fair value, the entity should consider the guidance in ASC 350-20-35-18B(a) through (f) to identify the relevant events and circumstances that may affect these inputs.

4.4.3.3.1 Cost Factors

With respect to cost factors, an entity should:

Consider the impact of increases or decreases in raw materials, labor, and other cost factors that have an effect on earnings and cash flows and, potentially, the fair value of an indefinite-lived intangible asset.
Support the assessment by making quantitative analytical comparisons to measure the significance and extent of the impact of the cost factors. Such comparisons might include year-by-year results, budgeted versus actual results, and operating margins and capital expenditures versus prior-period and projected results.
Develop a quantitative analysis to support how cost-cutting efforts initiated in the prior year have or have not affected current and projected margins.
Consider whether the cost assumptions and judgments used for the qualitative assessment are consistent with those used for other purposes (e.g., whether the assumptions and judgments supporting the qualitative assessment are consistent with those used to prepare budgets used for compensation purposes).

4.4.3.3.2 Financial Performance

When evaluating its overall financial performance, an entity should:

Consider the impact of the entity’s overall financial performance metrics. Such an evaluation may include, but is not limited to, analysis of the following:
- Increases or declines in planned or actual revenue or earnings by comparison with projected and actual results for relevant prior periods.
- Trends in historical revenue growth rates compared with those at peer companies.
Perform a retrospective review of significant assumptions and fair value drivers used in the most recent fair value calculation. This review would include a comparison of:
- The actual recorded results for the current year with the forecasted results that were used in the most recently performed quantitative analysis.
- Updated current-period forecasts with the forecasts that were used in the most recently performed quantitative analysis.
Analyze key accounting ratios that may be useful to measuring the entity’s business performance trends, such as gross profit margins, which indicate how much money is made after direct costs of sales have been taken into account.

4.4.3.3.3 Legal, Regulatory, Contractual, Political, Business, or Other Factors

An entity should consider the impact of legal, regulatory, contractual, political, business, or other factors that may result in an increase or a decline in an indefinite-lived intangible asset’s fair value. Such events may include, but are not limited to, the following:

Technological conditions and influences.
Litigation.
Regulatory or political developments. For example, an entity could incur additional costs when complying with new regulations, potentially resulting in a decrease of net cash flows and a reduction in the intangible asset’s fair value.

4.4.3.3.4 Other Relevant Entity-Specific Events

An entity should consider the impact of other events that may result in an increase or a decline in an indefinite-lived intangible asset’s fair value. Such events may include, but are not limited to, the following:

Additions or losses of significant customers or dependence on major suppliers. For example, if any customers have discontinued, or are expected to discontinue, their use of the entity’s products or services at any time, there could be a material adverse effect on the entity’s future cash flows. Further, supply chain shortages could create a risk that orders placed by the customers might not be fulfilled, thereby affecting the entity’s ability to meet its contractual commitments in a timely manner.
Products or industry trends.
Future impacts of anticipated acquisitions/integrations, which could result in significantly abnormal returns and negative long-term performance in the postacquisition integration period.
Changes in strategy.
Expansion to new markets or withdrawal from certain markets.
Loss of key management or other personnel.
A lack of product acceptance in the market.
Commencement of a liquidation sale.
Natural disasters.

Moreover, the entity should consider supplementing the qualitative discussion with a quantitative analysis or other underlying analysis, if appropriate, of the significance and extent of the impact of the events and circumstances described above.

4.4.3.3.5 Industry and Market Considerations

An entity should analyze the impact of the following industry and market factors on the fair value drivers of the indefinite-lived intangible asset:

Deteriorations in the entity’s operating environment.
Increases in competition. For example, new competitors may take market share away from the entity, causing a decrease in revenue, which could result in a reduction in a brand’s or trademark’s fair value.
Changes in the market for the entity’s products or services. For example, a technological development or obsolescence of products or services could result in a reduction in the fair value of a brand.

Further, an entity should determine its market share and evaluate how changes in market share and the overall market for the entity’s products and services may affect fair value (e.g., a stable or increasing market share may constitute evidence that the fair value of an intangible asset has increased or has not declined). The entity should also consider whether the industry, as well as the market assumptions and judgments, used for the qualitative assessment are consistent with those used for other purposes (e.g., whether the assumptions and judgments supporting the qualitative assessment are consistent with those used to prepare budgets used for compensation purposes).

4.4.3.3.6 Macroeconomic Conditions

An entity should analyze the impact of the following macroeconomic conditions on the fair value drivers for indefinite-lived intangible assets:

Deteriorations in general economic conditions.
Fluctuations in foreign exchange rates.
Other developments in equity and credit markets.

4.4.3.4 Evaluation of Whether It Is More Likely Than Not That the Fair Value of an Indefinite-Lived Intangible Asset Is Less Than Its Carrying Amount

In accordance with ASC 350-30-35-18D and 35-18E, after identifying the relevant events and circumstances, an entity should consider the extent to which each of these events and circumstances could affect the comparison of an indefinite-lived intangible asset’s fair value with its carrying amount. All available evidence, both positive and negative, should be considered, and management may need to use significant judgment in weighting the various factors. In addition, the entity should consider positive and mitigating events and circumstances that may affect its determination of whether it is more likely than not that the fair value of an asset is less than its carrying amount. If an entity has a recent fair value calculation, it should also take into account the difference between the fair value and the carrying amount in reaching its conclusion about whether to perform the quantitative goodwill impairment test.

For each event and circumstance contemplated in the qualitative assessment, the entity should document a conclusion about whether it represents positive, neutral, or adverse evidence that it is more likely than not that the fair value of an asset is less than its carrying amount. No one factor is meant to trigger a quantitative calculation. Both the individual and the total impact of the events and circumstances should be evaluated. In addition, the entity should consider how heavily (e.g., low, medium, or high) each identified event or circumstance should be weighed in the overall assessment (i.e., an entity should place more weight on the events and circumstances that have the greatest effect on a reporting unit’s fair value or the carrying amount of its net assets). A more robust analysis should be performed for those factors considered to be more significant to the overall analysis.

If, after assessing the totality of events or circumstances, an entity determines that it is not more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount, the quantitative impairment test is unnecessary. Conversely, if, after assessing the totality of events or circumstances, an entity determines that it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount, the entity must perform the quantitative impairment test.

4.4.4 Quantitative Impairment Test for an Indefinite-Lived Intangible Asset

ASC 350-30

35-19 The quantitative impairment test for an indefinite-lived intangible asset shall consist of a comparison of the fair value of the asset with its carrying amount. If the carrying amount of an intangible asset exceeds its fair value, an entity shall recognize an impairment loss in an amount equal to that excess. After an impairment loss is recognized, the adjusted carrying amount of the intangible asset shall be its new accounting basis.

35-20 Subsequent reversal of a previously recognized impairment loss is prohibited.

To perform the quantitative impairment test for an indefinite-lived intangible asset (or group of indefinite-lived intangible assets that represent a single unit of account for testing purposes), the entity compares the asset’s fair value with its carrying amount and recognizes an impairment loss for any excess. An entity is not permitted to reverse an impairment loss.

The carrying amount of an indefinite-lived intangible asset represents the amount initially recognized less any impairment losses. The fair value of an indefinite-lived intangible asset is determined in accordance with ASC 820. ASC 820-10-20 defines fair value as “[t]he 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.” Accordingly, fair value is an exit price. To meet the “exit price” measurement objective, an entity is required to develop assumptions that market participants would use to determine the price of an asset, liability, or equity instrument in an orderly transaction as of the measurement date. ASC 820-10-20 defines market participants as “[b]uyers and sellers in the [entity’s] principal (or most advantageous) market for the asset or liability” that are (1) “independent of each other,” (2) “knowledgeable,” (3) “able to enter into a transaction for the asset or liability,” and (4) “willing to enter into a transaction for the asset or liability.” As noted in ASC 820-10-35-9, an entity “need not identify specific market participants” but should “identify characteristics that distinguish market participants generally.” The assumptions that market participants would use when measuring fair value are relevant in the determination of the inputs to the fair value measurement. An entity should not use its own assumptions if those assumptions differ from market-participant assumptions. While ASC 820 provides for three valuation approaches, in our experience, the fair value of indefinite-lived intangible assets is generally determined by using an income approach, rather than a market or cost approach.

Example 8 in ASC 350-30-55-23 through 55-25 illustrates the application of the quantitative test.

ASC 350-30

Example 8: Acquired Trademark Determined to Have Reduced Cash Flows

55-23 This Example illustrates the guidance in paragraphs [350-30-35-1 through 35-20].

55-24 A trademark that distinguished a leading consumer product was acquired 10 years ago. When it was acquired, the trademark was considered to have an indefinite useful life because the product was expected to generate cash flows indefinitely. During the annual impairment test of the intangible asset, the entity determines that unexpected competition has entered the market that will reduce future sales of the product. Management estimates that cash flows generated by that consumer product will be 20 percent less for the foreseeable future; however, management expects that the product will continue to generate cash flows indefinitely at those reduced amounts.

55-25 As a result of the projected decrease in future cash flows, the entity determines that the estimated fair value of the trademark is less than its carrying amount, and an impairment loss is recognized. Because it is still deemed to have an indefinite useful life, the trademark would continue to not be amortized and would continue to be tested for impairment in accordance with paragraphs 350-30-35-18 through 35-20.

4.4.4.1 Adjusted Carrying Amount Becomes New Cost Basis

ASC 350-30-35-14 states that “[a]fter an impairment loss is recognized, the adjusted carrying amount of the intangible asset shall be its new accounting basis.” While the term “new cost basis” is not defined, we believe that it suggests that any previously recognized accumulated amortization should be eliminated against the carrying amount of the asset when an impairment loss is recognized for the asset. This is supported by paragraph B34 of FASB Statement 144, which noted that “a decision to continue to use the impaired asset is equivalent to a new asset purchase decision, and a new basis of fair value is appropriate.” Therefore, the new cost basis of an asset is its cost basis just before the recognition of the impairment loss less (1) the accumulated amortization to date and (2) the impairment loss allocated to the asset.

4.4.5 When to Test Indefinite-Lived Intangible Assets for Impairment

In accordance with ASC 350-30-35-18, an entity must test each of its indefinite lived intangible assets for impairment “annually and more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired.” Therefore, an entity must select a recurring annual testing date for each of its indefinite-lived intangible asset or each unit of account. While intangible assets that are being amortized are tested for impairment in accordance with ASC 360-10 only when a triggering event occurs, intangible assets that are not being amortized must be tested at least annually by using a more stringent fair value test. Paragraph B62 of FASB Statement 142 explained the Board’s reasoning behind this requirement:

As the Board observed in conjunction with its consideration of goodwill impairment, nonamortization places heavy reliance on the reviews for impairment. Because the cash flows associated with intangible assets having indefinite useful lives would extend into the future indefinitely, those assets might never fail the undiscounted cash flows recoverability test in [ASC 360-10], even if those cash flows were expected to decrease over time.

4.4.5.1 Testing Different Indefinite-Lived Intangible Assets on Different Dates

While ASC 350-30 does not preclude an entity from electing different annual testing dates for different indefinite-lived intangible assets, we observe that most entities select the same date for all of their indefinite-lived intangible assets (and the same date for testing goodwill).

In selecting an annual impairment testing date for its various indefinite-lived intangible assets, an entity may want to consider the following factors:

For public companies, external reporting requirements and filing deadlines.
Time and effort involved in each annual assessment.
Timing and availability of information used in the assessment (e.g., availability of annual budgets and forecasts).
Impairment testing of goodwill.

The testing date an entity chooses should be applied consistently to each indefinite-lived intangible asset unless the date is changed as described in Section 4.4.5.4.

4.4.5.2 Performing the Indefinite-Lived Intangible Asset Impairment Test When the Amount Has Only Been Determined Provisionally

In some cases, an entity may test a recently acquired indefinite-lived intangible asset for impairment when the accounting for the asset was only determined provisionally. For example, consider a scenario in which an entity elects to test all of its indefinite-lived intangible assets on October 1 but one of the entity’s assets was recently acquired in a business combination and the measurement of the asset has only been determined provisionally. We believe that if the entity recognizes any significant adjustments during the measurement period, any impairment test performed before the adjustments were recognized should be updated for the adjusted carrying amount of the asset to determine whether the outcome of the impairment test would be different. If measurement-period adjustments lead to either an incremental impairment charge or a reduction of an impairment charge as a result of retrospectively updating the annual impairment test, we believe that the incremental charge (increase or decrease) should be recorded in the current period and disclosed, if material. An entity should not delay finalization of the accounting for the business combination to avoid recognition of an impairment charge.

4.4.5.3 Impairment Testing Must Be Completed Before Financial Statements Are Issued

Because an entity must finish testing its indefinite-lived intangible assets before issuing its financial statements, an entity should consider the effort involved in completing its testing when selecting its annual impairment testing date. For example, a calendar-year-end entity that selects a December 31 date may have less time to complete its testing.

4.4.5.4 Changing the Date of the Impairment Test for Annual Indefinite-Lived Intangible Assets

An entity’s testing date for indefinite-lived intangible assets is not an accounting policy election. Therefore, an entity is permitted to change the date of its annual indefinite-lived intangible asset impairment test without having to evaluate the change as a change in accounting principle under ASC 250, as is required when the annual testing date for goodwill is changed (see Section 2.5.4). However, the entity should ensure that no more than one year elapses between tests and should not change its testing date to either avoid or accelerate an impairment loss.

4.4.5.5 Assessing Indefinite-Lived Intangible Assets for Impairment Between Annual Testing Dates

ASC 350-30-35-18 states that “[a]n intangible asset that is not subject to amortization shall be tested for impairment annually and more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired.” We believe that, in determining whether to perform an interim test, entities should consider the factors listed in ASC 350-30-35-18B (see the next section) to assess whether it is more likely than not that an indefinite-lived intangible asset is impaired. Because those factors are not meant to be all-inclusive, we believe that entities should also consider additional factors, such as the following:

Cash or operating losses at the entity.
Consecutive operating results that are significantly lower than those predicted in analysts’ or internal forecasts.
Significant revisions to internal or external forecasts.
Loss of one or more significant customers.
A negative long-term outlook for the industry in which the entity operates.

To evaluate whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount, an entity should consider (1) the expected impact of all identified events or changes in circumstances on the asset’s fair value and (2) the amount by which the fair value exceeded the carrying amount as of the date of the last quantitative impairment test. The entity may need to use judgment in performing this evaluation. If an asset’s fair value was only marginally higher than its carrying amount as of the date of the last quantitative impairment test, any event or circumstance that would result in a decrease in the fair value of the intangible asset since the last test would most likely lead an entity to conclude that it should perform a quantitative test.

4.4.5.6 Order of Impairment Testing

Indefinite-lived intangible assets are tested for impairment before an entity tests its finite-lived intangible assets or its goodwill for impairment. For additional details, see Sections 2.3.7 and 3.5.1 of Deloitte’s Roadmap Impairments and Disposals of Long-Lived Assets and Discontinued Operations.

4.4.6 In-Process Research and Development

ASC 350-30

35-7 An intangible asset shall not be written down or off in the period of acquisition unless it becomes impaired during that period. However, paragraph 730-10-25-2(c) requires amounts assigned to intangible assets acquired in a transaction other than a business combination or an acquisition by a not-for-profit entity that are to be used in a particular research and development project and that have no alternative future use to be charged to expense at the acquisition date.

Pending Content (Transition Guidance: ASC 805-60-65-1)

35-7 An intangible asset shall not be written down or off in the period of acquisition unless it becomes impaired during that period. However, paragraph 730-10-25-2(c) requires amounts assigned to intangible assets acquired in a transaction other than a business combination or an acquisition by a not-for-profit entity or recognized by a joint venture upon formation that are to be used in a particular research and development project and that have no alternative future use to be charged to expense at the acquisition date.

35-17A Intangible assets acquired in a business combination or an acquisition by a not-for-profit entity that are used in research and development activities (regardless of whether they have an alternative future use) shall be considered indefinite lived until the completion or abandonment of the associated research and development efforts. During the period that those assets are considered indefinite lived, they shall not be amortized but shall be tested for impairment in accordance with paragraphs 350-30-35-18 through 35-19. Once the research and development efforts are completed or abandoned, the entity shall determine the useful life of the assets based on the guidance in this Section. Consistent with the guidance in paragraph 360-10-35-49, intangible assets acquired in a business combination or an acquisition by a not-for-profit entity that have been temporarily idled shall not be accounted for as if abandoned

Pending Content (Transition Guidance: ASC 805-60-65-1)

35-17A Intangible assets acquired in a business combination, acquired in an acquisition by a not-for-profit entity, or recognized by a joint venture upon formation that are used in research and development activities (regardless of whether they have an alternative future use) shall be considered indefinite lived until the completion or abandonment of the associated research and development efforts. During the period that those assets are considered indefinite lived, they shall not be amortized but shall be tested for impairment in accordance with paragraphs 350-30-35-18 through 35-19. Once the research and development efforts are completed or abandoned, the entity shall determine the useful life of the assets based on the guidance in this Section. Consistent with the guidance in paragraph 360-10-35-49, intangible assets acquired in a business combination, acquired in an acquisition by a not-for-profit entity, or recognized by a joint venture upon formation that have been temporarily idled shall not be accounted for as if abandoned.

One of the most significant differences between the accounting for an asset acquisition and that for a business combination lies in the accounting for IPR&D assets. Before an acquisition, an entity may incur R&D expenditures that could result in the development of certain intangible assets that would be expensed as incurred in accordance with ASC 730 unless they had an alternative future use. In other words, the entity may not have recognized any R&D-related assets on its books. If that entity is acquired in a business combination, an acquirer recognizes all acquired tangible and intangible R&D assets (e.g., IPR&D) at their acquisition-date fair values regardless of whether the acquired assets have an alternative future use. Uncertainty about the outcome of an individual project does not affect the recognition of IPR&D but does affect its fair value measurement.

ASC 350-30-35-17 states that IPR&D assets acquired in a business combination “shall be considered indefinite lived until the completion or abandonment of the associated research and development efforts.” Therefore, such assets are not amortized but are tested for impairment in the manner of other indefinite-lived intangible assets. See Section 4.10.4.7 of Deloitte’s Roadmap Business Combinations for more information.

By contrast, ASC 350-30-35-7 (as amended by ASU 2023-05) refers to the guidance in ASC 730-10-25-2(c), which “requires amounts assigned to intangible assets acquired in a transaction other than a business combination or an acquisition by a not-for-profit entity or recognized by a joint venture upon formation that are to be used in a particular research and development project and that have no alternative future use to be charged to expense at the acquisition date.” Therefore, an acquiring entity in an asset acquisition must allocate, on the basis of relative fair values, the cost of the acquisition to both the tangible and intangible R&D assets acquired. On the acquisition date, the acquiring entity expenses IPR&D assets with no alternative future use and capitalizes those with an alternative future use in accordance with ASC 730. In EITF Issue 09-2, the Task Force considered amending the guidance in ASC 730 on IPR&D assets acquired in an asset acquisition; however, the Task Force was unable to reach a consensus and removed the project from its agenda. Therefore, entities continue to apply the guidance in ASC 730 in accounting for IPR&D assets acquired in an asset acquisition. See Section C.3.4.2 of Deloitte’s Roadmap Business Combinations for more information. The examples below illustrate scenarios related to the accounting for IPR&D.

Changing Lanes

In August 2023, the FASB issued ASU 2023-05, under which an entity that qualifies as either a joint venture or a corporate joint venture, as defined in the ASC master glossary, is required to apply a new basis of accounting upon the formation of the joint venture. Specifically, the ASU indicates that a joint venture or a corporate joint venture (collectively, “joint ventures”) must initially measure its assets and liabilities at fair value on the formation date. The amendments in ASU 2023-05 apply to the formation of all joint ventures regardless of whether the venture meets the definition of a business in ASC 805-10.

Under the ASU, the accounting for IPR&D contributed to a joint venture at formation is aligned with the treatment of IPR&D acquired in a business combination. Therefore, the joint venture should account for IPR&D as capitalized indefinite-lived intangible assets regardless of whether the R&D asset has an alternative future use.

Example 4-3

On June 30, 20X1, Company A acquires Company B in a transaction accounted for as a business combination. Before the acquisition, B incurred significant costs related to the R&D of a new product, all of which it expensed as incurred in accordance with ASC 730. Company A plans to continue these R&D efforts in the hope of commercializing the product in the future.

Using the acquisition method of accounting, and in a manner consistent with the fair value measurement guidance in ASC 820, A calculates the fair value of the acquired IPR&D assets as $10 million. Therefore, as of the acquisition date, A would record an indefinite-lived intangible asset for $10 million.

On July 1, 20Y2, A concludes that development of the new product is no longer feasible and decides to abandon its project because there is no alternative future use for the acquired IPR&D.

From June 30, 20X1, to June 30, 20Y2, A appropriately tests the acquired IPR&D asset ($10 million) for impairment in accordance with ASC 350-30-35-18 and does not record any impairment losses.

Because of its plans to now abandon the project, as well as the fact that the IPR&D assets have no alternative future use, A would expense the entire IPR&D asset balance of $10 million on July 1, 20Y2 (the date of abandonment), in the income statement.

Example 4-4

Assume the same facts as in Example 4-3 but with the following exception: on July 1, 20Y2, Company A successfully completes its IPR&D project and has developed a commercially viable product that it intends to sell in the marketplace.

In line with Example 4-3, from June 30, 20X1, to July 1, 20Y2, A appropriately tests the acquired IPR&D asset ($10 million) for impairment in accordance with ASC 350-30-35-18 and does not record any impairment losses.

Now A is required to assess the useful life of the acquired IPR&D asset as of July 1, 20Y2 (the date the IPR&D project is successfully completed), and amortize the asset over the related products’ useful lives. In other words, the acquired IPR&D asset’s useful life is now finite rather than indefinite. In addition, the reclassification to a finite useful life triggers a required impairment test in accordance with ASC 350-30-35-17 as of July 1, 20Y2.

4.4.7 Crypto Assets

Before the adoption of ASU 2023-08, entities (other than those within the scope of the investment-company guidance in ASC 946 or certain types of broker-dealers) accounted for crypto assets as indefinite-lived intangible assets (i.e., the assets were measured at historical cost less impairment). While ASC 350-30 requires that indefinite-lived intangible assets be tested for impairment at least annually, given the nature of crypto assets, they are typically tested for impairment much more frequently. For more information about the accounting for crypto assets, see the AICPA Practice Aid Accounting for and Auditing of Digital Assets.

Changing Lanes

In December 2023, the FASB issued ASU 2023-08 (codified as ASC 350-60), which addresses the accounting and disclosure requirements for certain crypto assets. The new guidance requires entities to subsequently measure certain crypto assets at fair value, with changes in fair value recorded in net income in each reporting period. In addition, entities are required to provide additional disclosures about the holdings of certain crypto assets.

The amendments are effective for all entities for fiscal years beginning after December 15, 2024, including interim periods within those years. Early adoption is permitted. An entity that adopts the amendments in an interim period must adopt them as of the beginning of the fiscal year that includes that interim period.

For more information about the requirements of ASU 2023-08, see Deloitte’s December 15, 2023, Heads Up.

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This publication provides comprehensive guidance; however, it does not address all possible fact patterns, and the guidance is subject to change. Consult a Deloitte & Touche LLP professional regarding your specific issues and questions.