1.7 Impairment of Nonfinancial Assets

This section discusses the impairment tests for noncurrent tangible and intangible assets, indefinite-lived intangible assets, and goodwill. Under both IFRS Accounting Standards and U.S. GAAP, assets may be tested individually or as a group, depending on whether largely independent cash flows attributable to the assets exist. The groupings may differ under IFRS Accounting Standards and U.S. GAAP owing to how they are defined. Under both IFRS Accounting Standards and U.S. GAAP, indefinite-lived intangibles, PP&E, and goodwill are each tested for impairment. As shown in the table below, under U.S. GAAP, an entity uses a two-step impairment testing model for PP&E and finite-lived intangibles, while under IFRS Accounting Standards, an entity must use a model that has only one step. Under both sets of standards, an entity must use a one-step model for testing goodwill and indefinite-lived intangible assets; however, under U.S. GAAP, an entity can use an optional qualitative assessment (step 0). Also, the reversal of impairment losses is permitted under IFRS Accounting Standards but not under U.S. GAAP.

Topic	IFRS Accounting Standards (IAS 36)	U.S. GAAP (ASC 350, ASC 360)
Asset assignment for impairment testing — PP&E	Assets are tested at the cash-generating unit (CGU) level or at the individual asset level, depending on an analysis of the cash inflows from assets being tested that are largely independent of the cash inflows from other assets or groups of assets.	Assets are tested at the asset group or the individual asset level, depending on an analysis of the interdependence of the cash flows. The assessment of independent cash flows is generally based on the net cash flows, while under IFRS Accounting Standards, the focus is exclusively on whether cash inflows are largely independent. Note that the resulting outcomes would often be the same; however, they are described differently in the guidance under the two sets of standards.
Impairment — PP&E and finite-lived intangible assets	If impairment indicators exist, an entity takes a one-step approach to calculating a CGU impairment: The amount by which the carrying value of the asset or CGU exceeds the recoverable amount is recorded as an impairment loss. The recoverable amount for impairment (whether PP&E, intangibles, or goodwill) is defined as the greater of: The fair value less costs to sell the asset or CGU. The sum of future discounted cash flows, including disposal value (also referred to as the value in use).	If impairment indicators exist, an entity takes a two-step approach to calculating an asset or asset group impairment: The carrying amount is compared with the sum of future undiscounted cash flows. If the carrying amount is not recoverable, an impairment loss is calculated on the basis of step 2. The amount by which the carrying value exceeds the fair value is recorded as an impairment loss.
Impairment — indefinite-lived intangible assets	Indefinite-lived intangible assets are analyzed to determine whether there are individual cash inflows that are largely independent of other cash flows. A qualitative test alone is not an option; however, an entity can carry forward the most recent quantitative assessment as long as indefinite-lived intangible assets meet certain criteria. The entity uses a one-step approach in which it tests the indefinite-lived intangible asset at the individual asset level unless the indefinite-lived intangible asset does not generate cash inflows that are largely independent of other cash inflows, and then the entity would test it at the CGU level. If the entity tests the indefinite-lived intangible asset at the CGU level, it does so by comparing the CGU’s carrying amount, including goodwill and indefinite-lived intangible assets, with its recoverable amount. If the indefinite-lived intangible asset generates cash flows that are largely independent of other cash flows, the entity compares the indefinite-lived intangible asset’s carrying amount with its recoverable amount to calculate impairment.	Indefinite-lived intangible assets should be individually tested for impairment. An entity can perform a qualitative assessment to assess impairment for indefinite-lived intangible assets. Note that an indefinite-lived intangible asset cannot be tested in conjunction with goodwill. For indefinite-lived intangible assets, the entity compares carrying value with fair value to calculate impairment. If the entity does not perform a qualitative step 0 test or the indefinite-lived intangible asset fails that test, the entity must test for impairment by comparing the carrying value against the fair value. If the fair value is below the carrying value, the entity records the difference as an impairment loss.
Impairment — allocation of goodwill	An entity allocates goodwill for impairment purposes to CGUs depending on which one is expected to benefit from the goodwill. The entity performs a bottom-up assessment to determine the CGU. It may not be possible to allocate goodwill to individual CGUs on a reasonable basis, and it will often be the case that goodwill can be allocated only to a group of CGUs. Such an aggregation of CGUs is permitted. Paragraph 80 of IAS 36 states that “[e]ach unit or group of units to which the goodwill is so allocated shall: (a) represent the lowest level within the entity at which the goodwill is monitored for internal management purposes; and (b) not be larger than an operating segment.”	An entity allocates goodwill for impairment purposes to reporting units depending on which one is expected to benefit from the goodwill. A reporting unit is one level below an operating segment. The entity performs a top-down analysis to determine the reporting unit. The entity may perform a qualitative assessment (i.e., step 0) for goodwill.
Impairment — goodwill	An entity performs a one-step test at least annually to compare the CGU’s carrying amount, including goodwill, with the recoverable amount to arrive at the impairment loss. The impairment loss first reduces goodwill to zero, and if there is any additional impairment loss, the entity generally allocates it to each asset in the CGU on a pro rata basis.	At least annually, an entity must perform an impairment test of goodwill. It can perform a step 0 test by using qualitative factors to assess goodwill impairment (i.e., determine whether it is more likely than not that the fair value of the reporting unit exceeds its carrying amount). If the step 0 test is not performed or it is more likely than not that the fair value of the reporting unit is less than its carrying amount, the entity performs a one-step impairment test by comparing the carrying amount against the fair value. If the fair value is below the carrying amount, the entity records the difference as an impairment loss.
Subsequent reversal of an impairment loss	Subsequent reversal of an impairment loss is precluded for goodwill but required for all other assets if certain criteria are met.	Subsequent reversal of an impairment loss is prohibited.