Two valuation approaches are typically employed. Disclosures are split between CGUs where an impairment has been recognised and CGUs with goodwill or indefinite-lived assets allocated to them. Although the effect of this limitation could be mitigated by employing an enterprise premise of value when conducting Step 1 of the impairment test, there are still factors (including corporate level debt that usually does not get pushed down to the reporting unit level) that could limit the precision of the calculation. Under US GAAP, an asset‘s carrying amount is considered not recoverable when it exceeds the undiscounted expected future cash flows. 1. The revised goodwill impairment model does not change the sequencing of impairment testing for assets (or asset groups) held and used or held for sale. The impairment models for assets other than goodwill may not require an impairment charge to be recognized under certain circumstances, even when the fair value is less than carrying value. These valuations will require significant professional judgement. Increases in value in excess of prior impairment loss are debited directly to the asset and credited to a … This includes clearly outlining information and data requirements, as well as key decision points to effectively test goodwill for impairment. Where an ‘intangible resource’ is not recognised as an intangible asset, it is subsumed into goodwill. These complexities will be important for management and stakeholders to understand when adopting and applying the revised guidance. An impairment review of a CGU should cover all of its tangible assets, intangible assets and attributable goodwill. Conversely, under the enterprise premise of value, debt is excluded from the liabilities assigned to the reporting unit. Start adding content to your list by clicking on the star icon included in each card. Introduction PwC 1. Cash flows must be reasonable and supportable. [IAS 36.2, 4] Under IFRS, an impairment loss is recognized if the carrying amount exceeds the recoverable amount of the asset. Companies have to periodically test intangible assets to see whether there’s potential for any loss due to impairment. Each Each member firm is a separate legal entity. the higher of fair value less costs of disposal and value in use). The Business combinations and noncontrolling interests guide discusses the definition of a business and transactions in the scope of accounting for business combinations under ASC 805.It also provides guidance on identifying the acquirer, determining the acquisition date, and recognizing and measuring the net assets acquired. 'result' : 'results'}}. Intangible assets, particularly goodwill, have constituted a significant proportion of the purchase consideration in business combinations over recent years. The guide also discusses the capitalization of costs, such as construction and development costs and software costs, as well as the subsequent accounting for PP&E, including impairments, depreciation and amortization, and asset … Asset impairment tests Typical intangible assets at telecom companies, besides goodwill, are telecom licences, internally developed software, subscriber acquisition costs3 and customer relationships, brands and trademarks acquired in a business combination. PwC’s Accounting Advisory and Valuation specialists can assist with sorting through the details of accounting change impacts your organization. Intangibles Assets Non-financial assets recognised by an entity under Ind AS may include, tangible fixed assets such as Property, Plant and Equipment (PPE), investment property and intangible assets such as technology, brands, etc. Impairment of Intangible Assets. and long-lived assets are assessed for impairment prior to testing goodwill. The carrying value of each CGU containing the assets and goodwill being reviewed should be compared with the higher of its value in use and fair value less costs of disposal. impairment?” The answer will depend on the asset being tested and its reliance on other assets to generate cash inflows. We offer a combination of accounting, valuation, financial reporting and industry know-how to assist with your company’s impairment testing. Intangible assets with finite useful lives are considered for impairment when there is an indication that the asset has been impaired. © 2017 - Thu Dec 24 19:54:05 UTC 2020 PwC. COVID-19: Impairment testing during the global pandemic 4. Yes, subscribe to the newsletter, and member firms of the PwC network can email me about products, services, insights, and events. © 2001-2019 PwC. Intangible assets with indefinite useful lives and intangible assets not yet in use are tested annually for impairment and whenever there is an indication of impairment. Some acquirers might be motivated to report fewer intangibles, and higher goodwill, because most intangible assets must be amortised whereas goodwill is measured under an impairment only approach. Set preferences for tailored content suggestions across the site, Navigating the new goodwill impairment testing guidance (ASU 2017-04), {{contentList.dataService.numberHits}} {{contentList.dataService.numberHits == 1 ? Many assets (whether they are a building, a machine or a brand name) are likely to need other assets in the value chain to support their carrying amount. The effect that debt may have on the analysis will be dependent on the valuation approach selected. Contact us to discuss your business challenges. 1 of 3 Save and exit Continue Cancel The recoverable amount of an asset is defined as “the higher of the asset’s fair value minus costs of disposal and its value in use.” The value in use is a discounted measure of expected future cash flows. Reversal of Impairment Loss. IAS 36 Im­pair­ment of Assets seeks to ensure that an entity's assets are not carried at more than their re­cov­er­able amount (i.e. If the asset‘s carrying amount is considered not recoverable, … Yes, subscribe to the newsletter, and member firms of the PwC network can email me about products, services, insights, and events. As with the existing model, getting the sequencing right can help avoid potential errors in assessing impairment. We have included a particular focus on sports rights, reflecting their ever-increasing value and importance, which is particularly topical in 2012 as an Olympic Games year. PwC refers to the US member firm, or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Under the equity premise of value, all liabilities (including debt) associated with the reporting unit are assigned to the reporting unit and included in the valuation of the reporting unit. When an intangible asset’s impairment reverses and value is regained, the increase in value is recorded as a gain on the income statement and reduction to accumulated impairment loss on the balance sheet, up to the amount of impairment loss recorded in prior periods. Intangible assets that are acquired by an entity and having finite useful lives are measured at cost less accumulated amortisation and any accumulated impairment losses. The IC was unable to reach a consensus on Early involvement and coordination between cross-functional teams from accounting, tax and valuation is critical in order to align expectations and evaluate the financial reporting implications. Specifically, if an entity has tax-deductible goodwill, there is the possibility of running into a cycle of impairment due to the decreasing book value of its goodwill increasing its deferred tax asset (or decreasing its deferred tax liability). Effective coordination between accounting and tax professionals will help appropriately reflect goodwill and deferred tax balances in the financial statements. Only intangible assets with an indefinite life are reassessed each year for impairment. We also touch on the new accounting Intangible assets that are acquired by an entity and having finite useful lives are measured at cost less accumulated amortisation and any accumulated impairment losses. The increased emphasis on the identification of intangible assets and the mandatory annual impairment testing of goodwill has highlighted the importance of impairment as a management issue. The general requirement of IAS 36 is that assets are tested for impairment where there is an impairment indicator, and this includes RoU assets. inventory, financial assets, etc.) This in turn increases the carrying value of the reporting unit and may trigger further goodwill impairment. For example, for assets that are held and used, other assets (e.g. Examples of intangible assets with a limited-life include copyrights and patents. intangible assets, for which an annual impairment test is required, IAS 36 requires reporting entities to assess at the end of each reporting period whether there is any indication of impairment for all assets (within the scope). Upon adoption of the revised guidance, a goodwill impairment loss will be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of goodwill. Realistic assumptions; Key assumptions should be disclosed; 2. Intangible assets with indefinite useful lives and intangible assets not yet in use are tested annually for impairment and whenever there is an indication of impairment. Under the new guidance, the goodwill impairment charge would capture the decline in fair value of the long-lived assets. Fig 3. Such assets should be tested for impairment 3) Goodwill of a reporting unit containing any of the above assets … Asset impairment tests Typical intangible assets at telecom companies, besides goodwill, are telecom licences, internally developed software, subscriber acquisition costs3 and customer relationships, brands and trademarks acquired in a business combination. Consider the example of a company that has long-lived assets that are recoverable under ASC 360-10: Property, Plant and Equipment—but the fair value of its fixed assets or finite-lived intangible assets have fallen below their carrying amounts. All rights reserved. All rights reserved. IAS 23 - Capitalisation of borrowing costs: PwC In depth INT2015-09; IAS 36 - Impairment of non-financial assets – Expanding on the top 5 tips for impairment testing INT2015-08. The revised guidance simplifies the goodwill impairment test to address concerns related to the existing test’s cost and complexity by eliminating Step 2 (see diagram) of the current goodwill impairment test. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Under the new guidance, the goodwill impairment charge would capture the decline in fair value of the long-lived assets. equipment and IAS 38 Intangible assets – Variable payments for asset purchases The IC received a request to address the accounting for variable payments to be made for the purchase of an item of property, plant and equipment or an intangible asset that is not part of a business combination. The amount of impairment recorded or reversed must be disclosed, including the circumstances leading to that impairment or reversal. Intangible assets with indefinite lives are not amortized. This chapter includes a discussion on key clarifications on the implementation issues on applying the standards on non-financial assets. indefinite-lived intangible assets on the balance sheet. It is highly recommended that entities consult with their technical accounting advisors and valuation professionals when assessing the potential effects of a choice in valuation methodology. Under the new guidance, if the equity premise is used for a reporting unit with a negative carrying amount, the reporting unit cannot have an impairment since the reporting unit’s fair value will always be greater than its carrying value. Many assets (whether they are a building, a machine or a brand name) are likely to need other assets in the value chain to support their carrying amount. In our view, the cash flows (at least in the near term) of most companies will be affected by COVID-19. As the pandemic moved essential activities and services online, including education, jobs and training, the challenges for global youth to get or stay connected have only grown. Besides goodwill and long-lived intangible assets, this may trigger the requirement for impairment tests for property, plant and equipment (PPE), inventory, financial assets, real estate and investments (including investments in associates and joint ventures). Use cross-checks to gain comfort. Prior to the adoption of the new goodwill impairment model, which is required for public SEC filers for periods beginning after December 15, 2019, companies should consider and prepare for the complexities of the calculation and how information will be digested by stakeholders. and impairment of acquired programming rights under the applicable IFRS standards IAS 2 Inventories and IAS 38 Intangible Assets. impairment?” The answer will depend on the asset being tested and its reliance on other assets to generate cash inflows. Generally, except for brands, these assets have a definite useful life. Impairment of assets (IAS 36) Financial instruments - Hedge accounting (IFRS 9) ... Intangible assets (IAS 38) Regulatory deferral accounts (IFRS 14) ... PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Goodwill and intangible assets decreased by approximately $13 million due to the strengthening of the Canadian dollar and amortization of finite life intangible assets. Under the old guidance, a more precise determination of goodwill impairment would have been addressed in Step 2 by determining the implied fair value of the goodwill. The Property, plant, equipment and other assets guide discusses the accounting for acquisition transactions determined to be asset acquisitions under US GAAP. Generally, except for brands, these assets have a definite useful life. Topics include: 1:09 - Right-of-use asset impairment model. In addition to the considerations around an entity’s assets, the fair value of its liabilities, relative to their carrying amounts, may also influence the goodwill impairment analysis. Please see www.pwc.com/structure for further details. An intangible asset is an identifiable non-monetary asset without physical substance. PwC and UNICEF, in support of Generation Unlimited, believe securing digital access for millions of youth can be a driver of new, more resilient economies. Learn how previous charges may affect your ASC 842 transition. Please see www.pwc.com/structure for further details. and impairment Best wishes Sam Tomlinson PwC UK Chairman, PwC Media Industry Accounting Group Sam Tomlinson PwC’s Global entertainment and media outlook 2015-2019 forecasts global film revenues to grow at 4.1% annually, reaching US$105 billion in 2019. 2) Long-lived assets, such as property, plant and equipment (PP&E), finite-lived intangible assets and asset groups under ASC 360-10. Intangible assets with finite useful lives are considered for impairment when there is an indication that the asset has been impaired. equipment and IAS 38 Intangible assets – Variable payments for asset purchases The IC received a request to address the accounting for variable payments to be made for the purchase of an item of property, plant and equipment or an intangible asset that is not part of a business combination. Additionally, recognition of the impairment of the long-lived asset that contributed to the goodwill impairment may occur at a later date. • An intangible asset with an indefinite useful life is not amortised but tested for impairment. COVID-19 can be seen as a triggering event for impairment testing for a significant number of entities. In the context of the far-reaching economic consequences of COVID-19, a significant number of entities face indicators of impairment. An impairment loss takes place when a company makes a judgment call that the carrying value of an intangible asset on the company balance sheet is less than fair value, or what an unpressured person would pay for the asset in an open marketplace. Besides goodwill and long-lived intangible assets, this may trigger the requirement for impairment tests for property, plant and equipment (PPE), inventory, financial assets, real estate and investments (including investments in associates and joint ventures).