Impairments of intangible (including goodwill) - Research Paper Example

Under the USA GAAP principle, the methodology used for the determination of the impairment of long lived assets is based on the two step approach. In the two steps approach, the first step requires test of recoverability. In this test, the comparison of the carrying amount and future amount of discounted cash flows from the using and disposing. In case, the assets are determined to be not recoverable than impairment testing conduct becomes mandatory. Contrary to this, in the IFRS system one step approach is employed.

Under this system, the existence of the impairment indicators makes it mandatory for the application of the impairment testing (EY, a). The second major difference in the treatment of intangible assets in US GAAP and IFRS exist in calculation of the loss in the impairment of long lived assets. Under the system of US GAAP using FAS 157 entitled Fair Value Measurement is employed and the loss calculation is difference between the carrying amounts to the fair value amount. On the other hand, the IFRS system of financial reporting, the calculation of the loss is conducted by measuring the difference between the carrying amount and the recoverable amount.

The recoverable amount is measured as either the fair value net of cost of selling or value in use or value indicating future value of discounted cash flow including the amount received after disposal. . Additionally, the reporting unit can also be accounted in the level under operating segment or the component. In the IFRS financial reporting of corporate accounts, the allocation of goodwill is conducted differently. Goodwill in the IFRS system is allocated either in the group of Cash Generation Unit (CGU) or CGU itself.

Allocation of the Goodwill in the group of CGU represents lowest level from which the internal management monitors goodwill for internal assessment IAS 36.6. Importantly, this group, by law of IFRS 8 (Operating Segment) cannot larger than operating segments (EY, a). In addition to the goodwill allocation carrying differences in the two internationally followed systems of reporting of corporate accounts, methodology for the determination of impairment of goodwill also varies. Corporate accountants using US GAAP system of reporting has to imply the two step approach or methodology for the determining the requisite impairment.

Under two-step approach requires performing the recoverability test at the level of reporting unit in which the allocation of goodwill is conducted. In this initial test, the net amount of difference of the reporting unit’s carrying value to the reporting unit’s fair values is conducted. Positive difference between the carrying value and the fair value of the reporting unit makes it mandatory to perform the impairment test for the goodwill. Companies using IFRS system of developing the financial accounts apply the one step approach.

Under the IFRS system it is simply mandated to conduct the impairment test. The impairment test of goodwill is conducted at CGU unit. Under this approach, the comparison of the carrying amount at CGU level with recoverable amount is conducted while carrying amount