A simultaneous equation is required to adjust the goodwill impairment and deferred tax impact when tax deductible goodwill is present. 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. 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. an asset is determined after deducting its residual value. The amount of the impairment loss reduces the carrying amount of the asset on the balance sheet and reduces net income on the income statement. 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). • An intangible asset with an indefinite useful life is not amortised but tested for impairment. Two valuation approaches are typically employed. As leases are now recorded on the balance sheet, we begin with a recap of how the long-lived asset impairment model works. 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. 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. Please see www.pwc.com/structure for further details. Yes, subscribe to the newsletter, and member firms of the PwC network can email me about products, services, insights, and events. Where an ‘intangible resource’ is not recognised as an intangible asset, it is subsumed into goodwill. and impairment of acquired programming rights under the applicable IFRS standards IAS 2 Inventories and IAS 38 Intangible Assets. inventory, financial assets, etc.) Step 2 requires a hypothetical purchase price allocation to measure the amount of a goodwill impairment. PwC’s Accounting Advisory and Valuation specialists can assist with sorting through the details of accounting change impacts your organization. Under the new guidance, the goodwill impairment charge would capture the decline in fair value of the long-lived assets. Impairment of Intangibles with Indefinite Lives. Although not all of these impairment tests are performed in accordance with IAS 36, the principle that the carrying value cannot exceed the recoverable amount is typically applied. As with the existing model, getting the sequencing right can help avoid potential errors in assessing impairment. All rights reserved. indefinite-lived intangible assets on the balance sheet. © 2017 - Thu Dec 24 19:54:05 UTC 2020 PwC. IAS 36 applies to a variety of non-financial assets including property, plant and equipment, right-of-use assets, intangible assets and goodwill, investment properties measured at cost and investments in associates and joint ventures 2. 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. • The depreciation method/amortisation method used would reflect the pattern in which the asset’s future economic benefits are expected to be consumed by the entity. Intangible assets with indefinite lives are not amortized. 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. Contact us to discuss your business challenges. Effective coordination between accounting and tax professionals will help appropriately reflect goodwill and deferred tax balances in the financial statements. [IAS 36.2, 4] 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. The one-step test performed using an equity premise can result in a different amount of goodwill impairment than the enterprise premise. 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. The standard states that it is acceptable to perform impairment tests at any time in the financial year, … Topics include: 1:09 - Right-of-use asset impairment model. The amount of impairment recorded or reversed must be disclosed, including the circumstances leading to that impairment or reversal. 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. As the new single-step approach for assessing goodwill impairment compares the fair value and carrying value of the entire reporting unit, the goodwill impairment charge (if any) may capture fair value declines, below their carrying values, for non-goodwill assets. Intangible assets with indefinite useful life (including goodwill) are tested for impairment at least annually and others are tested when there are indications of impairment such as legal restrictions, business restructuring, development of new technology, economic changes, etc. US GAAP does not require the use of an enterprise or equity premise. impairment?” The answer will depend on the asset being tested and its reliance on other assets to generate cash inflows. IAS 36 Im­pair­ment of Assets seeks to ensure that an entity's assets are not carried at more than their re­cov­er­able amount (i.e. 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. While the approach for measuring the amount of goodwill impairment has been simplified, there are nuances in how the revised impairment guidance will interact with the subsequent measurement of other assets (not goodwill) governed by other accounting standards. The Property, plant, equipment and other assets guide discusses the accounting for acquisition transactions determined to be asset acquisitions under US GAAP. Only intangible assets with an indefinite life are reassessed each year for impairment. Realistic assumptions; Key assumptions should be disclosed; 2. The FASB’s new goodwill impairment testing guidance—ASU 2017-04, required for public SEC filers for periods beginning after December 15, 2019—while intended as a simplification, could result in less precise goodwill impairments for reporting entities. 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. 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 … Examples of intangible assets with a limited-life include copyrights and patents. The impairment loss is a non-cash item and doesn’t affect cash from operations. Goodwill and intangible assets decreased by approximately $13 million due to the strengthening of the Canadian dollar and amortization of finite life intangible assets. Fig 3. Companies should take a fresh look at existing processes and controls for assessing asset impairment, as proper identification of triggering events is integral to appropriately measuring goodwill impairment. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Heather Horn is joined by PwC National office subject matter specialists to discuss the most important considerations when assessing ROU assets for 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. This chapter includes a discussion on key clarifications on the implementation issues on applying the standards on non-financial assets. Each Each member firm is a separate legal entity. 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. In rising interest rate environments, the fair value of these financial assets will often be significantly less than the carrying value, which consequently could lead to the impairment of goodwill to reflect the decrease in the fair value of the reporting unit. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. We also touch on the new accounting The impairment test for intangible assets with indefinite useful life is a little different because the sum of their undiscounted cash flows is theoretically infinite. 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. 'result' : 'results'}}. A list of PwC’s key IFRS publications are provided on the inside front cover. Another example often seen is with companies that hold significant portfolios of financial assets which are carried at amortized cost. 1 of 3 Save and exit Continue Cancel Another consideration for companies is the income tax effect from any tax-deductible goodwill on the carrying amount of the entity (or the reporting unit). 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 higher of fair value less costs of disposal and value in use). 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. All rights reserved. Under IAS 36, ‘Impairment of assets’, these assets are required to be tested annually for impairment irrespective of indictors of impairment (IAS 36 para 10). Increases in value in excess of prior impairment loss are debited directly to the asset and credited to a … The initial measurement of an intangible asset depends on whether it has been acquired separately, has been acquired as part of business combination or was internally generated. 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. 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. 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). 6 Taxation of intangible assets We take it further PwC offers you a multi-disciplinary team to help you design tax optimisation policies and processes for your company’s intangible assets management strategy, generating tax savings that are better applied to financing your business growth. Under the new guidance, the goodwill impairment charge would capture the decline in fair value of the long-lived assets. An impairment review of a CGU should cover all of its tangible assets, intangible assets and attributable goodwill. 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. The effect that debt may have on the analysis will be dependent on the valuation approach selected. Generally, except for brands, these assets have a definite useful life. Learn how previous charges may affect your ASC 842 transition. Each member firm is a separate legal entity. For more insights on the new goodwill impairment testing standard, please contact PwC to request a meeting. All rights reserved. This includes clearly outlining information and data requirements, as well as key decision points to effectively test goodwill for impairment. Conversely, under the enterprise premise of value, debt is excluded from the liabilities assigned to the reporting unit. Alternatively, when there is unrecognized appreciation in the fair value of other recognized or unrecognized assets in the reporting unit, the amount of the goodwill impairment charge will be less than under the current guidance. 2) Long-lived assets, such as property, plant and equipment (PP&E), finite-lived intangible assets and asset groups under ASC 360-10. 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. © 2001-2019 PwC. Intangible assets, particularly goodwill, have constituted a significant proportion of the purchase consideration in business combinations over recent years. Where the RoU asset is part of a CGU that contains goodwill, indefinite-life intangible assets, or intangible assets that are not yet ready for use, it will be included as part of the annual impairment requirement. 3) Goodwill of a reporting unit containing any of the above assets … Additionally, recognition of the impairment of the long-lived asset that contributed to the goodwill impairment may occur at a later date. For 31 March 2020 reporting dates and thereafter, companies may be faced with triggering events and be compelled to assess recoverable amounts of assets and/ or cash generating units (CGUs) in terms of International Accounting Standard 36 ‘Impairment of Assets’ (“IAS 36”). and long-lived assets are assessed for impairment prior to testing goodwill. 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. 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. Please see www.pwc.com/structure for further details. 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. 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. Such assets should be tested for impairment Generally, except for brands, these assets have a definite useful life. Start adding content to your list by clicking on the star icon included in each card. 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. We offer a combination of accounting, valuation, financial reporting and industry know-how to assist with your company’s impairment testing. This in turn increases the carrying value of the reporting unit and may trigger further goodwill impairment. Limited-life intangibles are systemically amortized throughout the useful life of the intangible asset using either units of activity method or straight-line method. Under US GAAP, an asset‘s carrying amount is considered not recoverable when it exceeds the undiscounted expected future cash flows. These valuations will require significant professional judgement. 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 ? 1 of 3 Save and exit Continue Cancel Observations from the front lines provides PwC’s insight on current economic issues, our perspective regarding the financial reporting complexities, and what companies should be thinking about to effectively address those issues. 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. COVID-19: Impairment testing during the global pandemic 4. 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. 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