and long-lived assets are assessed for impairment prior to testing goodwill. Under IFRS, comparison is made between the carrying amount of the asset and the higher of fair value (less cost to sell) and value in use and any excess is recognized as impairment. Without the more involved calculation that would have been performed when applying Step 2 (i.e., the implied fair value of goodwill is no longer calculated), there is a higher potential for a less precise amount of goodwill impairment. 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. 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. 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. 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. The general requirement of IAS 36 is that assets are tested for impairment where there is an impairment indicator, and this includes RoU assets. 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. COVID-19: Impairment testing during the global pandemic 4. 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. 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. Limited-life intangibles are systemically amortized throughout the useful life of the intangible asset using either units of activity method or straight-line method. We offer a combination of accounting, valuation, financial reporting and industry know-how to assist with your company’s impairment testing. Each member firm is a separate legal entity. PwC’s Accounting Advisory and Valuation specialists can assist with sorting through the details of accounting change impacts your organization. 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. 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. These valuations will require significant professional judgement. Introduction PwC 1. 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. 1 of 3 Save and exit Continue Cancel Another example often seen is with companies that hold significant portfolios of financial assets which are carried at amortized cost. the higher of fair value less costs of disposal and value in use). Heather Horn is joined by PwC National office subject matter specialists to discuss the most important considerations when assessing ROU assets for impairment. 3) Goodwill of a reporting unit containing any of the above assets … Generally, except for brands, these assets have a definite useful life. 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 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. 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. 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. 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). As with the existing model, getting the sequencing right can help avoid potential errors in assessing impairment. Start adding content to your list by clicking on the star icon included in each card. Companies have to periodically test intangible assets to see whether there’s potential for any loss due to impairment. 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. Use cross-checks to gain comfort. In our view, the cash flows (at least in the near term) of most companies will be affected by COVID-19. Impairment of Intangible Assets. 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. 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. Intangible assets with finite useful lives are considered for impairment when there is an indication that the asset has been impaired. Learn how previous charges may affect your ASC 842 transition. An asset is identifiable if either: it is separable (that is, it is capable of being separated or divided from the entity and sold, transferred, licensed, rented or exchanged); or it arises from contractual or legal rights. 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. Goodwill and intangible assets decreased by approximately $13 million due to the strengthening of the Canadian dollar and amortization of finite life intangible assets. All rights reserved. Cash flows must be reasonable and supportable. powercorporation.com L'écart d'acquisiti on et les actifs incorporels on t d iminu é d'environ 13 M$ en raison du raffermissement du dollar canadien et de l'amor ti sseme nt des actifs incorporels à duré e de vie limitée . A simultaneous equation is required to adjust the goodwill impairment and deferred tax impact when tax deductible goodwill is present. Given the unique nature of such services, a suffi-ciently reliable comparable transaction may be difficult to identify and therefore other TP methods may be more reliably applied. 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. 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. 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. 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. Only intangible assets with an indefinite life are reassessed each year for impairment. All rights reserved. Under IFRS, an impairment loss is recognized if the carrying amount exceeds the recoverable amount of the asset. 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. 1 of 3 Save and exit Continue Cancel Please see www.pwc.com/structure for further details. 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. Intangible assets with indefinite lives are not amortized. © 2017 - Thu Dec 24 19:54:05 UTC 2020 PwC. 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. 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. © 2001-2019 PwC. 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 … COVID-19 can be seen as a triggering event for impairment testing for a significant number of entities. 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. Increases in value in excess of prior impairment loss are debited directly to the asset and credited to a … Please see www.pwc.com/structure for further details. In the context of the far-reaching economic consequences of COVID-19, a significant number of entities face indicators of impairment. Such assets should be tested for impairment [IAS 36.2, 4] Effective coordination between accounting and tax professionals will help appropriately reflect goodwill and deferred tax balances in the financial statements. 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. All rights reserved. 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. PwC refers to the US member firm, or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. This in turn increases the carrying value of the reporting unit and may trigger further goodwill impairment. 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. 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. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. An intangible asset is an identifiable non-monetary asset without physical substance. Intangible assets with finite useful lives are considered for impairment when there is an indication that the asset has been impaired. Additionally, recognition of the impairment of the long-lived asset that contributed to the goodwill impairment may occur at a later date. 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. • An intangible asset with an indefinite useful life is not amortised but tested for impairment. Trigger for impairment testing. 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. 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. These complexities will be important for management and stakeholders to understand when adopting and applying the revised guidance. This includes clearly outlining information and data requirements, as well as key decision points to effectively test goodwill for impairment. For example, for assets that are held and used, other assets (e.g. The impairment loss is a non-cash item and doesn’t affect cash from operations. The standard states that it is acceptable to perform impairment tests at any time in the financial year, … The general requirement of IAS 36 is that assets are tested for impairment where there is an impairment indicator, and this includes RoU assets. 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). Impairment of Intangibles with Indefinite Lives. Each Each member firm is a separate legal entity. © 2010 - Thu Dec 24 18:45:42 UTC 2020 PwC. an asset is determined after deducting its residual value. 2) Long-lived assets, such as property, plant and equipment (PP&E), finite-lived intangible assets and asset groups under ASC 360-10. 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”). IAS 36 Im­pair­ment of Assets seeks to ensure that an entity's assets are not carried at more than their re­cov­er­able amount (i.e. impairment?” The answer will depend on the asset being tested and its reliance on other assets to generate cash inflows. Under the new guidance, the goodwill impairment charge would capture the decline in fair value of the long-lived assets.