1.2.12.3 DIfferences in long-lived assets and impairment

Achievable CMA Part 1

1. External financial reporting decisions

1.2. Financial transactions

1.2.12. US GAAP versus IFRS

Our CMA Part 1 course is currently in development and is a work-in-progress.

DIfferences in long-lived assets and impairment

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Long-lived assets

The relevant differences between US GAAP and IFRS related to long-lived assets are as follows:

Subtopic	US GAAP	IFRS
Revaluation	Prohibited. Tangible fixed assets are generally reported at cost less accumulated depreciation and impairment.	Allowed. If revaluation is chosen, it must be applied to all items in a class of assets and must be kept current.
Capitalization of borrowing costs	Required for qualifying assets. A qualifying asset is one that requires a substantial period of time to get ready for its intended use. Exchange rate differences from foreign currency borrowings are not eligible for capitalization. Interest earned on invested borrowed funds cannot generally offset interest costs incurred. An investment accounted for by the equity method can be a qualifying asset under certain conditions.	Required for qualifying assets. A qualifying asset is one that necessarily takes a substantial period of time to get ready for its intended use or sale. Exchange rate differences from foreign currency borrowings may be eligible for capitalization. Interest earned on invested borrowed funds can offset interest costs incurred. Investments accounted for under the equity method are not considered qualifying assets.

The key difference is revaluation: IFRS permits revaluing PPE (applied consistently across a class of assets and kept current), while US GAAP prohibits it entirely; both standards require capitalizing borrowing costs for qualifying assets, though IFRS permits offsetting interest income against borrowing costs and capitalizing certain foreign-exchange differences that US GAAP does not.

Impairment of assets

Tangible fixed assets and intangible assets with definite useful life

The relevant differences between US GAAP and IFRS related to impairment of tangible fixed assets and intangible assets with definite useful life are as follows:

Subtopic	US GAAP	IFRS
Determination of impairment	Impairment test is triggered if events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.	Impairment test is triggered if events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Calculation of impairment	If the carrying amount exceeds the undiscounted future cash flows, an impairment loss is calculated. The impairment loss is measured as the difference between the carrying amount and the fair value of the asset.	If the carrying amount exceeds the recoverable amount (the higher of fair value less costs to sell (FVLCTS) and value in use (VIU)), an impairment loss is recognized.
Reversals of impairment	Prohibited for assets held and used. Allowed for assets held for disposal.	Allowed if the recoverable amount increases.

The two standards differ in how impairment is calculated and whether losses can be reversed, as the example below illustrates.

Example: US GAAP vs. IFRS impairment test

Ashland Co. holds equipment with a carrying amount of $100,000. Expected future cash flows from the equipment (undiscounted) total $105,000. The equipment’s fair value is $80,000, and its value in use (the present value of its expected future cash flows) is $90,000.

US GAAP: Compare the carrying amount to undiscounted future cash flows. Since $100,000 is less than $105,000, the asset passes the recoverability test and no impairment is recognized.

IFRS: Compare the carrying amount to the recoverable amount - the higher of FVLCTS ($80,000) and VIU ($90,000), which is $90,000. Since $100,000 exceeds $90,000, an impairment loss of $10,000 is recognized ($100,000 − $90,000).

Answer: No impairment loss under US GAAP; a $10,000 impairment loss under IFRS.

Watch out: US GAAP screens for impairment using undiscounted cash flows, while IFRS measures against a discounted recoverable amount - so the same facts can produce an impairment loss under one standard and not the other, as in the example above (and the reverse can also happen). Passing the US GAAP recoverability test doesn’t mean there’s no impairment under IFRS. The reversal rule is another common mix-up: US GAAP prohibits reversing an impairment loss on assets held and used, while IFRS allows a reversal if the recoverable amount later increases.

Intangible assets with indefinite useful life

The relevant differences between US GAAP and IFRS related to impairment of intangible assets with indefinite useful life are as follows:

Subtopic	US GAAP	IFRS
Determination of impairment	Impairment test required annually and triggered if events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.	Impairment test is required annually for intangible assets with indefinite useful lives. An impairment test is also triggered if events or changes in circumstances indicate that the carrying amount may not be recoverable.
Calculation of impairment	If the carrying amount exceeds the fair value, an impairment loss is recognized. The impairment loss is the amount by which the carrying amount exceeds the fair value.	If the carrying amount exceeds the recoverable amount (higher of FVLCTS and VIU), an impairment loss is recognized.
Reversals of impairment	Prohibited	Allowed if the recoverable amount increases.

As with tangible assets, IFRS measures impairment against the recoverable amount and allows reversals, while US GAAP compares to fair value alone and prohibits reversals.

Goodwill

The relevant differences between US GAAP and IFRS related to impairment of goodwill are as follows:

Subtopic	US GAAP	IFRS
Allocation of goodwill	Allocated to a reporting unit. A reporting unit is either an operating segment or one level below an operating segment.	Allocated to a cash-generating unit (CGU). A CGU is the smallest identifiable group of assets that generates cash flows that are largely independent of the cash flows from other assets or groups of assets.
Determination of impairment	Impairment test required annually plus triggered if events or changes in circumstances indicate that the carrying amount of a reporting unit may not be recoverable. A qualitative assessment can be performed to determine whether it is necessary to perform the quantitative test.	Impairment test is required annually. An impairment test is also triggered if events or changes in circumstances indicate that the carrying amount of the CGU may not be recoverable.
Calculation of impairment	Compare the fair value of the reporting unit with its carrying amount. If the carrying amount of the reporting unit exceeds the fair value, the entity recognizes an impairment loss in the amount of that excess. The amount of impairment loss cannot exceed the amount of goodwill allocated to the reporting unit.	If the carrying amount exceeds the recoverable amount (the higher of fair value less costs to sell and value in use), an impairment loss is recognized. The impairment loss is allocated first to reduce goodwill to zero, and then to other assets of the CGU on a pro rata basis.
Reversals of impairment	Prohibited.	Prohibited.

The main difference is the unit of account - US GAAP tests goodwill at the reporting-unit level while IFRS tests at the CGU level - though both prohibit reversals of goodwill impairment.

Long-lived assets

US GAAP: revaluation prohibited; report at cost less depreciation/impairment
IFRS: revaluation allowed for entire asset class; must be kept current
Capitalization of borrowing costs:
- Both: required for qualifying assets
- IFRS: can capitalize certain FX differences; offset interest income
- US GAAP: no FX capitalization; some equity method investments qualify

Impairment of tangible fixed assets & definite-life intangibles

Triggered by events/circumstances under both standards
US GAAP: two-step test (undiscounted cash flows, then fair value loss); reversals prohibited (except assets held for disposal)
IFRS: one-step test (recoverable amount = higher of fair value less costs to sell or value in use); reversals allowed if recoverable amount increases

Impairment of indefinite-life intangibles

Annual impairment test required under both standards
US GAAP: impairment if carrying amount > fair value; reversals prohibited
IFRS: impairment if carrying amount > recoverable amount (FVLCTS or VIU); reversals allowed if recoverable amount increases

Goodwill impairment

US GAAP: allocate goodwill to reporting unit; annual and triggered testing; compare fair value to carrying amount; impairment loss limited to allocated goodwill; reversals prohibited
IFRS: allocate goodwill to cash-generating unit (CGU); annual and triggered testing; impairment if carrying amount > recoverable amount; loss allocated first to goodwill, then to other CGU assets; reversals prohibited

Next | 2.1.1 Analysis of external and internal factors affecting strategy

DIfferences in long-lived assets and impairment

Long-lived assets

The relevant differences between US GAAP and IFRS related to long-lived assets are as follows:

Subtopic	US GAAP	IFRS
Revaluation	Prohibited. Tangible fixed assets are generally reported at cost less accumulated depreciation and impairment.	Allowed. If revaluation is chosen, it must be applied to all items in a class of assets and must be kept current.
Capitalization of borrowing costs	Required for qualifying assets. A qualifying asset is one that requires a substantial period of time to get ready for its intended use. Exchange rate differences from foreign currency borrowings are not eligible for capitalization. Interest earned on invested borrowed funds cannot generally offset interest costs incurred. An investment accounted for by the equity method can be a qualifying asset under certain conditions.	Required for qualifying assets. A qualifying asset is one that necessarily takes a substantial period of time to get ready for its intended use or sale. Exchange rate differences from foreign currency borrowings may be eligible for capitalization. Interest earned on invested borrowed funds can offset interest costs incurred. Investments accounted for under the equity method are not considered qualifying assets.

Impairment of assets

Tangible fixed assets and intangible assets with definite useful life

The relevant differences between US GAAP and IFRS related to impairment of tangible fixed assets and intangible assets with definite useful life are as follows:

Subtopic	US GAAP	IFRS
Determination of impairment	Impairment test is triggered if events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.	Impairment test is triggered if events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Calculation of impairment	If the carrying amount exceeds the undiscounted future cash flows, an impairment loss is calculated. The impairment loss is measured as the difference between the carrying amount and the fair value of the asset.	If the carrying amount exceeds the recoverable amount (the higher of fair value less costs to sell (FVLCTS) and value in use (VIU)), an impairment loss is recognized.
Reversals of impairment	Prohibited for assets held and used. Allowed for assets held for disposal.	Allowed if the recoverable amount increases.

The two standards differ in how impairment is calculated and whether losses can be reversed, as the example below illustrates.

Example: US GAAP vs. IFRS impairment test

Ashland Co. holds equipment with a carrying amount of $100,000. Expected future cash flows from the equipment (undiscounted) total $105,000. The equipment’s fair value is $80,000, and its value in use (the present value of its expected future cash flows) is $90,000.

US GAAP: Compare the carrying amount to undiscounted future cash flows. Since $100,000 is less than $105,000, the asset passes the recoverability test and no impairment is recognized.

IFRS: Compare the carrying amount to the recoverable amount - the higher of FVLCTS ($80,000) and VIU ($90,000), which is $90,000. Since $100,000 exceeds $90,000, an impairment loss of $10,000 is recognized ($100,000 − $90,000).

Answer: No impairment loss under US GAAP; a $10,000 impairment loss under IFRS.

Intangible assets with indefinite useful life

The relevant differences between US GAAP and IFRS related to impairment of intangible assets with indefinite useful life are as follows:

Subtopic	US GAAP	IFRS
Determination of impairment	Impairment test required annually and triggered if events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.	Impairment test is required annually for intangible assets with indefinite useful lives. An impairment test is also triggered if events or changes in circumstances indicate that the carrying amount may not be recoverable.
Calculation of impairment	If the carrying amount exceeds the fair value, an impairment loss is recognized. The impairment loss is the amount by which the carrying amount exceeds the fair value.	If the carrying amount exceeds the recoverable amount (higher of FVLCTS and VIU), an impairment loss is recognized.
Reversals of impairment	Prohibited	Allowed if the recoverable amount increases.

As with tangible assets, IFRS measures impairment against the recoverable amount and allows reversals, while US GAAP compares to fair value alone and prohibits reversals.

Goodwill

The relevant differences between US GAAP and IFRS related to impairment of goodwill are as follows:

Subtopic	US GAAP	IFRS
Allocation of goodwill	Allocated to a reporting unit. A reporting unit is either an operating segment or one level below an operating segment.	Allocated to a cash-generating unit (CGU). A CGU is the smallest identifiable group of assets that generates cash flows that are largely independent of the cash flows from other assets or groups of assets.
Determination of impairment	Impairment test required annually plus triggered if events or changes in circumstances indicate that the carrying amount of a reporting unit may not be recoverable. A qualitative assessment can be performed to determine whether it is necessary to perform the quantitative test.	Impairment test is required annually. An impairment test is also triggered if events or changes in circumstances indicate that the carrying amount of the CGU may not be recoverable.
Calculation of impairment	Compare the fair value of the reporting unit with its carrying amount. If the carrying amount of the reporting unit exceeds the fair value, the entity recognizes an impairment loss in the amount of that excess. The amount of impairment loss cannot exceed the amount of goodwill allocated to the reporting unit.	If the carrying amount exceeds the recoverable amount (the higher of fair value less costs to sell and value in use), an impairment loss is recognized. The impairment loss is allocated first to reduce goodwill to zero, and then to other assets of the CGU on a pro rata basis.
Reversals of impairment	Prohibited.	Prohibited.

The main difference is the unit of account - US GAAP tests goodwill at the reporting-unit level while IFRS tests at the CGU level - though both prohibit reversals of goodwill impairment.

Achievable CMA Part 1

1. External financial reporting decisions

1.2. Financial transactions

1.2.12. US GAAP versus IFRS

Our CMA Part 1 course is currently in development and is a work-in-progress.

DIfferences in long-lived assets and impairment

7 min read

Font

Discuss

Feedback

Long-lived assets

The relevant differences between US GAAP and IFRS related to long-lived assets are as follows:

Subtopic	US GAAP	IFRS
Revaluation	Prohibited. Tangible fixed assets are generally reported at cost less accumulated depreciation and impairment.	Allowed. If revaluation is chosen, it must be applied to all items in a class of assets and must be kept current.
Capitalization of borrowing costs	Required for qualifying assets. A qualifying asset is one that requires a substantial period of time to get ready for its intended use. Exchange rate differences from foreign currency borrowings are not eligible for capitalization. Interest earned on invested borrowed funds cannot generally offset interest costs incurred. An investment accounted for by the equity method can be a qualifying asset under certain conditions.	Required for qualifying assets. A qualifying asset is one that necessarily takes a substantial period of time to get ready for its intended use or sale. Exchange rate differences from foreign currency borrowings may be eligible for capitalization. Interest earned on invested borrowed funds can offset interest costs incurred. Investments accounted for under the equity method are not considered qualifying assets.

Impairment of assets

Tangible fixed assets and intangible assets with definite useful life

The relevant differences between US GAAP and IFRS related to impairment of tangible fixed assets and intangible assets with definite useful life are as follows:

Subtopic	US GAAP	IFRS
Determination of impairment	Impairment test is triggered if events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.	Impairment test is triggered if events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Calculation of impairment	If the carrying amount exceeds the undiscounted future cash flows, an impairment loss is calculated. The impairment loss is measured as the difference between the carrying amount and the fair value of the asset.	If the carrying amount exceeds the recoverable amount (the higher of fair value less costs to sell (FVLCTS) and value in use (VIU)), an impairment loss is recognized.
Reversals of impairment	Prohibited for assets held and used. Allowed for assets held for disposal.	Allowed if the recoverable amount increases.

The two standards differ in how impairment is calculated and whether losses can be reversed, as the example below illustrates.

Example: US GAAP vs. IFRS impairment test

Ashland Co. holds equipment with a carrying amount of $100,000. Expected future cash flows from the equipment (undiscounted) total $105,000. The equipment’s fair value is $80,000, and its value in use (the present value of its expected future cash flows) is $90,000.

US GAAP: Compare the carrying amount to undiscounted future cash flows. Since $100,000 is less than $105,000, the asset passes the recoverability test and no impairment is recognized.

IFRS: Compare the carrying amount to the recoverable amount - the higher of FVLCTS ($80,000) and VIU ($90,000), which is $90,000. Since $100,000 exceeds $90,000, an impairment loss of $10,000 is recognized ($100,000 − $90,000).

Answer: No impairment loss under US GAAP; a $10,000 impairment loss under IFRS.

Intangible assets with indefinite useful life

The relevant differences between US GAAP and IFRS related to impairment of intangible assets with indefinite useful life are as follows:

Subtopic	US GAAP	IFRS
Determination of impairment	Impairment test required annually and triggered if events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.	Impairment test is required annually for intangible assets with indefinite useful lives. An impairment test is also triggered if events or changes in circumstances indicate that the carrying amount may not be recoverable.
Calculation of impairment	If the carrying amount exceeds the fair value, an impairment loss is recognized. The impairment loss is the amount by which the carrying amount exceeds the fair value.	If the carrying amount exceeds the recoverable amount (higher of FVLCTS and VIU), an impairment loss is recognized.
Reversals of impairment	Prohibited	Allowed if the recoverable amount increases.

As with tangible assets, IFRS measures impairment against the recoverable amount and allows reversals, while US GAAP compares to fair value alone and prohibits reversals.

Goodwill

The relevant differences between US GAAP and IFRS related to impairment of goodwill are as follows:

Subtopic	US GAAP	IFRS
Allocation of goodwill	Allocated to a reporting unit. A reporting unit is either an operating segment or one level below an operating segment.	Allocated to a cash-generating unit (CGU). A CGU is the smallest identifiable group of assets that generates cash flows that are largely independent of the cash flows from other assets or groups of assets.
Determination of impairment	Impairment test required annually plus triggered if events or changes in circumstances indicate that the carrying amount of a reporting unit may not be recoverable. A qualitative assessment can be performed to determine whether it is necessary to perform the quantitative test.	Impairment test is required annually. An impairment test is also triggered if events or changes in circumstances indicate that the carrying amount of the CGU may not be recoverable.
Calculation of impairment	Compare the fair value of the reporting unit with its carrying amount. If the carrying amount of the reporting unit exceeds the fair value, the entity recognizes an impairment loss in the amount of that excess. The amount of impairment loss cannot exceed the amount of goodwill allocated to the reporting unit.	If the carrying amount exceeds the recoverable amount (the higher of fair value less costs to sell and value in use), an impairment loss is recognized. The impairment loss is allocated first to reduce goodwill to zero, and then to other assets of the CGU on a pro rata basis.
Reversals of impairment	Prohibited.	Prohibited.

The main difference is the unit of account - US GAAP tests goodwill at the reporting-unit level while IFRS tests at the CGU level - though both prohibit reversals of goodwill impairment.

Long-lived assets

US GAAP: revaluation prohibited; report at cost less depreciation/impairment
IFRS: revaluation allowed for entire asset class; must be kept current
Capitalization of borrowing costs:
- Both: required for qualifying assets
- IFRS: can capitalize certain FX differences; offset interest income
- US GAAP: no FX capitalization; some equity method investments qualify

Impairment of tangible fixed assets & definite-life intangibles

Triggered by events/circumstances under both standards
US GAAP: two-step test (undiscounted cash flows, then fair value loss); reversals prohibited (except assets held for disposal)
IFRS: one-step test (recoverable amount = higher of fair value less costs to sell or value in use); reversals allowed if recoverable amount increases

Impairment of indefinite-life intangibles

Annual impairment test required under both standards
US GAAP: impairment if carrying amount > fair value; reversals prohibited
IFRS: impairment if carrying amount > recoverable amount (FVLCTS or VIU); reversals allowed if recoverable amount increases

Goodwill impairment

US GAAP: allocate goodwill to reporting unit; annual and triggered testing; compare fair value to carrying amount; impairment loss limited to allocated goodwill; reversals prohibited
IFRS: allocate goodwill to cash-generating unit (CGU); annual and triggered testing; impairment if carrying amount > recoverable amount; loss allocated first to goodwill, then to other CGU assets; reversals prohibited

Next | 2.1.1 Analysis of external and internal factors affecting strategy

DIfferences in long-lived assets and impairment

Long-lived assets

The relevant differences between US GAAP and IFRS related to long-lived assets are as follows:

Subtopic	US GAAP	IFRS
Revaluation	Prohibited. Tangible fixed assets are generally reported at cost less accumulated depreciation and impairment.	Allowed. If revaluation is chosen, it must be applied to all items in a class of assets and must be kept current.
Capitalization of borrowing costs	Required for qualifying assets. A qualifying asset is one that requires a substantial period of time to get ready for its intended use. Exchange rate differences from foreign currency borrowings are not eligible for capitalization. Interest earned on invested borrowed funds cannot generally offset interest costs incurred. An investment accounted for by the equity method can be a qualifying asset under certain conditions.	Required for qualifying assets. A qualifying asset is one that necessarily takes a substantial period of time to get ready for its intended use or sale. Exchange rate differences from foreign currency borrowings may be eligible for capitalization. Interest earned on invested borrowed funds can offset interest costs incurred. Investments accounted for under the equity method are not considered qualifying assets.

Impairment of assets

Tangible fixed assets and intangible assets with definite useful life

The relevant differences between US GAAP and IFRS related to impairment of tangible fixed assets and intangible assets with definite useful life are as follows:

Subtopic	US GAAP	IFRS
Determination of impairment	Impairment test is triggered if events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.	Impairment test is triggered if events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Calculation of impairment	If the carrying amount exceeds the undiscounted future cash flows, an impairment loss is calculated. The impairment loss is measured as the difference between the carrying amount and the fair value of the asset.	If the carrying amount exceeds the recoverable amount (the higher of fair value less costs to sell (FVLCTS) and value in use (VIU)), an impairment loss is recognized.
Reversals of impairment	Prohibited for assets held and used. Allowed for assets held for disposal.	Allowed if the recoverable amount increases.

The two standards differ in how impairment is calculated and whether losses can be reversed, as the example below illustrates.

Example: US GAAP vs. IFRS impairment test

Ashland Co. holds equipment with a carrying amount of $100,000. Expected future cash flows from the equipment (undiscounted) total $105,000. The equipment’s fair value is $80,000, and its value in use (the present value of its expected future cash flows) is $90,000.

US GAAP: Compare the carrying amount to undiscounted future cash flows. Since $100,000 is less than $105,000, the asset passes the recoverability test and no impairment is recognized.

IFRS: Compare the carrying amount to the recoverable amount - the higher of FVLCTS ($80,000) and VIU ($90,000), which is $90,000. Since $100,000 exceeds $90,000, an impairment loss of $10,000 is recognized ($100,000 − $90,000).

Answer: No impairment loss under US GAAP; a $10,000 impairment loss under IFRS.

Intangible assets with indefinite useful life

The relevant differences between US GAAP and IFRS related to impairment of intangible assets with indefinite useful life are as follows:

Subtopic	US GAAP	IFRS
Determination of impairment	Impairment test required annually and triggered if events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.	Impairment test is required annually for intangible assets with indefinite useful lives. An impairment test is also triggered if events or changes in circumstances indicate that the carrying amount may not be recoverable.
Calculation of impairment	If the carrying amount exceeds the fair value, an impairment loss is recognized. The impairment loss is the amount by which the carrying amount exceeds the fair value.	If the carrying amount exceeds the recoverable amount (higher of FVLCTS and VIU), an impairment loss is recognized.
Reversals of impairment	Prohibited	Allowed if the recoverable amount increases.

As with tangible assets, IFRS measures impairment against the recoverable amount and allows reversals, while US GAAP compares to fair value alone and prohibits reversals.

Goodwill

The relevant differences between US GAAP and IFRS related to impairment of goodwill are as follows:

Subtopic	US GAAP	IFRS
Allocation of goodwill	Allocated to a reporting unit. A reporting unit is either an operating segment or one level below an operating segment.	Allocated to a cash-generating unit (CGU). A CGU is the smallest identifiable group of assets that generates cash flows that are largely independent of the cash flows from other assets or groups of assets.
Determination of impairment	Impairment test required annually plus triggered if events or changes in circumstances indicate that the carrying amount of a reporting unit may not be recoverable. A qualitative assessment can be performed to determine whether it is necessary to perform the quantitative test.	Impairment test is required annually. An impairment test is also triggered if events or changes in circumstances indicate that the carrying amount of the CGU may not be recoverable.
Calculation of impairment	Compare the fair value of the reporting unit with its carrying amount. If the carrying amount of the reporting unit exceeds the fair value, the entity recognizes an impairment loss in the amount of that excess. The amount of impairment loss cannot exceed the amount of goodwill allocated to the reporting unit.	If the carrying amount exceeds the recoverable amount (the higher of fair value less costs to sell and value in use), an impairment loss is recognized. The impairment loss is allocated first to reduce goodwill to zero, and then to other assets of the CGU on a pro rata basis.
Reversals of impairment	Prohibited.	Prohibited.

The main difference is the unit of account - US GAAP tests goodwill at the reporting-unit level while IFRS tests at the CGU level - though both prohibit reversals of goodwill impairment.