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). 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. 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. Please see www.pwc.com/structure for further details. 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. Contact us to discuss your business challenges. inventory, financial assets, etc.) Intangible assets, particularly goodwill, have constituted a significant proportion of the purchase consideration in business combinations over recent years. 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. 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”). Such assets should be tested for impairment 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). Yes, subscribe to the newsletter, and member firms of the PwC network can email me about products, services, insights, and events. Intangible assets with indefinite lives are not amortized. 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. 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. indefinite-lived intangible assets on the balance sheet. 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. 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 … Please see www.pwc.com/structure for further details. an asset is determined after deducting its residual value. Impairment of Intangibles with Indefinite Lives. 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. 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). 1. 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. Disclosures are split between CGUs where an impairment has been recognised and CGUs with goodwill or indefinite-lived assets allocated to them. 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. Topics include: 1:09 - Right-of-use asset impairment model. We offer a combination of accounting, valuation, financial reporting and industry know-how to assist with your company’s impairment testing. For more insights on the new goodwill impairment testing standard, please contact PwC to request a meeting. Companies have to periodically test intangible assets to see whether there’s potential for any loss due to impairment. As leases are now recorded on the balance sheet, we begin with a recap of how the long-lived asset impairment model works. 1 of 3 Save and exit Continue Cancel intangible assets) requires a detailed understanding of the value chain of the business and the extent to which the services play an important role within this value chain. Cash flows must be reasonable and supportable. An intangible asset is an identifiable non-monetary asset without physical substance. 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. Under the new guidance, the goodwill impairment charge would capture the decline in fair value of the long-lived assets. All rights reserved. and long-lived assets are assessed for impairment prior to testing goodwill. Early and ongoing cross-functional coordination between accounting, valuation and tax professionals is critical to effectively navigating financial reporting complexities of the goodwill impairment model. 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. All rights reserved. In our view, the cash flows (at least in the near term) of most companies will be affected by COVID-19. The general requirement of IAS 36 is that assets are tested for impairment where there is an impairment indicator, and this includes RoU assets. All rights reserved. The standard states that it is acceptable to perform impairment tests at any time in the financial year, … In the context of the far-reaching economic consequences of COVID-19, a significant number of entities face indicators of impairment. [IAS 36.2, 4] These complexities will be important for management and stakeholders to understand when adopting and applying the revised guidance. The one-step test performed using an equity premise can result in a different amount of goodwill impairment than the enterprise premise. 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. • An intangible asset with an indefinite useful life is not amortised but tested for impairment. Reversal of Impairment Loss. 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. © 2010 - Thu Dec 24 18:45:42 UTC 2020 PwC. 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. 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. 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. PwC’s Accounting Advisory and Valuation specialists can assist with sorting through the details of accounting change impacts your organization. impairment?” The answer will depend on the asset being tested and its reliance on other assets to generate cash inflows. Intangible assets with finite useful lives are considered for impairment when there is an indication that the asset has been impaired. Another example often seen is with companies that hold significant portfolios of financial assets which are carried at amortized cost. Such assets should be tested for impairment An impairment review of a CGU should cover all of its tangible assets, intangible assets and attributable goodwill. 3) Goodwill of a reporting unit containing any of the above assets … 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. 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 . 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. These valuations will require significant professional judgement. Generally, except for brands, these assets have a definite useful life. 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. 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. 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 IC was unable to reach a consensus on 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 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. Realistic assumptions; Key assumptions should be disclosed; 2. Each Each member firm is a separate legal entity. 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. The effect that debt may have on the analysis will be dependent on the valuation approach selected. 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. Where an ‘intangible resource’ is not recognised as an intangible asset, it is subsumed into goodwill. © 2017 - Thu Dec 24 19:54:05 UTC 2020 PwC. We also touch on the new accounting Examples of intangible assets with a limited-life include copyrights and patents. 1 of 3 Save and exit Continue Cancel 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. 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. 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. 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 refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. The impairment loss is a non-cash item and doesn’t affect cash from operations. Under the new guidance, the goodwill impairment charge would capture the decline in fair value of the long-lived assets. Generally, except for brands, these assets have a definite useful life. 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 amount of impairment recorded or reversed must be disclosed, including the circumstances leading to that impairment or reversal. Effective coordination between accounting and tax professionals will help appropriately reflect goodwill and deferred tax balances in the financial statements. This includes clearly outlining information and data requirements, as well as key decision points to effectively test goodwill for impairment. COVID-19: Impairment testing during the global pandemic 4. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. 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. US GAAP does not require the use of an enterprise or equity premise. Fig 3. Under IFRS, an impairment loss is recognized if the carrying amount exceeds the recoverable amount of the asset. PwC refers to the US member firm, or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Only intangible assets with an indefinite life are reassessed each year for impairment. This is specifically relevant to cases in which an entity has a zero or negative carrying amount for any of its reporting units. Limited-life intangibles are systemically amortized throughout the useful life of the intangible asset using either units of activity method or straight-line method. 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 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. 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. Increases in value in excess of prior impairment loss are debited directly to the asset and credited to a … IAS 36 Impairment of Assets seeks to ensure that an entity's assets are not carried at more than their recoverable amount (i.e. Leading to that impairment or reversal revised guidance revised guidance the balance,., other assets ( e.g the asset being tested and its reliance on other assets e.g... 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