The Financial Accounting Standards Board proposed an updated standard Wednesday on impairment testing of intangible assets with indefinite lives, such as trademarks, licenses and distribution lives.
FASB’s Accounting Standards Update aims to simplify the process of impairment assessment and reduce the recurring costs of having to comply with existing guidance while improving the consistency of testing methods among long-lived asset categories for preparers. The new standard would apply to all public, private and not-for-profit organizations.
The amendments would allow an organization the option to first assess qualitative factors to determine whether it is necessary to perform the quantitative impairment test. An organization electing to perform a qualitative assessment no longer would be required to calculate the fair value of an indefinite-lived intangible asset unless the organization determines, based on a qualitative assessment, that it is “more likely than not” that the asset’s fair value is less than its carrying amount.
Under the current guidance (FASB Accounting Standards Codification Subtopic 350-30, Intangibles—Goodwill and Other—General Intangibles Other than Goodwill), an organization is required to test an indefinite-lived intangible asset for impairment, on at least an annual basis, by comparing the fair value of the asset with its carrying amount. If the carrying amount of an indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to the difference.
During the outreach performed before it issued a recent standard on testing goodwill for impairment, FASB heard from many of its constituents that they had concerns about the recurring cost and complexity of performing impairment tests for indefinite-lived intangible assets other than goodwill. They told FASB that according to the recent amendments to the goodwill impairment guidance and the existing guidance for testing long-lived assets for impairment, only indefinite-lived intangible assets would not be eligible to use a qualitative assessment.
Several of them recommended that FASB consider allowing an organization to use a qualitative approach for testing indefinite-lived intangible assets for impairment, similar to the recently issued impairment testing guidance for goodwill. They felt that the costs and complexities of performing impairment tests for indefinite-lived intangible assets other than goodwill were far too burdensome. These amendments aim to address their concerns, simplify the assessments and improve the consistency of testing for a lower cost.
“This proposed amendment is intended to reduce the cost of evaluating indefinite-lived intangible assets for impairment without changing the information provided to investors,” said FASB chair Leslie F. Seidman in a statement. “The proposed amendment is similar to the simplification that the board issued last year relating to the impairment testing of goodwill.”
The amendments in the proposed update would be effective for annual and interim impairment tests performed for fiscal years beginning after June 15, 2012. Early adoption would be permitted.
Between now and the end of the comment period, FASB will conduct additional outreach with preparers, users, and auditors of financial statements to solicit their input on the proposal.
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