Both under IFRS and under US GAAP goodwill and intangible assets (e.g. brands, licences, customer lists etc.) are not amortised straight-line but only written down extraordinarily where there are impairment losses. The existence of impairment is identified in the form of annual impairment tests.  A calculation should also be performed if there are recognisable indications (triggering events) of impairment.

The relevant IFRS is IAS 36 which outlines the relevant approach for impairment investigations of intangible assets and goodwill. Thus, for intangible assets the recoverable amount, defined as the higher of the net realisable value (fair value less cost to sell) and its value in use, is measured directly for the individual asset. If this recoverable amount is lower than the carrying value of an asset at the balance sheet date then the carrying value should be reduced to the recoverable amount.

In testing for impairment of goodwill under IFRS, firstly the recoverable amounts of all groups of assets held by the company, which together generate cash, are calculated (cash generating unit, CGU). The recoverable amounts of the CGUs are then compared with the related carrying values. A reduction is necessary at CGU level if the recoverable amount is lower than the carrying amount. These differences are then offset against goodwill. If the total impairment loss is greater than the goodwill then the remaining amount is allocated proportionally over the other assets within the CGU.

For an impairment test of assets and goodwill under the US GAAP rules of SFAS 142 and SFAS 144 it is first determined whether impairment exists. On impairment testing of intangible assets the carrying values are compared with the non-discounted net cash surpluses. If the carrying value is higher than the comparable value then an impairment loss should be accounted for.

In a two-step impairment test of goodwill in accordance with US GAAP a reduction is necessary if the carrying value of the reporting unit is higher than its fair value. In the second step the implicit goodwill (at the time of the impairment test) is calculated from the fair value of the reporting unit less the fair value of the re-valued net assets. The amount of the impairment loss is then the difference between the (higher) accounting goodwill and the implicit goodwill.

As a result of its international client base BDO has access to comprehensive experience in the support and performance of impairment tests under IFRS and US GAAP.