Tests for Impairment of of Intangible Assets

February 2012

MHMMessenger
M AY E R H O F F M A N M C C A N N P. C . – A N I N D E P E N D E N T C PA F I R M

A publication of the Professional Standards Group
Tests for Impairment of of Intangible Assets

Companies may soon have more flexibility in testing Management would choose one of two options:
for impairment of indefinite-lived intangible assets, if
changes exposed for comment by the FASB in January • proceed directly to a determination of the fair value
2012 are adopted as proposed. This new proposal of an indefinite-lived intangible asset, or
follows closely on the heels of guidance recently
released for impairment tests of goodwill, and there • start with an assessment of qualitative factors
are similarities in both the objectives and the overall before calculating the fair value of the asset.
approach. Like the guidance on goodwill, the proposal
for other indefinite-lived intangible assets responds to If management opts for the qualitative assessment,
concerns about the recurring cost and complexity of the requirements include the following:
performing impairment tests, and the proposed relief
includes an option to use qualitative assessments • Management would need to evaluate the likelihood
to determine when additional quantitative testing is that events and circumstances, either individually
necessary. This Messenger highlights the proposed or collectively, could have affected the significant
changes that would apply to other indefinite-lived inputs used in determining the fair value of the
intangible assets, including trademarks, licenses and indefinite-lived intangible asset. The FASB’s
distribution rights. proposal provides examples of the factors to be
considered, and these examples are similar to the
Highlights of Proposed Changes ones provided in the guidance for goodwill. (See
MHM Messenger 2-12.)
The proposed changes would permit the use of
qualitative assessments by all kinds of entities – • Management would also need to consider specific
public companies, nonpublic companies and not-for- factors when evaluating whether it is more likely
profit organizations. The application of this approach than not that the intangible asset is impaired.
to indefinite-lived intangible assets other than goodwill These factors include:
would work as follows:
• changes to the carrying amount of the asset,

• positive and mitigating events and
circumstances, and

• if the entity has made a recent fair value
calculation for an indefinite-lived intangible,
the difference between that fair value and the
current carrying amount.

roots run deep
®
TM
(Continued on Page 2)
our
© 2 0 1 2 M A Y E R H O F F M A N M C C A N N P . C . 877-887-1090 • www.mhm-pc.com • All rights reserved.

MHMMessenger
(Continued from Page 1)

The results of the qualitative assessment would intangible assets because the qualitative assessment
determine the next steps. The entity can bypass is optional, and there may be circumstances when
the quantitative assessment of the fair value of it would be appropriate for use with these types of
the asset, if the analysis of all the relevant factors assets.
leads to the conclusion that it is not more likely
than not that the asset is impaired. If this is not Concessions for private companies.
the case, then management must determine the
fair value of the asset and compare that value with The proposed amendments would provide an
the carrying amount of the asset to measure the exception for nonpublic entities that would exempt
amount of the required write-off. these entities from disclosing quantitative information
about significant unobservable inputs used in fair value
Other Aspects of the Proposal measurement that are categorized within Level 3 of
the fair value hierarchy and relate to the accounting
The proposed amendments do not change how or and reporting for an indefinite-lived intangible asset
when an entity must measure an impairment loss, nor after its initial recognition. The FASB’s reasons for this
do they add any new disclosure requirements; but they exception include the beliefs that:
can require considerable judgment to apply, especially
for intangibles such as in-process research and • users of nonpublic entity financial statements have
development. The FASB has included an exception the ability to question management directly about
to the fair value disclosure requirements for nonpublic such matters when necessary, and
entities as summarized below.
• most users are generally already informed of a
The need for judgment. significant impairment loss and the underlying
reasons well before the financial statements are
Under US accounting standards,an intangible asset finalized.
that is not subject to amortization must be tested for
impairment annually or more frequently if events or Additional Analysis
changes in circumstances indicate the asset might
be impaired. Included in this category are intangible The FASB expects to issue the final standard by June
assets whose fair values can involve significant 2012 after it considers the comments on the exposure
uncertainties. For example, assets acquired in a draft and conducts additional outreach. Among other
business combination (or an acquisition by a not-for- things, the Board is interested in hearing whether
profit entity) may include intangibles used in R&D preparers believe the proposed amendments will
activities and the fair values of these assets may reduce overall costs and complexity associated with
depend on uncertainties associated with regulatory the current guidance and whether preparers expect
approvals. The FASB acknowledges the level of that their entities will choose to perform the qualitative
difficulty in applying qualitative factors to evaluate assessment as opposed to proceeding directly to a
assets of this type. But the Board has tentatively quantitative impairment test.
decided not to exclude any types of indefinite-lived

(Continued on Page 3)


MHMMessenger
(Continued from Page 2)

The comment period ends on April 24, 2012. The
proposed effective date is for annual impairment
tests performed for fiscal years beginning after
June 15, 2012, with early adoption permitted.

For More Information

MHM’s Professional Standards Group will provide
a comment letter to the FASB. We are interested in
your views on the pros and cons of the proposed
approach.

If you have any specific questions, comments or
concerns, please share them with James Comito
of MHM’s Professional Standards Group or your
MHM service professional. James is located in our
San Diego office and can be reached by email at
jcomito@cbiz.com and phone at 858-795-2029.

The information in this MHM Messenger is a brief summary and may not include all the details relevant to your situation.
Please contact your MHM service provider to further discuss the impact on your financial statements.


Tests for Impairment of of Intangible Assets

More Related Content

Similar to Tests for Impairment of of Intangible Assets (20)

More from MHM (Mayer Hoffman McCann P.C.) (20)

Recently uploaded (20)

Tests for Impairment of of Intangible Assets