FASB proposal aims to simplify impairment testing of indefinite-lived intangible assets

BY KEN TYSIAC

FASB on Wednesday issued a proposed Accounting Standards Update it said would reduce costs and simplify the guidance for testing indefinite-lived intangible assets other than goodwill for impairment.

The amendments in the proposed update, Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment, would allow an organization to assess qualitative factors to determine whether performing the quantitative impairment test is necessary.

An organization that chooses to perform a qualitative assessment would be spared calculating the fair value of an indefinite-lived intangible asset unless the qualitative assessment shows that it is “more likely than not” that the asset’s fair value is less than its carrying amount.

Indefinite-lived trademarks, licenses and distribution rights are examples of assets covered by the proposal. All public, private and not-for-profit companies would apply the standard.

The current guidance on the topic is FASB Accounting Standards Codification Subtopic 350-30, Intangibles—Goodwill and Other—General Intangibles Other than Goodwill. That guidance requires an organization to test an indefinite-lived intangible asset for impairment on at least an annual basis. This is done by comparing the asset’s fair value with its carrying amount. If the carrying amount exceeds the asset’s fair value, the difference in those amounts is recognized as an impairment loss.

But in an issue of FASB in Focus issued Wednesday, FASB said it received comments noting that as a result of 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.

FASB said it constructed the proposed update in an effort to simplify assessment and lower costs while making testing methods more consistent.

“This proposed amendment is intended to reduce the cost of evaluating indefinite-lived intangible assets for impairment without changing the information provided to investors,” FASB Chair Leslie Seidman said 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 would be effective for annual and interim impairment tests performed for fiscal years beginning after June 15, 2012, and early adoption would be permitted. The exposure draft is open for public comment until April 24.

Ken Tysiac ( ktysiac@aicpa.org ) is a JofA senior editor.

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