FASB simplifies impairment testing of indefinite-lived intangible assets

BY KEN TYSIAC

The guidance for testing the impairment of intangible assets such as indefinite-lived trademarks, licenses and distribution rights has been simplified by FASB.

FASB on Friday issued Accounting Standards Update (ASU) no. 2012-02, Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment.

The standard applies to testing the decline in realizable value of indefinite-lived intangibles other than goodwill, and applies to all public, private, and not-for-profit organizations.

The ASU allows an organization the option of first assessing qualitative factors to determine if a quantitative impairment test of the indefinite-lived intangible asset is necessary. If the qualitative assessment reveals that it’s “more likely than not” that the asset is impaired, a calculation of the asset’s fair value is required.

Otherwise, no quantitative calculation is necessary.

“The board expects that the revised guidance will reduce the cost of accounting for indefinite-lived intangible assets, especially in cases where the likelihood of impairment is low,” FASB Chairman Leslie Seidman said in a statement.

FASB’s previous guidance required an organization to compare the fair value of an indefinite-lived intangible asset with its carrying amount at least annually to test for impairment. If the asset’s carrying amount exceeded its fair value, the difference was recognized as an impairment loss.

The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after Sept. 15, 2012. Early adoption is permitted.

A podcast and a “FASB in Focus” issue devoted to the amendments are available on FASB’s website.

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

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