After the FASB received feedback on its proposed standards for testing goodwill impairment project, it added a new project on the impairment of intangible assets with indefinite lives, reports Michael Conn in Accounting Today. “The new project’s scope is to simplify the manner in which an entity tests other indefinite-lived intangible assets for impairment,” Conn reports. The FASB has not yet indicated when it will complete the new initiative or how it will fit into the ongoing goodwill impairment project.
How will FASB’s new intangibles initiative impact valuation analysts? According to Brad Pursel (Brown Smith Wallace LLC):
Under GAAP, impairment testing of non-goodwill indefinite-lived intangible assets is a one-step test similar to step one of goodwill impairment testing (i.e., compare fair value to carrying value). Given FASB’s recent approval of a qualitative option for step one of goodwill impairment testing, it appears that a likely outcome of the FASB’s new project will be a qualitative option for testing indefinite-lived intangible assets for impairment.
Due to the relative comparability between testing indefinite-lived intangible assets and goodwill for impairment, it may not take long for this new FASB project to result in a proposed Accounting Standards Update for public comment. However, since indefinite-lived intangible assets can include varied assets, from brands to in-process research and development, it is possible that the FASB could develop asset-specific guidance. For example, under a qualitative option of impairment testing, testing a brand for impairment could vary considerably from the factors considered to test an in-process R&D asset for impairment.