The FASB released Accounting Standards Update No. 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment, applying to all public, private and not-for-profit organizations, and carrying an effective date of fiscal years beginning after September 12, 2012.
Previously, organizations were required to test indefinite-lived intangibles for impairment at least annually by comparing the fair value of an asset with its carrying amount. This amendment still allows for the same approach, but adds an alternative: entities can now assess whether or not factors make it more likely than not the asset is impaired before performing the test (the more-likely-than-not standard is defined as having a likelihood of more than 50 percent). Valuators familiar with the goodwill impairment testing guidance in Update 2011-08 will recognize this new approach.
Factors to be considered in the assessment are not limited to these examples:
- Cost factors, such as increased costs of raw materials that would have a negative effect on cash flow;
- Financial performance, such as a decline in actual or planned revenues;
- Legal factors;
- Industry and market conditions;
- Macroeconomic conditions, such as an adverse credit environment;
- And entity-specific events, such as management turnover, contemplation of bankruptcy, etc.