difference in calculating impairment - IFRS vs GAAP

CFA Level II
#1

How is calculating impairment different under IFRS and GAAP?

IFRS

loss = Carrying amount (book value) – recoverable amount

where recoverable amount is fair value minus costs to sell OR value in use (expected future cash flows)

I understand IFRS, easy enough.

GAAP

  1. Determine impairment

carrying amount vs undiscounted expected future cash flows

  1. If impaired:

loss = carrying amount – fair value

I don’t understand the bolded words above. What is the difference? Both are fair value which is discounted cash flows.

#2

Impairment of what? Goodwill? Inventory? PPE? I always thought there were slight differences between these three

#3

^Long lived tangible assets held for use.

Pg 68 of volume 2.

EDIT: I can’t wait for the day they get rid of GAAP and just use IFRS only.

#4

IFRS:

If carrying value > recoverable amount of unit, then unit is impaired. Impairment loss is carrying value - recoverable amount.

GAAP:

If carrying value of unit > fair value of unit, then unit is impaired. Fair value of unit - fair value of identifiable net assets of unit = implied goodwill. Carrying value less implied goodwill = impairment loss.

See examples 10 and 11 of reading (blue box)

#5

By the time that happens, you’ll be little more than a name on a weatherbeaten headstone.

#6

So you’re saying there’s a chance. :wink:

#7

Identifying impariment between IFRS and GAAP is really the big difference which you seem to have already mentioned.

GAAP is only impaired when it’s undiscounted cash flows > book value. The impairment write down under each is fairly consistent.

With IFRS you take the higher of the fair value less selling costs (Selling Price - cost to sell), or fair value in use (PV of future cash flows).

With GAAP you take the PV of the future cash flows