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FASB Updates Accounting Standard for Intangibles

Posted 12:00 PM by

In July, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2012-02, Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. The objective of the amendment is to help simplify the impairment testing and to improve consistency in impairment testing of indefinite-lived intangible assets other than goodwill, such as licenses, distribution rights and trademarks. 

Previously, a company had to perform an annual impairment testing of an indefinite-lived intangible asset by comparing the fair value of the asset to its carrying amount on the books. If the fair value was determined to be below the carrying amount, then an impairment loss was recognized and the intangible asset was written down.

Under the amendment, a company is now able to perform a qualitative assessment first to determine whether a quantitative assessment of fair value would be needed. If the company’s qualitative assessment determines that it is "more likely than not" that the indefinite-lived asset is impaired, then the company is required to calculate the fair value and assess as before. If it is determined that the indefinite-lived asset is not "more likely than not" to be impaired, then the company is able to stop its assessment at that point.

The Accounting Standard Update goes into effect for all fiscal years beginning after September 15, 2012.

This guidance is similar to the guidance for goodwill impairment testing included in Updated No, 2011-08, Intangibles – Goodwill and Other.

About the Author

Justin Hayes is a director in Katz, Sapper & Miller’s Audit and Assurance Services Group as well as being a member of the Not-for-Profit and Governmental Services Groups. Justin works with clients to help them avoid risk and maximize efficiencies by keeping an eye on their bottom line and helping ensure accurate financial reporting. Connect with him on LinkedIn.

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