Impairment: IASB – FASB Comparison

This paper focuses on the accounting concept of impairment of long lived assets and goodwill. The objective is to identify the differences between the Financial Accounting Standards Board’s (FASB) and the International Accounting Standards Board’s (IASB) standards on impairment and to recommend a converged standard that will be acceptable to both bodies. Information for the research was obtained through primary sources such as the FASB Codification, Statements of Financial Accounting Concepts and International Accounting Standards. Information obtained from the FASB and IASB web sites, other professional research, and trade articles supplemented the primary sources. The paper identified three differences between the FASB and IASB for impairments: (1) the methods of determining impairment and its calculation, (2) the allocation of goodwill, and (3) the reversal of goodwill. We recommend there should be a two-step process to test for impairments. Subject Area: Accounting Article Type: Editorially Reviewed Faculty/Student Research Report INTRODUCTION Recently, accounting for impairment of assets has received significant recognition in the popular press. Due to the economic crisis in the U.S. and the ongoing steps towards convergence with International Financial Reporting Standards (IFRS), a focus on potential balance sheet impairment has come to the forefront. “Difficult economic conditions should always call into question the values placed on assets in corporate balance sheets. Many corporations, auditors, and analysts expect to see a lot of restructuring and write-downs in the near future” (Soroosh, 2002 ). This paper examines the accounting issue of impairment for two of the biggest areas of concern on the corporate balance sheet, long-lived assets and goodwill. First, we detail the treatment of impairment by the International Accounting Standards Board (IASB). Second we look at the way the Financial Accounting Standards Board (FASB) treats the issue. Third, we focus on an analysis of where the two governing bodies differ in their treatment of impairment. In the final section, we provide a recommendation of how the IASB and FASB should proceed with impairment in the ongoing convergence process. Throughout this paper the term “asset” should also be inclusive of “asset group.” Impairment relates to the accounting concepts of historical cost and fair value. If the intent is to hold an asset for a long time, the cost of the asset is allocated over time through depreciation. The depreciation of the asset ties in with the matching concept, whereby the cost of the asset is