Impairment Testing Process – ASC 350
Given the significant value which can be assigned to the intangible assets of a Company, it is necessary to periodically test the indefinite-lived intangible assets for impairment.
The process outlined in the accounting guidance is outlined below:
Step Zero – Qualitative analysis used when impairment is unlikely.
Step 1 – Comparison between the Fair Value of the reporting unit (or indefinite-lived asset) to its carrying value.
As in an ASC 805 analysis, a Market Approach and Income Approach are typically utilized in estimating the value of the reporting unit.
Indefinite-lived assets are valued using the appropriate methods and compared to carrying amount.
If the Fair Value of a reporting unit is less than the carrying amount of that reporting unit, it may be necessary to conduct a undiscounted cash flow analysis to test for impairment of long-lived assets under ASC 360.
If the sum of the undiscounted cash flow is less than the carrying amount of the reporting unit, it is necessary to move to a Step 2 analysis.
Step 2 – Revalue all of the assets of the reporting unit.
It is also necessary to test for asset impairment when a triggering event occurs. Triggering events could include losing a material customer, discontinuing a product line, rebranding a company, replacing a technology, etc.