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Thursday, February 18, 2010

The Impact of IFRS for EPM Reporting – Part 5

In Part 5, I want to provide more detail on the similarities and differences regarding Assets: intangible assets, long-term assets, impairment of assets and Leases. The details below were from a presentation during a company sponsored educational seminar about IFRS.

Intangible Assets


Same definition: nonmonetary assets without physical substance

Recognition criteria require that there be probable future economic benefits and costs that can be reliably measured

Start up costs are never capitalized as intangible assets

Goodwill only recognized in business combinations

Internal costs related to the research phase of R&D are expensed

Amortize over the useful life

Goodwill never amortized


Development costs

  • US GAAP – expensed, some software developed for internal use can be capitalized (SOP 98-1)
  • IFRS – can be capitalized when technical and economic feasibility can be demonstrated. No separate guidance addressing computer software


  • US GAAP – not permitted
  • IFRS – permitted, but reference to an active market required, therefore, rare

Property, plant and equipment


Costs to be capitalized are similar

Both require a provision for asset retirement costs when there is a legal obligation, although IFRS requires provision in certain other circumstances as well

Depreciate on a systematic basis

Assets held for sale are measured at lower of carrying amount or fair value less costs to sell



  • US GAAP – not permitted
  • IFRS – may be applied to an entire class of assets to fair value

Capitalization of borrowing costs

  • US GAAP – generally, capitalize. Can include certain equity method investments
  • IFRS – policy choice: capitalize or expense, but must be consistent to all. Equity method investments are not qualifying assets. (NOTE: choice will be eliminated in 2009, when the costs must be capitalized)

Investment property

  • US GAAP – not separately defined, so accounted for as held for use or held for sale
  • IFRS – defined as an asset held to earn rent or for capital appreciation. May be accounted for at cost or at fair value

Impairment of Assets


Similarly defined impairment indicators

Both require goodwill and intangibles with indefinite lives to be reviewed annually for impairment

Despite similarity in overall objectives, differences exist in the way in which impairment is reviewed, recognized and measured


Review for impairment indicators – long-term assets

  • US GAAP – whenever events or changes in circumstances indicate
  • IFRS – assessed at each reporting date

Method of determining impairment

  • US GAAP – 2 step approach – determine recoverability, then loss
  • IFRS – one step approach – calculate loss if indicators exist

Impairment loss calculation

  • US GAAP – Amount carrying amount exceeds fair value (FAS 157)
  • IFRS – Amount carrying amount exceeds its recoverable amount


  • US GAAP – recoverability test first at the reporting unit level, then calculate loss
  • IFRS – impairment test at the cash generating unit level

Reversal of loss

  • US GAAP – prohibited
  • IFRS – prohibited for goodwill. Other long-term assets reviewed annually for reversal indicators



Party that bears substantially all of the risks/rewards of ownership recognizes a lease asset and corresponding obligation (capital lease)

  • US GAAP has bright line tests, IFRS doesn’t – but generally follows the US GAAP test

Operating leases expense recognized straight line over lease term

Lessor accounting essentially the same


Lease of land and building

  • US GAAP – if fair value of land is greater than 25% of the total fair value – consider the land and building components separately
  • IFRS – land and building elements considered separately – no 25% test

Recognition of a gain/loss on a sale and leaseback

  • US GAAP – gain or loss is generally deferred and amortized over the lease term
  • IFRS – For an operating lease, the gain/loss is recognized immediately. For a capital lease, the gain/loss is deferred and amortized over the lease term
  • IFRS does not have a leveraged lease classification