Long-Term Assets: IFRS vs. US GAAP Disclosures of Impairment Losses

IFRS and US GAAP differ in their assessment of when an impairment loss has taken place. They also differ in the required disclosures. Generally, both reporting standards require disclosure of the amount of impairment loss, the cause of the impairment, how the recoverable amount was determined, and where the loss is reported in the financial statements. Can you think of an example of an impairment loss?

Incorrect. A slow down in the market may not be permanent.

Right!

When the recoverable amount is lower than the carrying value, an impairment loss has occurred and the asset is written down. This would be reported in the income statement and disclosed separately. For IFRS users, the impairment loss could be reversed if the recoverable amount increases. This reversal needs to be disclosed separately from any impairment losses, as well as the cause of the reversal. Why do you think the separate location of impairment losses and reversals is a required disclosure under IFRS?

Not quite. Impairments and reversals could be offset on the income statement.

Correct.

In summary: [[summary]]

Because IFRS also permits reversals of impairment losses, it is possible that an impairment on one class of assets could be disguised by a reversal on another, so separate disclosure is required. IFRS also requires the disclosure of each class of assets affected by an impairment or reversal as well as the aggregate of the main classes of assets. This can occur if a particular asset's recoverable amount cannot be separated from all the assets that form the business unit. In the case of US GAAP, it requires that the method of determining the fair value of the impaired asset be disclosed. In addition, specific to US GAAP, reversals are not allowed, and the company is also required to disclose a description of the impaired asset.

The market for a product a machine produces is slowing down

The machine's recoverable amount is lower than the carrying value

Because they affect the statement of operations

Because there could be both an impairment and a reversal

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