IFRS MODULES

7/29/2019 IFRS MODULES

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PricewaterhouseCoopers Slide 1

US GAAP equivalents

Guidance

US GAAP

CON 7

ASC 280, Segment Reporting

ASC 350, IntangiblesGoodwilland Other

ASC 360, Property, Plant andEquipment

ASC 410, Asset Retirement andEnvironmental Obligations

IFRS IAS 36, Impairment of Assets

IFRS 5, Non-current AssetsHeld for Sale and DiscontinuedOperations

IFRS 8, Operating Segments


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Phone company example Impairment losses

Guidance

The impairment model under IFRS can have very different results than the models

under US GAAP

For the year ending 3/31/2006 Vodafone recognized impairment losses of

23.515 billion under IFRS. Under US GAAP they recognized 0.

(Vodafone 2006 Form 20-F)

IFRS

23.515(billion)

US GAAP 0


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Impairment overview Scope of IAS 36

Guidance

Scope ofIAS 36 (Impairment of Assets): All non-financial assets, except:

Assets held-for-sale IFRS 5

Construction contracts IAS 11

Investment property at fair value IAS 40

Biological assets IAS 41

Deferred tax assets IAS 12


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Impairment overview

Guidance

An assessment is made at each reporting date about the existence of any

impairment indicators

Impairment test must be performed when indicators detected

Impairment test involves comparison of the recoverable amount to the carrying

amount of the asset

At a minimum, annual impairment test for goodwill and indefinite lived intangibles

Definition: An asset is impaired when its carrying amount is higher than its

recoverable amount (i.e., the greater of the assets value in use or fair value less

costs to sell)


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Impairment of non-financial assets

Guidance

Finite life assets:

All PP&E

Most intangible assets

Test only if indicators

are present

Indefinite life assets:

Goodwill

A few intangible assets (rare)

Test annually or if

indicators are present

Test when there is an indicator present in addition to any annual test


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Minimum indicators of impairment

Guidance

Testing is required when any indicator is present

Evidence ofdamage

Plans to

discontinue or

restructure

Worse than

expected

performance

Evidence of

obsolescence

Decline in

market value

Adverse changes

to operatingenvironment

Net assets >

market

capitalization

Increase in market

interest rates US GAAP difference


7/15PricewaterhouseCoopers Slide 7

Long, finite-lived assets impairment model

Deep dive

IFRS US GAAP

If impairment exists, assets are written down to

the recoverable amount. Determination of a

recoverable amount involves assessment of

the fair value and value in use (discounted

cash flows).

Impairment is a two-step approach. First,

impairment is assessed on the basis of

undiscounted cash flows. If less than carrying

amount, the impairment loss is measured as

the amount by which the carrying amount

exceeds fair value.



Impairment model

Deep dive

IFRS: Impairment is a one-step approach

US GAAP: Impairment is a two-step approach (long-lived assets & finite lived intangibles)

Recoverable AmountCarrying Amount Difference between

Carrying Amount Fair ValueDifference between

Undiscounted Cash flowsCarrying Amount Compared to



Indefinite-lived intangible assets

Deep dive

IFRS US GAAP

If impairment exists, assets are written down

to the recoverable amount. Determination of

a recoverable amount involves assessment of

the fair value and value in use (discounted

cash flows).

Level of assessment is at the

Cash-Generating unit level.

Impairment is a one-step approach.

Impairment test consists of a comparison

of an intangible assets fair value with its

carrying amount. If the carrying amount of

an intangible asset exceeds its fair value,

an impairment loss is recognized in an

amount equal to that excess.

After an impairment loss is recognized, the

adjusted carrying amount of the intangible

asset is its new accounting basis. Level of

assessment is at the asset level.



Carrying amount

Deep dive

Cash generating unit

Includes the carrying amounts of directly attributable assets, plus

The carrying amounts of assets that can be allocated on a reasonable and

consistent basis

Common issues relating to carrying amount:

- Minority interests

Gross up the carrying value of goodwill allocated

- Allocation of corporate assets

The carrying amount is the amount at which an asset or CGU is recognized less any

accumulated amortization and previous impairment losses



Recoverable amount

Deep dive

The recoverable amount equals the higher of:

If the recoverable amount is less than the carrying amount, an impairmentis recognized

Fair value less costs to sell

Amount obtainable from thesale of an asset or a CGU

in an arms length transaction,

less the costs of disposal

Value in use

Present value of future cashflows to be derived from an

asset or CGU

Or


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Measuring fair value less costs to sell

Deep dive

1. Price in a binding sale agreement

2. Price in an active market

3. Amount (based on the best information available) that could be

obtained from disposal in an arms length transaction between

knowledgeable and willing parties. An entity considers outcome

of recent comparable transactions

Fair value hierarchy:

Typically, options 1 and 2 are not available and so an entity must estimate fair value

less costs to sell


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Measuring fair value less costs to sell (continued)

Deep dive

What does this mean in practice?

Binding sale agreements or active markets generally not available

If no binding sale agreement or active market for an asset, fair value less costs to

sell based on:

In determining this amount, an entity considers the outcome of recent transactions

for similar assets within the same industry Fair value less costs to sell does not reflect a forced sale, unless management is

compelled to sell immediately

Amount that

an entity

could obtain

At end of

reporting

period

From asset

disposal

at arms length

After

deducting

disposal costs


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Measuring fair value less costs to sell (continued)

Deep dive

What is a relevant transaction?

Risk profile and size generally more important than geography

If recent transactions in the industry can be found:

Express prices as multiples of revenue or profit

Apply the multiples to the CGU or asset being valued, adjusting for all points

of difference

If no recent market transactions can be found:

Fair Value less costs to sell may still be derived using estimation techniques such

as a discounted cash flow analysis


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Impairment losses

Deep dive

Impairment loss recognized when an assets recoverable amount is lower than its

carrying amount

Initial recognition of impairment loss involves:

- Reversal of any revaluation reserve

- Recognition of remaining losses directly in P&L- Amendment of depreciation or amortization charge

IFRS MODULES

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