In the ideal system, there's a let's-pretend auctioneer who runs around and collects all the chits of the buyers and the sellers. If they don't match up, the auctioneer keeps running around until the market clears. Now buyers and sellers are effectively boycotting the pretend auctioneer, unwilling to believe what he has to say.

—Allen Sinai (1939–), American economist

TESTING FOR IMPAIRMENT IS THE largest single conceptual difference between U.S. Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). Since 2001 GAAP has had a pair of two-step tests. The first, for long-lived assets (ASC 360, Property, Plant and Equipment), is applied to individual items both physical and intangible; the second relates to goodwill in reporting units (ASC 350, Intangibles—Goodwill and Other). IFRS, since 1998, has less complexity with a single-step test in International Accounting Standard (IAS) 36, Impairment of Assets. This is applied either to an asset or, for goodwill, to one or a group of cash-generating units (CGUs). This chapter deals first with reporting units, then cash-generating units, followed by examples of the two impairment testing processes under GAAP and, between them, for a single asset under IFRS.


The concept of a reporting unit is essential to the application of both GAAP impairment tests. Under ASC 805, Business Combinations, all assets (financial, physical, and intangible) acquired and liabilities ...

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