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Goodwill impairment: IFRS® Accounting Standards vs. US GAAP

Key differences between IAS 36 and ASC Topic 350 for testing goodwill impairment.

From the IFRS Institute – December 2, 2022

Rising interest rates and the threat of economic recession are exposing businesses to a greater risk of impairment of goodwill. Both IFRS Accounting Standards and US GAAP require annual impairment testing of goodwilland prohibit reversing a goodwill impairment loss. However, there are significant differences in the approach which may cause the timing and amount of an impairment loss to differ. Here we explore key differences between IAS 362 and ASC 3503 in relation to goodwill impairment.

The following summaries highlight the key differences between IFRS Accounting Standards and US GAAP for the impairment of goodwill. The Topic 350 column refers to US GAAP applicable to companies that have not selected the private company alternatives1. Read KPMG Handbook, IFRS® compared to US GAAP for a more comprehensive comparison.


IAS  36Topic 350Observations
Goodwill is tested for impairment at different levels of asset groupings. 

Goodwill is allocated to a cash-generating unit (CGU), or a group of CGUs, which cannot be larger than an operating segment before aggregation4 . A CGU is the smallest identifiable group of assets that generates largely independent cash inflows.

Each CGU or group of CGUs to which goodwill is allocated represents the lowest level for which information about goodwill is available and monitored for internal management purposes.

Goodwill is allocated to reporting units. A reporting unit is generally an operating segment or one level below (component level), if it constitutes a business for which discrete financial information is available and segment management regularly reviews the operating results of that component.

There will generally be more CGUs than reporting units, which might result in goodwill being tested at a different level (generally lower) under IFRS Accounting Standards than under US GAAP.

IFRS Accounting Standards do not permit an optional qualitative goodwill impairment assessment.

Goodwill is tested at least annually for impairment, or more frequently if an impairment indicator is present.

An optional qualitative goodwill impairment assessment does not exist under IFRS Accounting Standards. However, companies can rely on the calculation of the recoverable amount made in a preceding period if specific criteria are met.

Like IFRS Accounting Standards, goodwill is tested at least annually for impairment, or more frequently if an impairment indicator is present.

However, unlike IFRS Accounting Standards, companies can elect to perform an initial qualitative assessment before proceeding with the quantitative test. If it is not more likely than not (i.e. a likelihood of greater than 50%) that the reporting unit’s fair value is less than its carrying amount, the quantitative test is not required.

The US GAAP optional qualitative assessment for goodwill impairment test is not expected to create timing or measurement differences in goodwill impairment loss with IFRS Accounting Standards.

However, it generally requires less time and effort than a quantitative test. Companies applying IFRS Accounting Standards will need to factor in the additional effort that may be needed.

IFRS Accounting Standards and US GAAP have different measurement requirements.

An impairment loss is measured as the difference between the carrying amount of the CGU, including goodwill, and its recoverable amount. The recoverable amount is the higher of: 

  • fair value less cost of disposal (FVLCD); and 
  • value in use (VIU)

VIU is an entity-specific measure, as opposed to fair value, which is a market participant-based measure. 

VIU is based on management’s pre-tax cash flow projections, generally excluding the effects of future restructuring or asset enhancements. Management’s projections are used for a maximum of five years, unless a longer period can be supported. Thereafter, the cash flows are extrapolated using a steady or declining growth rate consistent with that of the product, industry or country.


There is no concept of VIU under US GAAP. 

The impairment loss is the amount by which the reporting unit’s carrying amount exceeds its fair value. 

Fair value is an exit price that would be received in an orderly transaction between market participants and is determined using either a market or income approach. 

Under the income approach, the cash flows generally start with a recent business plan or internally developed budget, inclusive of the effects of future restructuring or asset enhancements. The cash flows are then adjusted to ensure consistency with the market participant view. The discrete projection period is specific to the reporting unit and should represent the time required for the cash flows of the reporting unit to reach a steady state.

The way a goodwill impairment loss is measured is different under IFRS Accounting Standards and US GAAP. 

While the definition and measurement of fair value under IFRS Accounting Standards and US GAAP are substantially converged, VIU is used as the recoverable amount under IFRS Accounting Standards, when it is higher than fair value. This may result in no impairment, or smaller impairment than US GAAP for comparable CGUs/reporting units.


4The fair value component of FVLCD is measured in accordance with the fair value measurement standard (IFRS 135) and the cost of disposal is the incremental cost directly attributable to the disposal of an asset or CGU. 

The fair value of a reporting unit is measured in accordance with the fair value measurement topic (ASC 8206).

Unlike IFRS Accounting Standards, costs of disposal are not considered.

Even if fair value is used to measure a goodwill impairment loss under both IFRS Accounting Standards and US GAAP, consideration of the costs of disposal will affect the calculation of the impairment loss.
Unlike US GAAP, IFRS Accounting Standards do not limit the amount of impairment loss to the carrying amount of goodwill.
An impairment loss for a CGU is allocated first to any goodwill and then pro rata to other assets in the CGU that are in the scope of IAS 36. However, no asset is written down to below its known recoverable amount.

Unlike IFRS Accounting Standards, any impairment loss that results from the goodwill impairment test is limited to the amount of goodwill allocated to that reporting unit.


Under IFRS Accounting Standards, a CGU is evaluated as a whole (i.e. the goodwill and all other assets), which can lead to differences in the measurement of impairment compared to US GAAP.


IFRS Accounting Standards require testing goodwill for impairment in the year of acquisition, US GAAP does not.

If goodwill arises from a business combination in the current annual period, the CGUs to which goodwill has been allocated need to be tested for impairment during that annual period. 

However, if the acquisition accounting is provisional7 , it may not be possible to finish allocating goodwill to CGUs before the end of the annual period in which the business combination occurred. Judgment is required when the allocation process is not yet complete, but there is an indication of impairment in a CGU to which goodwill is expected to be allocated. In that case, in our view it is appropriate to test the goodwill for impairment based on a provisional allocation.

There is no specific requirement for goodwill to be tested for impairment in the year of acquisition. There is a requirement to test for impairment if a triggering event occurs.Both GAAPs require goodwill to be tested at least annually, although goodwill may need to be tested sooner after acquisition under IFRS Accounting Standards.
The amount of goodwill impairment loss may be different when there is noncontrolling interest (NCI)

NCI can be measured either at fair value (like US GAAP) or based on their proportionate interest in the subsidiary's identifiable net assets (unlike US GAAP) at the date of acquisition

If NCI were initially measured based on their proportionate interest in the identifiable net assets of the subsidiary, then the carrying amount of goodwill allocated to such a CGU or group of CGUs is grossed up to include the unrecognized goodwill attributable to the NCI. For impairment testing purposes, it is this adjusted carrying amount that is compared with the recoverable amount. This gross-up is not required if NCI were initially measured at fair value. If NCI is measured at fair value, any goodwill impairment loss is fully recognized and allocated between the parent and NCI using a rational basis (generally the same basis as profit or loss allocation).

NCI is always measured at fair value on the date of the business combination. Unlike IFRS Accounting Standards, the carrying amount of goodwill does not need to be grossed up for impairment testing because it is fully recognized in the consolidated financial statements. 

Any goodwill impairment loss is recognized for both the parent and NCI, and allocated between both on a rational basis. 


For non-wholly owned subsidiaries, the amount of goodwill impairment loss recognized differs between GAAPs, if NCI is measured based on their proportionate interest. 

Forthcoming standard-setting

The IASB has undertaken a goodwill and impairment project8 which includes proposals to:


Improve disclosures about business combinations in financial statements of acquirers,


improve the effectiveness of and simplify the impairment test in IAS 36, and


potentially allow the use of post-tax cash flows and discount rate model.


The IASB and the FASB considered, but ultimately abandoned a proposal to permit entities1 to amortize goodwill.

Key takeaway:

IFRS Accounting Standards and US GAAP have fundamentally different approaches to identifying and measuring goodwill impairment. This often leads to very different reported results, particularly during challenging economic times. With its emphasis on cash-generating units, IFRS Accounting Standards typically require testing for impairment at a lower level than US GAAP, which may increase the likelihood that impairment will be identified. However, once impairment is identified, the concept of value in use under IFRS Accounting Standards may result in smaller impairment losses. Users of financial statements should consider these key differences when comparing financial results of similar companies.

Do you want to read more about impairment under IFRS Accounting Standards?

See KPMG’s recent article on testing leased office space for impairment.


  1. US GAAP allows private entities and not-for-profit entities (NFP) to amortize goodwill and to use a simplified one-step impairment test. Accounting Standards Update (ASU) 2021-03, Intangibles Goodwill and Other (Topic 350): Accounting Alternative for Evaluating Triggering Events provided a second accounting alternative allowing these entities to assess whether triggering events for goodwill impairment have occurred only as of the end of their annual reporting period, or interim reporting period if they report more frequently.
  2. IAS 36, Impairment of Assets
  3. ASC 350, Intangibles Goodwill and Other (as amended by ASU 2017-04, which is already effective for public entities, but effective for annual periods beginning after 15 December 2022 for non-SEC filers).    
  4. Under IFRS 8, Operating Segments, two or more operating segments that share similar characteristics may be aggregated into a single operating segment. 
  5. IFRS 13, Fair Value Measurement
  6. ASC 820, Fair Value Measurement
  7. In accordance with IFRS 3, Business Combinations, a company is allowed up to a maximum of one year from the date of acquisition to finalize the acquisition accounting and thereby determine the amount of goodwill.
  8. As part of this project, in 2020 the IASB Board published its preliminary views, Discussion Paper Business Combinations—Disclosures, Goodwill and Impairment.

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