Under which framework should an impairment analysis be performed when a triggering event has occurred?

Under which framework should an impairment analysis be performed when a triggering event has occurred?

• A. ITB
• B. IFRS
• C. GAAP
• D. PAS 36

Answer: (C)

When a triggering event occurs, you perform impairment analysis using the framework the entity reports under. In this case, that framework is GAAP. Under US GAAP, impairment testing for long‑lived assets is triggered by events or changes in circumstances that suggest possible loss of value. The first step is to compare the asset’s carrying amount to the undiscounted future cash flows expected from the asset. If those undiscounted cash flows are less than the carrying amount, an impairment exists, and you recognize a loss equal to the excess of the carrying amount over the asset’s fair value. Note that under GAAP, impairment losses for long‑lived assets are generally not reversible if conditions later improve. This approach differs from other frameworks in how impairment is measured (for example, IFRS uses recoverable amount as the higher of fair value less costs to dispose and value in use).

When a triggering event occurs, you perform impairment analysis using the framework the entity reports under. In this case, that framework is GAAP. Under US GAAP, impairment testing for long‑lived assets is triggered by events or changes in circumstances that suggest possible loss of value. The first step is to compare the asset’s carrying amount to the undiscounted future cash flows expected from the asset. If those undiscounted cash flows are less than the carrying amount, an impairment exists, and you recognize a loss equal to the excess of the carrying amount over the asset’s fair value. Note that under GAAP, impairment losses for long‑lived assets are generally not reversible if conditions later improve. This approach differs from other frameworks in how impairment is measured (for example, IFRS uses recoverable amount as the higher of fair value less costs to dispose and value in use).