There are some differences between IFRS and Canadian GAAP that are worth noting, and therefore a few comments are being made about the accounting for any recognized Goodwill, which for Canadian GAAP is tested annually for impairment. CICA Section 3064 – Goodwill and Intangible Assets, effective Oct 1, 2008 requires that Goodwill be tested separately as it’s allocated to a reporting unit. The reporting unit may not result in assessment at as low a level as the cash-generating unit utilized in IAS 36.
Under IFRS, IAS 36 – Impairment of Assets, Goodwill is allocated to Cash Generating Units (CGU), and the test for impairment, including Goodwill, is on the entire CGU. Under IFRS, there is no separate test for Goodwill, which is a relief for Canadian companies to some extent. However a company must identify which CGU the Goodwill applies to. An impairment loss is recognized, if and only if, the carrying amount of the cash-generating unit to which the goodwill has been allocated exceeds the recoverable amount of the cash-generating unit. The impairment loss should be allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit and secondly to the other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit.
Another important point is that under IFRS, it is not permissible to reverse impairments previously recognized for Goodwill. In particular, IAS 36 requires the reversal of an impairment loss for an individual asset other than goodwill, or a cash-generating unit, if and only if there has been a change in the estimates used to determine the recoverable amount since the last impairment loss was recognized. Reversal of an impairment loss relating to goodwill is prohibited. Under Canadian GAAP, CICA Sections 3051, 3063 and 3064 do not permit the reversal of an impairment loss or a write-down if the fair value increases for any asset. So in this regard, the accounting treatment for Goodwill is currently aligned with both IFRS and Canadian GAAP. Note however the difference for non-Goodwill assets; IFRS allows for reversals, whereas Canadian GAAP does not.
I hope this helps. This is one of a series of blogs that is meant to convey information relating to Canada’s transition from Canadian GAAP to IFRS.
For further information, please refer to the ongoing series of IFRS blogs on the GFS Consulting web-site and please remember to contact your CGA or other accounting professional for further guidance.