Canada: Impairment Testing Simplified, But...

Last Updated: December 31 2012
Article by PWCs National Accounting And Assurance

Two updates to the impairment standards provide an opportunity for many companies to reduce the cost and complexity of the annual test. Craig McMillan and John Williamson explain what you should focus on in implementing these changes.

Annual impairment tests for goodwill and indefinite lived intangible assets have been challenging and the mandated valuations were burdensome and required significant effort. Some relief is now available for companies with the introduction of an impairment diagnostic test for both goodwill and indefinite-lived intangible assets. These changes are intended to reduce the cost and complexity of the annual test.

These amendments are reflected in the Intangibles – Goodwill and Other section of the FASB Codification Topic 350 through ASU 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment, and ASU 2011-08, Testing Goodwill for Impairment.

Early adoption

The changes to the goodwill guidance are effective for annual and interim impairment tests for fiscal years beginning on or after December 15, 2011 while the changes for indefinite-lived intangible assets are effective for annual and interim impairment tests for fiscal years beginning on or after December 15, 2012. Early adoption is permitted for both standards. Companies planning to adopt these revisions early should begin considering the relevant factors for the qualitative assessment.

Still an annual review

The changes do not remove the requirement for an annual impairment review. The revisions only add an initial screening test that may simplify a company's evaluation of impairment for these assets. This diagnostic assessment considers whether there are events and circumstances that might indicate impairment exists. If the assessment indicates that impairment exists, the current quantitative testing methods must be applied to determine whether an actual impairment loss needs to be recognized.

The qualitative assessment for both goodwill and indefinite-lived intangible assets is optional and may be bypassed in any period. The assessment can be applied to none, some or all of the reporting units or intangible assets, as applicable. These choices are not accounting policy choices and can be changed freely year to year.

Assessment focuses on fair value

The qualitative assessment outlined in the standards for goodwill and long-lived intangibles are similar but not identical. A company considers whether it is more likely than not that:

  • the fair value of goodwill is less than its carrying amount; or
  • an indefinite-lived intangible asset is impaired (which occurs when the fair value of the asset is less than its carrying amount).

For both types of assets, a company needs to make a comprehensive and balanced evaluation of all relevant events and circumstances that affect the fair value or carrying amount of goodwill, or the significant inputs used to determine the fair value of intangible asset or the carrying amount of the intangible asset. Examples of events and circumstances that are relevant have been provided in each of the standards (see table on next page).

Some pointers

The standards provide several pointers for companies when making the assessment. A comprehensive assessment is required of all events and circumstances – adverse, positive and mitigating. There is no free pass. A "drive-by" assessment would not be sufficient to meet the standards' requirements.

Companies should consider the extent to which each adverse event or circumstance could affect the comparison of the fair value and carrying amount of a goodwill reporting unit or the significant inputs used to determine the fair value of the intangible asset. This does not require a detailed separate quantitative analysis, but rather is an assessment of each adverse indicator identified to determine, on a qualitative basis, what its consequences are.

Management will have to understand the valuation models used to value a reporting unit or intangible asset to determine the key assumptions that have the most significant affect on fair value. These valuations will often have key assumptions, for example, revenue growth, customer attrition, cost escalation, and terminal growth and discount rates. Understanding how changes in these assumptions affect the valuation is a good starting point to monitor how any changes may affect the relevant fair value. When an adverse event or circumstance occurs, the impact on those key assumptions should be considered.

The information to make these assessments is often available from the company's budget process and sensitivity and other analysis used in the budget or financial reporting process. For example, the loss of a major customer may have a significant impact on revenues and net cash flows whereas customer attrition higher than expected but within the sensitivity analysis completed in the budget process may not have a significant impact. Understanding the interaction of the event and circumstances with cash flows and uncertainties will be important in completing the diagnostic tests.

Positive or mitigating events and circumstances should be included in the analysis. For example, the loss of a major customer may have provided capacity to fulfil other customer orders. Positive or mitigating factors, however, do not represent a rebuttable presumption that further testing is not required. More weight should be placed on events and circumstances that most affect the fair value or carrying amount of the reporting units for goodwill or the significant inputs used to determine the fair value of the intangible asset. The events or circumstances provided in the examples are not all-inclusive. The examples are not intended to represent standalone events and circumstances that necessarily require further testing of the respective asset. The existence of one or more of the factors in the examples does not lead to an automatic requirement to complete the more detailed testing.

The most recent valuation of a reporting unit or the intangible asset cannot be ignored. The extent of the cushion between the fair value and carrying amount of any recent valuation of the reporting unit for goodwill or the intangible asset would be considered in the assessment.

Processes & controls important

While these revisions may simplify the annual impairment review for goodwill and indefinite-lived intangible assets, companies will have to develop processes and internal control over the diagnostic test. It is clear from the wording of the standards that evidence must be gathered to support the assertions that further testing was not required. These conclusions will need to be adequately documented. The efforts to develop a framework and appropriate internal control over the assessment process may be more significant than some may have expected.

Companies will need to ensure they have:

  • included all relevant events and circumstances – adverse as well as positive and mitigating;
  • determined those that have the most significant affect on the fair value or carrying value of reporting units and the fair value of indefinitelived intangible assets;
  • considered the appropriate weighting for the identified events and circumstances; and
  • the extent of any cushion.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.