Section 27 – Differences

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Old GAAP	FRS 102	Further Comment On Differences
Income Generating Units.	Cash Generating Units (same meaning as IGU).	The wording in FRS 11 has changed from an income generating unit (IGU) to a cash generating unit (CGU). An IGU may sometimes be identified at a higher level than CGUs, however it should not create major differences in practice.
Impairment review of a fixed asset and goodwill (tangible fixed assets which have a life of 50 years or less and goodwill and intangible assets with a life of more than 20 years) is carried out if events or changes in circumstances indicate that the carrying amount of the fixed assets or goodwill may not be recoverable. There is no requirement for an impairment review if there are no indicators of impairment on such assets.	Assess impairment indicators at each reporting date (for all assets regardless of the useful life) and if an indicator exists carry out an impairment review.	No differences. For tangible fixed assets which have a useful life of more than 50 years and intangibles including goodwill with a life in excess of 20 years a difference arises. This has been discussed further below.
Impairment indicators: · a current period operating loss in the business; · a significant decline in a fixed asset’s market value during the period; · evidence of obsolescence or physical damage to the fixed asset; · a significant adverse change in the business or the market in which the fixed asset or goodwill is involved; · a significant adverse change in the statutory or other regulatory environment in which the business operates; · a major loss of key employees; · a commitment by management to undertake a significant reorganisation; · a significant change in interest rates that materially affects the asset’s recoverable amount.	Impairment Indicators: External • significant decline in value; • adverse changes in market; • increase in market interest rates affecting discount factor; • carrying amount of net assets is more than the estimated fair value of the entity as a whole. Internal • evidence of obsolescence or physical damage; • significant changes in the entity in which the asset is used or expected to be used; • internal indicators that economic performance is worse than expected.	Although the wording differs, the substance is the same.
Allocation of impairment losses: · first, to any goodwill in the unit; · thereafter, to any capitalised intangible asset in the unit; · finally, to the tangible assets in the unit, on a pro rata or more appropriate basis.	Allocation of impairment losses: · first, to reduce the carrying amount of any goodwill allocated to the CGU; · then to other assets of the unit pro rata on the basis of the carrying amount of each asset in the CGU.	Section 35.9 makes it clear that assets which were derecognised under old GAAP cannot be re-recognised on adoption to FRS 102, hence any impairments where intangibles are reduced to nil cannot be reinstated on adoption to FRS 102. Therefore where a prior year impairment review has been performed on a CGU and where the CGU contained intangibles and the impairment did not result in the write off of all the assets in the CGU, a transition adjustment may be required where the intangible was not written off in full. It may be particularly relevant for impairments since the date of transition i.e. in the comparative year of the first set of FRS 102 financial statements.
Impairment process · compare Carrying Amount to Recoverable Value; · Recoverable value is higher of Net Realisable Value Vs. Value in Use; · if Recoverable Value is less than Carrying Amount – Impair.	Impairment process · compare Carrying Amount to Recoverable Value; · Recoverable value is higher of Fair Value less costs to Sell Vs. Value in Use. · if Recoverable Value is less than Carrying Amount – Impair.	No differences
Annual impairment review required for goodwill and intangible assets with an estimated useful life of more than 20 years, tangible fixed assets of more than 50 years and on which no depreciation is charged on the grounds of immateriality.	Impairment review only required if indicators of impairment exist	Under FRS 102, where no indicators of impairment exist then no impairment review is required. This will reduce the workload for entities. This will not create any transition differences as where an entity has performed an impairment review under old GAAP, it would still be applicable under FRS 102. Hence no adjustments required as a result of this difference.
Subsequent monitoring of cash flows explicitly required for 5 years after the impairment was booked where the recoverable amount was based on value in use, with re-performance of original impairment calculation if actual cash flows are significantly less than forecast.	No subsequent monitoring required. Impairment reversed (other than on goodwill-see point in relation to goodwill below) only when evidence/indictors available to show that the circumstance that caused the initial impairment has reversed.	Under FRS 102, where no evidence is available that indicates that the circumstance that caused the initial impairment has reversed then no impairment monitoring is required. Where evidence suggests the circumstance is reversed an impairment review is carried out to assess if it has in fact reversed. This will reduce the workload for entities. This will not create any transition differences as where an entity has reversed a prior year impairment review under old GAAP, it would still be applicable under FRS 102 as this in itself proves the circumstance that caused the initial impairment has reversed. Hence no adjustments required as a result of this difference. An entity may if it wishes continue to perform subsequent monitoring.
Reversal of impairment on goodwill allowed.	Currently in the Republic of Ireland the reversal of an impairment on goodwill is allowed. However, on implementation of the EU directive 2013/34 by Ireland (which is due to be enacted in early 2016), the reversal will be prohibited. In the UK the reversal of an impairment on goodwill is prohibited.	For UK companies, this is a significant difference. If since the date of transition a UK company has reversed a prior year impairment of goodwill, this will have to be adjusted as part of the transition to FRS 102. See attached an example showing the journals required for such a transition adjustment (Example 100 – Reversal Of Impairment On An Individual Asset). For Republic of Ireland companies there will be no adjustments required on transition. However, going forward (when the EU Directive is enacted and the implementation date decided on the change) no goodwill impairments can be reversed.
No specific guidance.	Where assets are held as service potential then it is possible to use the depreciated replacement cost as the value in use method may not be appropriate/applicable. The aim is to determine the future cash flows from the remaining service potential plus receipts from its disposal net of costs.	Although this was not stated in old GAAP, the approach stated in Section 27 is in line with what was applied under old GAAP in practice. If an asset which is held for service potential, an entity should ensure the method used in the impairment review was comparable to the utilisation of the depreciated replacement cost method.
No consideration for deferred tax when determining recoverable amount.	Deferred tax is to be considered when determining recoverable amount.	Depending on materiality and the level of deferred tax liabilities this may have a big impact. Where an indicator of impairment existed on the date of transition or since the date of transition which indicated that an impairment review was required and the difference between the recoverable amount and the carrying amount was very close (and hence no impairment was booked) or alternatively an impairment was booked and the entity carries a deferred tax liability, an entity should re-review the calculations to include deferred tax and book a transition adjustment accordingly. Where no indicators of impairment existed on the date of transition and since that date or there was considerable head room in the impairment review calculations carried out during that period, or the entity does not have a deferred tax liability, this difference will not result in a transition adjustment.
This concept was not available.	If goodwill cannot be allocated to an individual cash generating unit (CGU) or group of CGU on a non-arbitrary basis the test for impairment of goodwill should be carried out by determining the recoverable amount of either the acquired entity in its entirety; or the entire group of companies that have not been integrated.	This is a valuable addition however in reality this method was likely adopted under old GAAP even though it was not stated. This difference will not create any differences on transition as an impairment review will already have been performed for the periods in which the first set of FRS 102 financial statements are prepared.
This was not required.	When performing an impairment review of goodwill acquired in a business combination where a non-controlling interest exists, the carrying value of the goodwill is first grossed up to include goodwill attributable to any non-controlling interest.	Where an impairment of goodwill acquired in a business combination (and a non-controlling interest) has been booked under old GAAP in the consolidated financial statements at the transition date or since transition, a review will need to be performed to assess whether the impairment should be increased as a result of this change. Where there is no non-controlling interest in the consolidated financial statements, no adjustment is required. See (Example 101 – Impairment Loss On A CGU With Goodwill And Non-Controlling Interests) attached illustrating how the impairment review should be performed and the transition adjustments required.
Detailed disclosures required i.e. details of the discount rates, period over which cash flows projected and growth rates used in the value in use calculation is required.	Disclosure is required of the impairment losses recognised or reversed in the period and circumstances leading to it.	Reduced disclosures required under FRS 102.
Detailed guidance on the identification of IGUs, treatment of central assets, basis for cash flow estimates and discount rates.	Very little guidance on the identification of CGUs, treatment of central assets, basis for cash flow estimates and discount rates.	Although not dealt with in Section 27, it is likely the guidance in FRS 11/IAS 36 will be utilised in relation to these so no differences are expected.
Impairment losses should be recognised in the profit and loss account regardless of whether the asset was revalued or not, where it was due to the consumption of economic benefits.	Impairment losses should be recognised in the profit and loss account unless it relates to a revalued asset, in which case it will go to the revaluation reserve first.	Where an impairment review has been performed under old GAAP since the date of transition, a transition adjustment will be required where the entity has recognised an impairment on a previously revalued asset into the profit and loss account (due to the impairment being due to the consumption of economic benefits) without setting it against the revaluation reserve first as would be required under FRS 102. See example attached detailing the journals required on transition (Example 101A – Impairment Loss On Revalued Asset Posted Directly To Profit And Loss Under Old GAAP And Not Set Against Revaluation Reserve).

Old GAAP

FRS 102

Further Comment On Differences

Impairments

Impairments of Assets (S.27)

Income Generating Units.

Cash Generating Units (same meaning as IGU).

The wording in FRS 11 has changed from an income generating unit (IGU) to a cash generating unit (CGU). An IGU may sometimes be identified at a higher level than CGUs, however it should not create major differences in practice.

Impairment review of a fixed asset and goodwill (tangible fixed assets which have a life of 50 years or less and goodwill and intangible assets with a life of more than 20 years) is carried out if events or changes in circumstances indicate that the carrying amount of the fixed assets or goodwill may not be recoverable. There is no requirement for an impairment review if there are no indicators of impairment on such assets.

Assess impairment indicators at each reporting date (for all assets regardless of the useful life) and if an indicator exists carry out an impairment review.

No differences. For tangible fixed assets which have a useful life of more than 50 years and intangibles including goodwill with a life in excess of 20 years a difference arises. This has been discussed further below.

Impairment indicators:

· a current period operating loss in the business;

· a significant decline in a fixed asset’s market value during the period;

· evidence of obsolescence or physical damage to the fixed asset;

· a significant adverse change in the business or the market in which the fixed asset or goodwill is involved;

· a significant adverse change in the statutory or other regulatory environment in which the business operates;

· a major loss of key employees;

· a commitment by management to undertake a significant reorganisation;

· a significant change in interest rates that materially affects the asset’s recoverable amount.

Impairment Indicators:

External

• significant decline in value;

• adverse changes in market;

• increase in market interest rates affecting discount factor;

• carrying amount of net assets is more than the estimated fair value of the entity as a whole.

Internal

• evidence of obsolescence or physical damage;

• significant changes in the entity in which the asset is used or expected to be used;

• internal indicators that economic performance is worse than expected.

Although the wording differs, the substance is the same.

Allocation of impairment losses:

· first, to any goodwill in the unit;

· thereafter, to any capitalised intangible asset in the unit;

· finally, to the tangible assets in the unit, on a pro rata or more appropriate basis.

Allocation of impairment losses:

· first, to reduce the carrying amount of any goodwill allocated to the CGU;

· then to other assets of the unit pro rata on the basis of the carrying amount of each asset in the CGU.

Section 35.9 makes it clear that assets which were derecognised under old GAAP cannot be re-recognised on adoption to FRS 102, hence any impairments where intangibles are reduced to nil cannot be reinstated on adoption to FRS 102. Therefore where a prior year impairment review has been performed on a CGU and where the CGU contained intangibles and the impairment did not result in the write off of all the assets in the CGU, a transition adjustment may be required where the intangible was not written off in full. It may be particularly relevant for impairments since the date of transition i.e. in the comparative year of the first set of FRS 102 financial statements.

Impairment process

· compare Carrying Amount to Recoverable Value;

· Recoverable value is higher of Net Realisable Value Vs. Value in Use;

· if Recoverable Value is less than Carrying Amount – Impair.

Impairment process

· compare Carrying Amount to Recoverable Value;

· Recoverable value is higher of Fair Value less costs to Sell Vs. Value in Use.

· if Recoverable Value is less than Carrying Amount – Impair.

No differences

Annual impairment review required for goodwill and intangible assets with an estimated useful life of more than 20 years, tangible fixed assets of more than 50 years and on which no depreciation is charged on the grounds of immateriality.

Impairment review only required if indicators of impairment exist

Under FRS 102, where no indicators of impairment exist then no impairment review is required. This will reduce the workload for entities.

This will not create any transition differences as where an entity has performed an impairment review under old GAAP, it would still be applicable under FRS 102. Hence no adjustments required as a result of this difference.

Subsequent monitoring of cash flows explicitly required for 5 years after the impairment was booked where the recoverable amount was based on value in use, with re-performance of original impairment calculation if actual cash flows are significantly less than forecast.

No subsequent monitoring required. Impairment reversed (other than on goodwill-see point in relation to goodwill below) only when evidence/indictors available to show that the circumstance that caused the initial impairment has reversed.

Under FRS 102, where no evidence is available that indicates that the circumstance that caused the initial impairment has reversed then no impairment monitoring is required. Where evidence suggests the circumstance is reversed an impairment review is carried out to assess if it has in fact reversed. This will reduce the workload for entities.

This will not create any transition differences as where an entity has reversed a prior year impairment review under old GAAP, it would still be applicable under FRS 102 as this in itself proves the circumstance that caused the initial impairment has reversed. Hence no adjustments required as a result of this difference.

An entity may if it wishes continue to perform subsequent monitoring.

Reversal of impairment on goodwill allowed.

Currently in the Republic of Ireland the reversal of an impairment on goodwill is allowed. However, on implementation of the EU directive 2013/34 by Ireland (which is due to be enacted in early 2016), the reversal will be prohibited.

In the UK the reversal of an impairment on goodwill is prohibited.

For UK companies, this is a significant difference. If since the date of transition a UK company has reversed a prior year impairment of goodwill, this will have to be adjusted as part of the transition to FRS 102. See attached an example showing the journals required for such a transition adjustment (Example 100 – Reversal Of Impairment On An Individual Asset).

For Republic of Ireland companies there will be no adjustments required on transition. However, going forward (when the EU Directive is enacted and the implementation date decided on the change) no goodwill impairments can be reversed.

No specific guidance.

Where assets are held as service potential then it is possible to use the depreciated replacement cost as the value in use method may not be appropriate/applicable. The aim is to determine the future cash flows from the remaining service potential plus receipts from its disposal net of costs.

Although this was not stated in old GAAP, the approach stated in Section 27 is in line with what was applied under old GAAP in practice.

If an asset which is held for service potential, an entity should ensure the method used in the impairment review was comparable to the utilisation of the depreciated replacement cost method.

No consideration for deferred tax when determining recoverable amount.

Deferred tax is to be considered when determining recoverable amount.

Depending on materiality and the level of deferred tax liabilities this may have a big impact.

Where an indicator of impairment existed on the date of transition or since the date of transition which indicated that an impairment review was required and the difference between the recoverable amount and the carrying amount was very close (and hence no impairment was booked) or alternatively an impairment was booked and the entity carries a deferred tax liability, an entity should re-review the calculations to include deferred tax and book a transition adjustment accordingly.

Where no indicators of impairment existed on the date of transition and since that date or there was considerable head room in the impairment review calculations carried out during that period, or the entity does not have a deferred tax liability, this difference will not result in a transition adjustment.

This concept was not available.

If goodwill cannot be allocated to an individual cash generating unit (CGU) or group of CGU on a non-arbitrary basis the test for impairment of goodwill should be carried out by determining the recoverable amount of either the acquired entity in its entirety; or the entire group of companies that have not been integrated.

This is a valuable addition however in reality this method was likely adopted under old GAAP even though it was not stated. This difference will not create any differences on transition as an impairment review will already have been performed for the periods in which the first set of FRS 102 financial statements are prepared.

This was not required.

When performing an impairment review of goodwill acquired in a business combination where a non-controlling interest exists, the carrying value of the goodwill is first grossed up to include goodwill attributable to any non-controlling interest.

Where an impairment of goodwill acquired in a business combination (and a non-controlling interest) has been booked under old GAAP in the consolidated financial statements at the transition date or since transition, a review will need to be performed to assess whether the impairment should be increased as a result of this change.

Where there is no non-controlling interest in the consolidated financial statements, no adjustment is required.

See (Example 101 – Impairment Loss On A CGU With Goodwill And Non-Controlling Interests) attached illustrating how the impairment review should be performed and the transition adjustments required.

Detailed disclosures required i.e. details of the discount rates, period over which cash flows projected and growth rates used in the value in use calculation is required.

Disclosure is required of the impairment losses recognised or reversed in the period and circumstances leading to it.

Reduced disclosures required under FRS 102.

Detailed guidance on the identification of IGUs, treatment of central assets, basis for cash flow estimates and discount rates.

Very little guidance on the identification of CGUs, treatment of central assets, basis for cash flow estimates and discount rates.

Although not dealt with in Section 27, it is likely the guidance in FRS 11/IAS 36 will be utilised in relation to these so no differences are expected.

Impairment losses should be recognised in the profit and loss account regardless of whether the asset was revalued or not, where it was due to the consumption of economic benefits.

Impairment losses should be recognised in the profit and loss account unless it relates to a revalued asset, in which case it will go to the revaluation reserve first.

Where an impairment review has been performed under old GAAP since the date of transition, a transition adjustment will be required where the entity has recognised an impairment on a previously revalued asset into the profit and loss account (due to the impairment being due to the consumption of economic benefits) without setting it against the revaluation reserve first as would be required under FRS 102. See example attached detailing the journals required on transition (Example 101A – Impairment Loss On Revalued Asset Posted Directly To Profit And Loss Under Old GAAP And Not Set Against Revaluation Reserve).

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