Get a deeper understanding of triggering events, testing order, and other accounting considerations for nonfinancial assets.
When the economy is strong, nonfinancial asset impairment might seem like a postscript, with limited analysis and documentation required. But when the economy falters, interest in and consideration of asset impairment surges. However, asset impairment can occur at any time, for a number of reasons.
This article focuses on three areas of consideration for the impairment of nonfinancial assets, including inventory, intangible assets, property, plant, and equipment (PP&E), and goodwill:
- Ordering of impairment testing
- Testing frequency
- Triggering events
It also explores specific impairment considerations for the different asset classes of nonfinancial assets.
Ordering of impairments
Under U.S. GAAP, the order of impairment testing is important. If assets are tested out of order, a reporting entity might incorrectly conclude that an impairment loss is (or is not) necessary for a separate class of nonfinancial asset. The following chart displays the correct order of impairment testing for nonfinancial assets (starting from top to bottom):