Any company with GAAP-based financial statements is expected to comply with SFAS 144, now known as ASC 360.

ASC 360 identifies impairment as the condition that exists when the carrying amount of a long-lived asset (asset group) exceeds its fair value. It further says that an impairment loss shall be recognized only if the carrying amount of a long-lived asset (asset group) is not recoverable and exceeds its fair value.

The definition of fair value as defined in ASC 820: the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

SFAS 144 and Accounting Standards Codification ASC 360 (Property, Plant and Equipment)

In July, 2009, when the Financial Accounting Standards Board launched the Accounting Standards Codification (the FASB ASC). The FASB ASC replaced all previously existing financial accounting standards (other than U.S. Securities and Exchange Commission pronouncements) to become the single source of authoritative nongovernmental U.S. generally accepted accounting principles. Instead of issuing new standards (e.g., SFAS 141R), the FASB issues updates to the FASB ASC.

As part of ASC 360 "Accounting for the impairment or Disposal of Long-Lived Assets" Cambridge Partners assists companies by performing an initial impairment test of a company's long-lived assets. If the results of the initial test (Step 1) determine that the carrying values (CV) of the long-lived assets are not recoverable from their undiscounted cash flows (UCF), then recognition of impairment may be required.

Failing an ASC 360 Step 1 test, each long-lived asset group's discounted cash flows are then compared with their fair value and any impairment loss measured as the difference between the excess of their carrying amounts over their fair values.

It is customary to perform an ASC 350 "Goodwill and other Intangible Assets" impairment test in tandem with the ASC 360 analysis. As outlined in ASC 350, the procedure for measuring goodwill impairment is a two-step process. The first step is to test whether the carrying value of goodwill may be impaired; if impairment exists, then the second step analysis is performed to measure the amount of impairment.

When to test a long-lived asset for recoverability

According to ASC 360, a long-lived asset (asset group) shall be tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. The following are examples of such events or changes in circumstances:

  1. A significant decrease in the market price of a long-lived asset (asset group)
  2. A significant adverse change in the extent or manner in which a long-lived asset (asset group) is being used or in its physical condition
  3. A significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset (asset group), including an adverse action or assessment by a regulator
  4. An accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset (asset group)
  5. A current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset (asset group)
  6. A current expectation that, more likely than not, a long-lived asset (asset group) will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.