What is value-in-use in IFRS 36?

Present value of future cash flows the asset is expected to generate, using the entity's own discount rate reflecting asset-specific risks. Often higher than market fair value because it reflects management's internal projections.

Can IFRS 36 and ASC 350 produce different goodwill impairment amounts for the same asset?

Yes. IFRS 36 can use value-in-use (often higher), while ASC 350 must use market fair value (often lower). In down markets, ASC 350 goodwill write-downs are typically larger.

What is the two-step test under ASC 350?

Step 1: Compare fair value of reporting unit to carrying amount (including goodwill). If fair value exceeds carrying, no impairment. Step 2: If fair value is less, calculate implied goodwill value by subtracting fair values of identifiable net assets from fair value of unit. Impair if carrying exceeds implied value.

Goodwill Impairment: IFRS 36 vs ASC 350 Deep Dive (2026)

Q: What is the main difference between IFRS 36 and ASC 350 goodwill impairment?

IFRS 36 uses a one-step test: compare carrying amount to recoverable amount (fair value less costs, or value-in-use). ASC 350 uses a two-step test: compare fair value to carrying; if less, test implied goodwill value. Result: IFRS often produces lower impairments.

Goodwill is the most audited line item in M&A deals. IFRS 36 and ASC 350 both require annual impairment testing, but they test differently. IFRS uses a one-step comparison to recoverable amount (fair value or value-in-use); US GAAP uses a two-step test (fair value → implied goodwill value). In down markets, these differences produce materially different write-downs. This guide walks through both methods with worked examples so you understand where auditors challenge and why a £10M acquisition might survive IFRS testing but fail ASC 350.

The Headline Difference

IFRS 36: Compare carrying amount to recoverable amount (the higher of fair value less costs and value-in-use). If carrying exceeds recoverable, impair the difference.

ASC 350: Step 1: Compare fair value of reporting unit to carrying amount (including goodwill). If fair value exceeds carrying, no impairment. Step 2: If fair value is less, compare carrying amount of goodwill to implied fair value of goodwill. If carrying exceeds implied, impair.

Key insight: IFRS allows value-in-use (management's internal projections, often higher). ASC requires market fair value (market-based, often lower, especially in down markets). Result: IFRS goodwill often survives; ASC goodwill gets written down.

IFRS 36: The One-Step Test

Step 1: Determine Recoverable Amount

Recoverable amount = Higher of:

Fair value less costs of disposal (FVLCD): What a third party would pay for the unit, less costs to sell
Value-in-use (VIU): PV of cash flows management expects to generate from continued use

Step 2: Compare and Impair

If carrying amount > recoverable amount, impair the difference to goodwill.

Reference: IFRS 36 paragraphs 18— 5.

ASC 350: The Two-Step Test

Step 1: Compare Fair Value to Carrying Amount

Fair value of reporting unit > Carrying amount (including goodwill)? → No impairment.

Fair value of reporting unit < Carrying amount? → Proceed to Step 2.

Step 2: Calculate Implied Goodwill Value

Implied goodwill = Fair value of reporting unit − Fair value of identifiable net assets.

If carrying amount of goodwill > implied goodwill value, impair the difference.

Reference: ASC 350-20-35-3 onwards.

Value-in-Use vs Fair Value: Why It Matters

Value-in-use (IFRS): Uses entity-specific assumptions (growth rates, margins, terminal values based on management's budget). Often reflects optimistic internal views. Can be higher than market fair value.

Fair value (ASC): Market-based (what a willing buyer would pay). Reflects current market conditions, not management's view. Often conservative.

In a down market: Fair value drops 20— 0%; VIU may drop only 10% (because management believes a recovery is coming). This divergence creates audit risk.

Worked Example: Acquisition Impairment

Scenario: Software Company Acquired for £50M

Acquisition details (Jan 2024):

Purchase price: £50M
Fair value of identifiable net assets: £30M
Goodwill recognised: £20M

Impairment testing (Dec 2025, Year 2 of ownership): Market downturn; software spending falling. Carrying amount of reporting unit: £50M (assume no depreciation for simplicity).

Fair value estimate: £40M (market comparables, likely buyer interest).

Fair value of identifiable net assets: £32M (updated valuations).

IFRS 36 Analysis:

FVLCD = £40M − £1M (disposal costs) = £39M
VIU = PV of cash flows (5-year forecast + terminal): £38M (management assumes 8% growth, 3-year recovery)
Recoverable amount = Higher of £39M and £38M = £39M
Carrying amount of unit: £50M
Impairment: £50M − £39M = £11M goodwill write-down

ASC 350 Analysis:

Step 1: Fair value (£40M) < Carrying amount (£50M) → Proceed to Step 2
Step 2: Implied goodwill = £40M − £32M = £8M
Carrying goodwill: £20M
Impairment: £20M − £8M = £12M goodwill write-down

Outcome: Both standards result in significant write-downs (£11M vs £12M), but IFRS is marginally more lenient because VIU is £38M (management's view) vs fair value £40M (market). If management is really optimistic (VIU £42M), IFRS impairment drops to £9M, while ASC stays at £12M.

Cash-Generating Units vs Reporting Units

IFRS 36: Tests goodwill at the cash-generating unit (CGU) level — the smallest group of assets generating independent cash inflows.

ASC 350: Tests at the reporting unit level — typically aligns with operating segments.

Audit implication: IFRS may result in more granular impairment testing (more CGUs = more write-downs if individual units underperform). ASC is more lenient (larger reporting units can offset underperformers).

Discount Rate Assumptions

IFRS 36: Uses a pre-tax discount rate reflecting the asset-specific risks (WACC adjusted for risk).

ASC 350: Uses post-tax discount rate (or pre-tax, but adjusted differently).

Small differences in discount rate produce large differences in VIU/impairment amounts. A 1% difference in discount rate can move impairment by £1— M for a £20M goodwill balance.

Audit Implications and Red Flags

For auditors:

Challenge VIU assumptions: Growth rates, terminal values, margins. Are they backed by external data or just management optimism?
Fair value benchmarking: If fair value is higher than VIU, question why. Market should reflect reality better than internal models.
Discount rate: Build-up from scratch; don't accept management's rate without challenge. Small changes matter.
IFRS vs ASC divergence: If testing under both standards, document why results differ. Market fair value should generally be stricter.
Subsequent quarters: If impairment was avoided in Year 1 but conditions deteriorated, push harder in Year 2. Auditors often challenge deferred write-downs.

For controllers and CFOs:

Document your impairment model thoroughly. Auditors will rebuild it from scratch.
If you are IFRS, don't rely solely on VIU. Benchmark to market fair value. Auditors will question if you ignore the market.
If underperforming post-acquisition, proactively consider impairment. Delaying a write-down signals weak controls to auditors.

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Frequently Asked Questions

What is the main difference between IFRS 36 and ASC 350 goodwill impairment?

IFRS 36 uses one-step test (fair value or value-in-use). ASC 350 uses two-step test (fair value → implied goodwill). IFRS allows value-in-use (often higher); ASC requires market fair value (often lower).

What is value-in-use?

PV of future cash flows the asset is expected to generate, using the entity's discount rate. Management-specific; often higher than market fair value.

Can IFRS 36 and ASC 350 produce different impairment amounts?

Yes. IFRS can use value-in-use (higher); ASC uses fair value (lower). In down markets, ASC write-downs are typically larger.

About the author — Usman Qureshi (ACCA, ACA)

Usman has audited goodwill impairment across mergers, acquisitions, and portfolio companies. He specialises in challenging management assumptions in VIU models and benchmarking against market fair values.

This guide is simplified for educational purposes. Goodwill impairment testing is complex; outcomes depend on specific facts, assumptions, and judgments. Consult IFRS 36 and ASC 350 full text, and your own advisors, before finalising impairment treatment.

Real-Life Case Study: Testing Goodwill Under IAS 36 vs ASC 350

Scenario. A dual reporter tests a reporting unit / CGU carrying £50m of goodwill after a downturn.

The difference. IAS 36 tests at the CGU level using recoverable amount (higher of FVLCD and value in use), a one-step test. US GAAP (ASC 350, as simplified) compares the reporting unit's fair value to its carrying amount and books the shortfall directly. Because value in use (an entity-specific measure) can exceed fair value, the frameworks can produce a different impairment, or one may impair while the other does not.

Takeaway. The measurement base differs (recoverable amount vs fair value) and the unit of account differs (CGU vs reporting unit). Neither framework allows a goodwill-impairment reversal, but they can still disagree on the loss itself.

Illustrative composite scenario for educational purposes. Figures are indicative and do not represent any specific company.

Goodwill Impairment: IFRS 36 vs ASC 350 Deep Dive