Recognition of asset impairment: A Comparison of Recognition Criteria

Abstract

This report examines the accounting for the impairment of long-lived assets and identifiable intangibles as discussed in the Financial Accounting Standards Board Discussion Memorandum No. 098-B. This report specifically analyzes the recognition criteria to be used in determining when an impairment exists. The economic, permanence, and probability criterion are compared and contrasted to ascertain which method is the most feasible. The relevant information for this study ~came from the discussion memorandum, Big Six accounting firms, published literature, and a national student seminar on the topic. The study revealed a great deal of ambiguity in accounting for assets whose value has diminished due to corporate restructuring. This uncertainty has lead to confusion and mistrust among financial statement users. There is, however, a solution to this problem. The use of the probability criterion in recognizing and recording impairments provides adequate disclosures and timely information.