ASC 350 vs IAS 36 Goodwill Impairment: 2026 Comparison Guide

If your company reports under both US GAAP and IFRS, or if you are advising on a cross-border acquisition, the difference between ASC 350 and IAS 36 goodwill impairment testing is not academic. The same acquisition, the same business performance, and the same discount rate can produce materially different impairment charges depending on which framework you apply. This guide cuts through the side-by-side tables every Big-4 firm publishes and focuses on the decisions these differences actually drive: deal pricing, earnings volatility, audit defensibility, and preparation for live regulatory changes at both the FASB and IASB.

Key takeaway: The single most consequential difference between ASC 350 and IAS 36 goodwill impairment is not the measurement method. It is the unit of account. Reporting units under US GAAP are structurally larger than cash-generating units under IFRS, which means IFRS testing is more granular and can surface impairment that a US GAAP test at a broader level would miss entirely.

What Is the Step-by-Step Difference Between the ASC 350 and IAS 36 Impairment Tests?

Under ASC 350-20 (as simplified by ASU 2017-04, effective for public business entities for annual periods beginning after December 15, 2019), goodwill impairment testing is a single-step quantitative test. Compare the fair value of the reporting unit to its carrying amount. If carrying amount exceeds fair value, the excess is the impairment loss, capped at the total goodwill balance. The old Step 2, which required a hypothetical purchase price allocation to measure the implied fair value of goodwill, is gone for all entities.

One practical consequence of eliminating Step 2 is worth flagging: as EY's Financial Reporting Developments guide notes, impairment losses under the current US GAAP model may be larger than under the old two-step approach, because Step 2 sometimes reduced the charge after reallocating fair value to other assets.

Under IAS 36, the test is also a single step, but the measurement is different. The recoverable amount is the higher of (a) fair value less costs of disposal (FVLCD) and (b) value in use (VIU). Impairment is recognized when the carrying amount of the cash-generating unit, including allocated goodwill, exceeds its recoverable amount.

Here is the full test comparison:

Reporting Unit vs. Cash-Generating Unit: Why the Unit of Account Changes Everything

This is the difference that most practitioners underestimate, and it is the one that most directly affects impairment outcomes.

Under ASC 350-20-35, a reporting unit is an operating segment or one level below an operating segment (a "component"). A component qualifies as a reporting unit if it constitutes a business and management regularly reviews its operating results. Two or more components with similar economic characteristics may be aggregated into a single reporting unit.

Under IAS 36, a CGU is the smallest identifiable group of assets that generates cash inflows largely independent of those from other assets. CGUs are inherently more granular. The maximum level at which goodwill can be tested under IAS 36 is a group of CGUs no larger than an operating segment before any aggregation under IFRS 8. That ceiling matters: you cannot aggregate beyond the operating segment boundary, and you cannot use IFRS 8's segment aggregation rules to make the CGU group larger.

A worked example shows why this matters. Imagine a company acquires two businesses for $500 million total, allocating $120 million of goodwill. Under US GAAP, management defines a single reporting unit covering both businesses because they share similar economic characteristics. The combined reporting unit has a fair value of $490 million and a carrying amount of $480 million. No impairment.

Under IFRS, the same two businesses are separate CGUs because they generate largely independent cash inflows. CGU A has a recoverable amount of $310 million against a carrying amount of $290 million. No impairment there. CGU B has a recoverable amount of $160 million against a carrying amount of $190 million, of which $70 million is allocated goodwill. Impairment of $30 million is recognized on CGU B.

Same acquisition. Same total performance. One framework recognizes a $30 million charge; the other recognizes nothing. This is not a hypothetical edge case. It is a structural feature of the two frameworks that plays out in every multi-business acquisition.

Key takeaway: When structuring a cross-border acquisition, the decision about how to define CGUs under IFRS versus reporting units under US GAAP is as consequential as the purchase price allocation itself. M&A teams that do not model both frameworks before signing are flying blind on post-acquisition earnings volatility.

How the Measurement Differs: Fair Value vs. Recoverable Amount

The measurement divergence goes deeper than the label. Under ASC 350, the fair value of a reporting unit is measured using market participant assumptions consistent with ASC 820. Entity-specific synergies that a market participant would not pay for are excluded.

Under IAS 36, FVLCD follows IFRS 13 and is similarly market-participant-based. But VIU is different: it uses entity-specific assumptions, meaning management's own plans and synergies can be reflected. This gives IFRS preparers a tool that US GAAP does not offer. A business that would look impaired to a market participant but is genuinely more valuable to its current owner can avoid an impairment charge under IAS 36 by demonstrating a VIU above carrying amount.

There is a significant technical catch with VIU, however. IAS 36 requires pre-tax cash flows discounted at a pre-tax discount rate. In practice, as PwC's IFRS and US GAAP guide notes, entities commonly derive the pre-tax rate by grossing up an after-tax WACC. This approach is technically inconsistent with IAS 36 but is widely used and generally accepted by auditors. It is also an area of audit scrutiny: if your grossed-up rate does not produce a pre-tax equivalent that is internally consistent with your pre-tax cash flows, expect questions.

Additionally, IAS 36 caps the detailed cash flow projection period at five years, with a terminal growth rate that cannot exceed the long-term average growth rate for the relevant market. ASC 350 has no equivalent explicit cap, though auditors and the SEC scrutinize aggressive terminal growth assumptions closely.

Does the Qualitative Assessment (Step 0) Have an IFRS Equivalent?

No. This is a US GAAP-only feature with no direct parallel under IFRS.

Under ASC 350-20, an entity may perform a qualitative assessment before the quantitative test. If it is not more likely than not (probability of 50% or less) that the reporting unit's fair value is below its carrying amount, no quantitative test is required. The qualitative factors include macroeconomic conditions, industry and market conditions, cost factors, overall financial performance, and changes in management or strategy.

IFRS reporters must perform the full quantitative recoverable amount test annually for every goodwill-bearing CGU, regardless of qualitative indicators. There is no bypass. This makes the IFRS annual impairment test structurally more expensive and time-consuming, particularly for companies with many CGUs.

For US GAAP reporters, the qualitative assessment is a genuine cost-saving tool when headroom is substantial. But it needs to be documented rigorously. The SEC has a long history of comment letters challenging qualitative assessments that lack specific, quantified support for the conclusion that impairment is not more likely than not. For a full treatment of the US GAAP qualitative screen and disclosure requirements, see Finrep's ASC 350-20 practitioner guide.

Amortization: Can Goodwill Be Written Down Systematically?

For public entities, neither framework currently permits goodwill amortization. But that may change under US GAAP.

Under IAS 36, goodwill is carried at cost less accumulated impairment losses. No amortization. Under ASC 350-20, the same rule applies for public business entities. However, US GAAP already permits private companies and not-for-profit entities to elect an amortization accounting alternative under ASU 2014-02: straight-line over a useful life not to exceed 10 years, with a simplified triggering-event-based impairment test. ASU 2021-03 added a further simplification allowing private entities to assess triggering events only at the end of the annual (or interim) reporting period rather than throughout the year.

The FASB issued an Exposure Draft in July 2023 proposing to extend amortization to public business entities, with a default 10-year straight-line period and a triggering-event-based impairment test replacing the mandatory annual quantitative test. As of mid-2026, the FASB has not issued a final ASU. The project remains active.

The IASB's path is different. Its post-implementation review of IFRS 3 and a March 2020 Discussion Paper explored reintroducing amortization under IFRS. The IASB received over 100 comment letters. As of 2025-2026, the IASB has confirmed it will not reintroduce mandatory goodwill amortization under IFRS. Instead, it is focused on improving disclosure requirements and the effectiveness of the impairment test, with an Exposure Draft published in March 2024 and redeliberations ongoing through mid-2026.

The IASB's own Discussion Paper acknowledged the problem directly: the impairment-only approach "has not worked as well as the Board had hoped. Goodwill balances have grown significantly since IFRS 3 was introduced, and impairment charges are recognized infrequently and often late."

The divergence trajectory as of mid-2026: US GAAP is moving toward amortization for public companies; IFRS is staying with impairment-only but improving the test. If the FASB finalizes its proposal, the frameworks will converge on amortization for private entities but diverge further on the public company treatment.

Disclosure Requirements: IAS 36 Is Significantly More Demanding

This is the compliance burden difference that audit committees consistently underestimate.

Under IAS 36 paragraphs 130-133, IFRS reporters must disclose at the CGU level:

• The carrying amount of goodwill allocated to each CGU or group of CGUs
• Whether recoverable amount is based on FVLCD or VIU
• Key assumptions used (discount rates, terminal growth rates, revenue growth rates)
• The period over which management projected cash flows (capped at five years for VIU)
• Sensitivity analysis: the amount by which a key assumption must change for the CGU's carrying amount to equal its recoverable amount

That sensitivity disclosure is the most operationally demanding element. It requires preparers to model the impairment breakeven point for each key assumption, which means maintaining a live model for every goodwill-bearing CGU through the annual reporting cycle.

ASC 350's disclosure requirements are less granular. US GAAP requires disclosure of the amount of goodwill by reportable segment, the aggregate impairment losses recognized, and qualitative and quantitative information about the impairment test when a charge is recognized. The CGU-level sensitivity analysis has no direct US GAAP equivalent.

For a full ASC 350 disclosure checklist, see Finrep's goodwill impairment disclosure requirements guide.

How the Frameworks Affect M&A Deal Economics

The choice of framework is an M&A variable, not just an accounting one.

Post-acquisition earnings volatility differs materially between the two frameworks. Under IFRS, with smaller CGUs and no amortization, a deteriorating business unit can trigger a large impairment charge that would not appear under US GAAP if the broader reporting unit remains healthy. This asymmetry affects:

• Earn-out structures: If earn-out payments are tied to EBITDA or net income, an IFRS impairment charge that has no US GAAP equivalent can create disputes between buyer and seller.
• Leverage covenants: Debt covenants that reference net assets or EBITDA may be triggered by an IFRS impairment charge that a US GAAP reporter would not recognize.
• Acquisition pricing: Buyers modeling post-acquisition P&L under IFRS need to stress-test CGU-level headroom, not just consolidated reporting unit headroom. A deal that looks clean at the reporting unit level can carry significant impairment risk at the CGU level.

The interest rate environment compounds this. Higher discount rates compress both VIU calculations under IAS 36 and fair value estimates under ASC 350. But because IFRS CGUs are smaller, the sensitivity to a 50-basis-point increase in the discount rate is higher at the CGU level than at the consolidated reporting unit level. M&A teams modeling deals in a 5-6% WACC environment should run CGU-level sensitivity analysis before closing.

What About Dual Reporters and Foreign Private Issuers?

SEC foreign private issuers (FPIs) filing on Form 20-F under IFRS do not need to reconcile goodwill impairment to US GAAP. The SEC eliminated the IFRS-to-GAAP reconciliation requirement in 2007 (Release No. 33-8879), removing a significant compliance burden.

However, US domestic registrants that acquire IFRS-reporting subsidiaries must convert goodwill accounting to US GAAP for consolidated reporting. This means remapping CGUs to reporting units, recalculating impairment under ASC 350, and potentially recognizing different impairment amounts than the subsidiary's standalone IFRS statements show. The reconciliation is not mechanical: reporting unit boundaries may not align with CGU boundaries, and the measurement basis differs.

For companies considering a listing change or cross-border merger, the treatment of existing goodwill on transition is a practical question. IFRS 1 (First-time Adoption) generally permits a company transitioning to IFRS to use the carrying amount of goodwill under its previous GAAP as the deemed cost at the transition date, subject to certain conditions. Transitioning in the other direction, from IFRS to US GAAP, requires a full remeasurement.

What Should Finance Teams Do Now?

The regulatory picture is in motion. Here is what is actionable as of mid-2026:

1. Model the FASB amortization proposal. If the FASB finalizes its 2023 Exposure Draft, public companies will need to decide whether to elect amortization. Run the P&L impact now: a 10-year straight-line charge on your current goodwill balance versus the current impairment-only model. The answer affects EPS guidance, analyst communication, and potentially acquisition pricing.

2. Map your CGUs and reporting units side by side. If you report under both frameworks or are evaluating a cross-border deal, document where CGU boundaries diverge from reporting unit boundaries. That divergence map is your impairment risk map.

3. Stress-test VIU discount rates. With the IASB's 2024 Exposure Draft proposing amendments to the IAS 36 impairment test for CGUs containing goodwill, the mechanics of VIU calculations may change. Ensure your pre-tax discount rate methodology is defensible now, before any amendments take effect.

4. Prepare CGU-level sensitivity disclosures. If you are an IFRS reporter, the IAS 36 paragraphs 130-133 sensitivity analysis is non-negotiable. Build the model infrastructure to produce it efficiently rather than reconstructing it at year-end.

5. Brief your audit committee on the divergence. Boards often do not understand why the same acquisition produces different impairment outcomes under GAAP and IFRS. A one-page briefing on the reporting unit vs. CGU distinction, with your company's specific numbers, is worth preparing before the next audit cycle.

FAQ

Can goodwill impairment be reversed under either framework?

No. Both ASC 350 and IAS 36 prohibit the reversal of goodwill impairment losses. Once recognized, the charge cannot be reversed even if the conditions that caused it subsequently improve. This is one of the few areas of genuine alignment between the two frameworks.

What is the difference between a reporting unit and a CGU?

A reporting unit under ASC 350-20-35 is an operating segment or one level below (a component), and components with similar economic characteristics can be aggregated. A CGU under IAS 36 is the smallest identifiable group of assets generating largely independent cash inflows. CGUs are generally smaller and more granular, which means IFRS testing is more disaggregated and can recognize impairment that a US GAAP test at the reporting unit level would not.

Does IAS 36 require a qualitative assessment before the quantitative test?

No. IAS 36 has no equivalent to the ASC 350 qualitative assessment (Step 0). IFRS reporters must perform the full quantitative recoverable amount test annually for every goodwill-bearing CGU, regardless of qualitative indicators. There is no bypass.

Will the FASB reintroduce goodwill amortization for public companies?

The FASB issued an Exposure Draft in July 2023 proposing to reintroduce amortization for public business entities, with a default 10-year straight-line period. As of mid-2026, no final ASU has been issued. The IASB has confirmed it will not reintroduce amortization under IFRS at this stage.

How does the pre-tax vs. post-tax discount rate difference affect VIU calculations under IAS 36?

IAS 36 requires VIU to use pre-tax cash flows discounted at a pre-tax rate. In practice, most preparers derive the pre-tax rate by grossing up an after-tax WACC, which is technically inconsistent with IAS 36 but widely accepted by auditors. The risk is that the grossed-up rate may not be internally consistent with the pre-tax cash flows used, which can attract audit scrutiny and require additional documentation.

How does segment reporting interact with goodwill impairment testing?

Under IFRS 8, operating segments with similar characteristics may be aggregated. But IAS 36 caps the maximum CGU group size at an operating segment before any IFRS 8 aggregation. Under ASC 280, a similar aggregation framework applies, but US GAAP reporting units can be defined more broadly within those boundaries. The segment structure decision is therefore a direct input into impairment sensitivity under both frameworks.