Final answer:
The FASB and IASB have established guidelines for impairment of long-lived assets, requiring a recoverability test and recognizing an impairment loss if the asset's carrying amount exceeds its recoverable or fair value.
Step-by-step explanation:
The Financial Accounting Standards Board (FASB) in the United States, along with international accounting standard-setters, namely the International Accounting Standards Board (IASB), have developed rules for recognizing impairments on long-lived assets. These rules require that an impairment loss must be recognized when the carrying amount of a long-lived asset is not recoverable and exceeds its fair value. According to U.S. GAAP, FASB ASC Topic 360 ("Property, Plant, and Equipment") states that a recoverability test must be performed when events or changes in circumstances indicate that its carrying amount may not be recoverable. Conversely, the IASB's IAS 36 ("Impairment of Assets") requires an annual review for impairment, or more frequently if there are indications that an asset may be impaired.
This process involves comparing the carrying value of the asset against the sum of the undiscounted future cash flows expected to be generated by the asset. If this sum is less than the carrying amount, an impairment loss is recorded to write down the asset's value to its fair value or the discounted cash flows if fair value is not determinable.