Essentials - A Focus on IAS 36 Impairment of Assets

This focus session deals with key considerations when applying IAS 36 Impairment of Assets. The Standard applies widely, both to non-financial assets such as property, plant and equipment, goodwill, intangible and right-of-use assets and to financial assets such as interests in associates and joint ventures. Since its introduction, IAS 36 has proved to be complex to apply and involves significant subjective judgements. Its valuation model requires the calculation of an asset’s (or cash-generating unit’s) recoverable amount: this may involve calculating both value in use by estimating future cash flows and determining a suitable discount rate and fair value using a valuation technique under IFRS 13 Fair Value Measurement.

The potential impact of the coronavirus pandemic on applying IAS 36 is to increase the frequency of impairment testing and the complexity of its application. When an entity’s operations have been adversely affected, it is likely that more assets must be tested and some may have to be tested more often in a reporting period. Heightened uncertainty about the future will affect estimates of cash flows and discount rates and could also change which method of determining value in use is appropriate. Pandemic-derived uncertainties will also impact valuation techniques for determining fair values. This session explains how to apply IAS 36 in these circumstances.

The session also enables participants to raise and discuss specific issues that they have identified or anticipate when applying IAS 36 in practice.

Learning Objectives

• Identify when impairment tests are required
• Measure the recoverable amount of an asset or a cash-generating unit
• Reflect impairment losses (and reversals of past losses) in the financial statements
• Identify how the entity’s IAS 36 accounting may be affected by the pandemic
• Draft relevant disclosures

Who Should Attend

• Accountants in finance and reporting teams that prepare IFRS financial statements
• External and internal auditors
• Financial and credit analysts seeking to improve their understanding of IFRS financial statements
• Accounting regulators and enforcement bodies

Topics

• Scope
• Identifying indicators of impairment
• Frequency of testing
• Measuring recoverable amount
• Value in use – estimating cash flows and establishing discount rates: traditional and expected value approaches
• Fair value less costs of disposal
• Impairment of goodwill
• Cash-generating units
• Recognising losses
• Subsequent reversals
• Disclosure

Prerequisites

Basic understanding of accounting under IFRS or any national standards. No advance preparation is required for this course.