Detailed examples of indicators of impairment are included in IAS 36.12. As we move forward, Canadian public companies will need to file financial statements. Nature of and effective date for recent goodwill impairment simplifications in U.S. GAAP test. We can support you as you navigate through accounting for the impacts of COVID-19 on your business. © 2020 Grant Thornton International Ltd (GTIL) - All rights reserved. However, if VIU indicates an impairment loss then FVLCD should also be estimated – unless facts and circumstances indicate that FVLCD would not be materially higher than VIU or it cannot be estimated reliably. Below are some issues for management to consider in assessing impairment together with some direction as to how best to respond to them. 1. When preparing interim and annual financial statements in accordance with IFRS ® Standards, management B. C. 1 However, this contradiction was identified by the IFRS Interpretations Committee which published an interpretation (IFRIC 10) confirming that an impairment loss recognised for goodwill in an interim period cannot be reversed in a subsequent period. The Application of IFRS: Food, drink and consumer goods companies IAS 38 outlines the accounting requirements for intangible assets, which are non-monetary assets which are without physical substance and identifiable (either being separable or arising from contractual or other legal rights). For impairment of other financial assets, refer to IFRS 9. Reference 2013/2 . Limited-life intangibles are … IFRS 16 and IAS 36 how changes in lease accounting will impact your impairment testing processes. While impairment losses provide only a lagging indicator of negative developments, this does not reduce the importance of ensuring that the reported values for goodwill and other intangibles reflect an appropriate value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Yes, provide relief from the annual impairment test and simplify value in use. 85 . Grant Thornton valuation experts provide time critical independent support and advice to organisations who must review or quantify any impairment risks relating to intangible assets and goodwill caused by the impact of COVID-19. They are reviewed for impairment at least … These assets should be assessed for impairment as they could be impacted by COVID-19, particularly where these amounts reflect historic transactions with third parties where the creditworthiness of these third parties is now called into question. IAS 36 Impairment of Assets seeks to ensure that an entity's assets are not carried at more than their recoverable amount (i.e. Unfortunately, many businesses will continue to be affected for some time. You should present it as an intangible asset, but when you think about it carefully, a goodwill is not a typical asset, because unlike other assets, you cannot sell it to… Consolidation and Groups, IFRS Accounting, Impairment of assets, Intangible assets, Uncategorized. Significant professional judgement of all relevant facts and circumstances will be required to make this assessment. goodwill and intangible assets acquired in business combinations. IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Unless it is tested on a standalone basis, an ROU asset is tested in combination with other assets in a Cash Generating Unit (CGU). Practical guide to Phase 2 amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 for interest rate benchmark (IBOR) reform The IASB has issued amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 that address issues arising during the reform of benchmark interest rates including the replacement of one benchmark rate with an alternative one. These adjustments will also be affected by COVID-19. Impairment of Assets Objective 1 The objective of this Standard is to prescribe the procedures that an entity applies to ensure that its assets are carried at no more than their recoverable amount. ‘work in progress’). US GAAP and IFRS contain similar impairment indicators for assessing the impairment of long-lived assets (“non-current assets” in IFRS). [IAS 36.2, 4] the goodwill impairment model, including the amortization method and period - Explore other changes to the goodwill impairment model - Consider the accounting for identifiable intangible assets - Address presentation, disclosure, and transition No, retain the impairment-only model. In such cases, IAS 36 states that an impairment loss recognised in prior periods for an asset other than goodwill should be reversed if, and only if, there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. In the current environment, it may be more difficult to determine a current fair value due to a lack of recent arms-length transactions between market participants as they are defined in IFRS 13 ‘Fair Value Measurement’. Intangible assets can have either a limited or an indefinite useful life. Fully updated guide focusing on each area of the financial statement in detail with illustrative examples. If at least one indicator is identified, an impairment test must be performed. Some intangible assets are contained in or on a physical substance. When a fair value estimate uses unobservable inputs, management therefore needs to assess how information about COVID-19 available at the reporting date would influence market participants’ pricing decisions. . Section IFRS Supervisory Convergence. INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS), Navigating IFRS in view of the Coronavirus, COVID-19: Financial reporting and disclosures. However, given the very high levels of current uncertainty, the risk-adjusted expected cash flow approach is often preferable as it involves more explicit consideration of the wider than normal range of possible future outcomes. Under IFRS, an impairment loss is recognized if the carrying amount exceeds the recoverable amount of the asset. These criteria include consideration of the future economic benefits. VIU is based on an estimate of the future cash flows the entity expects to derive from the use of an asset or associated cash generating unit (CGU) in its current form. The major points covered under this regulation are: 1. Under IFRS reporting, an impairment loss for intangible assets with indefinite lives is the difference between the book value and the recoverable amount. Is IAS 36 the only standard that should be taken into consideration when considering impairment? The concept behind amortization is to account for the expense of using up an intangible asset's … While the starting point is that entities are required to determine amounts based on their knowledge of events at the reporting date, not after it, information obtained after the reporting date can be considered if such conditions existed as of the reporting period end. How is COVID-19 likely to impact the discount rate? In this article, we review how impairment occurs, how to measure it, and how impairment differs from revaluation. These assets include: • Goodwill • Intangible assets with an indefinite life • Intangible assets not yet available for use (i.e. How is COVID-19 likely to impact the impairment test? Fair value is defined as an amount obtainable in an arm’s length transaction between knowledgeable and willing parties. In normal times, the risk-adjusted discount rate approach is more typical. The assets of the enterprise are tested for impairment each year and if impaired, it is recognized in the income statement and balance sheet accordingly. But with businesses in other industries increasingly looking to new technologies as the path to transformation, this is also a time of opportunity. For other assets or cash generating units, in circumstances in which indicators of impairment are identified, a formal impairment test is required to be carried out. 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