Impairment Testing IAS 36 / ASC 350
What is this?
Impairment Testing, conducted in accordance with IAS 36 or ASC 350, is a rigorous evaluation process aimed at assessing whether the carrying value of assets or cash-generatingunits (CGUs) exceeds their recoverable amount. This testing ensures that assets are not overstated on the balance sheet, reflecting their true value considering changes in market conditions, technological advancements or other factors that may indicate a diminution in value.
When would you need it?
Impairment Testing is essential for companies required to adhere to IFRS or US GAAP accounting standards and for those seeking to maintain accurate financial reporting and compliance.
Here are some scenarios where Impairment Testing becomes crucial:
1
Asset
Valuation:
Your company holds significant tangible or intangible assets, such as property, plant, equipment, goodwill or intellectual property. You need to ensure that these assets are accurately valued on the balance sheet, reflecting any declines in their recoverable amounts due to changes in market conditions or other external factors.
2
Goodwill
Impairment Test:
Your company has recently completed an acquisition, resulting in the recognition of goodwill on the balance sheet. IAS 36 requires you to test goodwill for impairment at the level of a CGU or group of CGUs. The test must be performed at least annually and between annual tests whenever there is an indication of impairment, such as changes in market conditions or another triggering event.
3
Statutory Accounts Preparation:
Your company owns a subsidiary in Austria to 100%. To establish the Swiss statutory accounts in accordance with the Swiss Code of Obligations, you are required to assess the recoverability of the investment book value in the Austrian subsidiary and prepare adequate documentation of such impairment test.