Impairment
Impairment accounting – the basics of IAS 36
Impairment of Assets
IAS 36 Impairment of Assets (the standard) sets out the requirements to account for and report impairment of most non-financial assets. IAS 36 specifies when an entity needs to perform an impairment test, how to perform it, the recognition of any impairment losses and the related disclosures. Having said that, the application of IAS 36 is wide and its requirements may be open to interpretation.
The recent economic uncertainty has thrown a spotlight on impairment. As such, many entities have decided to reassess their impairment testing processes, models and assumptions.
In this introductory publication, we provide an overview of the key requirements of IAS 36 — an introduction for those who have not performed an impairment test in accordance with IAS 36 and a refresher for existing IFRS preparers. We point out areas where
IAS 36 differs from US GAAP and also highlight some of the practical considerations for first-time adopters of IFRS.
For further reading, we recommend our publication
IAS 36: Practical Issues, which discusses practical application issues available on ey.com/ifrs.
Impairment principle and key requirements IAS 36 deals with impairment testing for all tangible and intangible assets, except for assets that are covered by other IFRS.
IAS 36 requires that assets be carried at no more than their recoverable amount. To meet this objective, the standard requires entities to test all assets that are within its scope for potential impairment when indicators of impairment exist or, at least, annually for goodwill and intangible assets with indefinite useful lives.
1
Diagram 1 illustrates the process for measuring and recognising impairment loss under IAS 36. Some of the components in the diagram are discussed in more detail in the sections below.
Key requirements of IAS 36 illustrated in Diagram 1
The entity assesses, at each reporting date, whether
Impairment of Assets
IAS 36 Impairment of Assets (the standard) sets out the requirements to account for and report impairment of most non-financial assets. IAS 36 specifies when an entity needs to perform an impairment test, how to perform it, the recognition of any impairment losses and the related disclosures. Having said that, the application of IAS 36 is wide and its requirements may be open to interpretation.
The recent economic uncertainty has thrown a spotlight on impairment. As such, many entities have decided to reassess their impairment testing processes, models and assumptions.
In this introductory publication, we provide an overview of the key requirements of IAS 36 — an introduction for those who have not performed an impairment test in accordance with IAS 36 and a refresher for existing IFRS preparers. We point out areas where
IAS 36 differs from US GAAP and also highlight some of the practical considerations for first-time adopters of IFRS.
For further reading, we recommend our publication
IAS 36: Practical Issues, which discusses practical application issues available on ey.com/ifrs.
Impairment principle and key requirements IAS 36 deals with impairment testing for all tangible and intangible assets, except for assets that are covered by other IFRS.
IAS 36 requires that assets be carried at no more than their recoverable amount. To meet this objective, the standard requires entities to test all assets that are within its scope for potential impairment when indicators of impairment exist or, at least, annually for goodwill and intangible assets with indefinite useful lives.
1
Diagram 1 illustrates the process for measuring and recognising impairment loss under IAS 36. Some of the components in the diagram are discussed in more detail in the sections below.
Key requirements of IAS 36 illustrated in Diagram 1
The entity assesses, at each reporting date, whether