We support our customers in carrying out impairment tests on assets. The impairment of assets is the subject of International Accounting Standard 36 (IAS 36) and National Accounting Standard No. 4. The aim of both standards is the presentation and the settlement of procedures assuring that the assets in the financial statements are recognized at a value not exceeding their recoverable amount defined as the higher of the two values:
- fair value less selling costs
- value in use.
The impairment of assets is analysed, among others, with respect to:
- tangible fixed assets (with the exception of those earmarked for disposal)
- intangible fixed assets including goodwill
- investments in subsidiaries, associated entities and joint ventures
- real estate investments where the historical cost model is applied.
Entities should assess on every reporting date whether events took place that might have triggered the impairment of assets. Generally, triggering events can be divided into those originating in external sources of information (e.g. decrease in the market value of the given asset, significant and unfavourable technological or market changes, the growth of market interest rates) and in internal sources of information (the loss of usefulness of given assets, physical destruction of assets, financial results generated by the assets worse than expected). Should triggering events take place, the entity should carry out impairment tests. Providing the recoverable value of an asset is below the carrying amount, the entity should decrease the balance sheet value of the asset and simultaneously recognize the impairment loss.
Regardless of the existence or otherwise of triggering events, the entities are obliged to carry out impairment tests every year for the following assets:
- goodwill
- intangible fixed assets with undefined usage period
- intangible fixed assets under construction.
When estimation of the recoverable value of a single asset is not possible, entities should carry out the analyses of the recoverable value cash generating unit (CGU), to which the given asset belongs.
Estimating the value in use is the key element in carrying out impairment tests. The value in use of a separate asset or a cash generating unit is estimated as the present value of future cash flows to be generated by the asset or the unit respectively. Consequently, to arrive at the value in use it is necessary to prepare reasonable projections of cash flows and to estimate the discount rate.