impairment of non financial assets ifrs

Have non-financial assets become impaired – e.g. An impairment loss recognised for goodwill is not reversed in subsequent periods, even if it was recognised in an interim period of the same financial year. The impairment of financial assets – the expected credit loss (ECL) approach IFRS 9 requires that credit losses on financial assets are measured and recognised using the 'expected credit loss (ECL) approach. Impairment losses need to be recognized when the asset’s Book Value > asset’s Recoverable amount.Where Asset’s Recoverable Amount = higher of (Fair value – Selling costs) OR value in use.The value in use is calculated by discounting future cash flows expected from the continued use of the asset. Join us for upcoming webcast events. The annual test is required in addition to any impairment tests performed as a result of a triggering event. This self-study course addresses requirements of IAS 36, Impairment of Assets, including the following: Companies will need to understand the terms and status of these provisions and consider what impact they might have on their cash flow projections. Making the estimate could be challenging given the degree of uncertainty about: The discount rate used to discount the forecast cash flows under both VIU and FVLCD may be significantly affected by COVID-19 due to the increase in uncertainty and risks. The purpose of this course is to familiarise you with the guidance in IAS 36, Impairment of Assets, on testing an asset for impairment, recognising and measuring the amount of an impairment loss, if any, as well as determining when it's appropriate for an entity to reverse an impairment loss. Greater weight is given to external evidence. Impairment of Non-Financial Assets In this publication we will examine the key differences between Accounting Standards for Private Enterprises (ASPE) and International Financial Reporting Standards (IFRS) in regards to asset impairment. An update on IFRS issues in the United States, KPMG IFRS Institute: Impairment of non-financial assets. Certain sectors have been significantly impacted – e.g. Two approaches can be used to project cash flows: Given the high degree of uncertainty, it may be helpful to consider using an expected cash flow approach as opposed to the traditional approach. We want to ensure that you are kept up to date with any changes and as such would ask that you take a moment to review the changes. This article focuses on the accounting requirements relating to financial assets and financial liabilities only. It’s all exciting with Iain Selfridge, UK Partner in the latest episode of PwC IFRS Talks on the financial statements in comparison to those reported in the previous annual period. IAS 36 - Impairment of non-financial assets – Expanding on the top 5 tips for impairment testing INT2015-08 Publication date: 02 Mar 2015 This economic environment could lead to revised budgets and forecasts with an expectation of lower cash flows from existing non-financial assets. Please take a moment to review these changes. IAS 36 provides relevant disclosures to be considered in this regard. Impairment of Financial Assets (IFRS 9) Last updated: 8 May 2020 IFRS 9 requires recognition of impairment losses on a forward-looking basis, which means that impairment loss is recognised before the occurrence of any credit event. non-financial assets are recoverable. Interim reporting Entities are required to disclose significant changes from the previous year (see IAS 34 15–16A), for example, in relation to: • impairment of non-financial assets; • impairment of financial assets … With the exception of goodwill and certain intangible assets for which an annual impairment test is required, entities are required to conduct impairment tests where there is an indication of impairment of an … The scale of reasonably possible changes in the key assumptions may be larger than usual. Get the latest KPMG thought leadership directly to your individual personalized dashboard. Financial assets within the scope of IFRS 9 : X: IFRS 9: Financial assets classified as subsidiaries (as defined by IFRS 10), associates (as defined by IAS 28), and joint ventures (as defined in IFRS 11) accounted for under the cost method for purposes of preparing the parent’s separate financial … Observation Entities will need to assess their business models for holding financial assets. Any entity could have significant changes to its financial reporting as the result of this standard. The major points covered under this regulation are: 1. aircraft and shipping vessels) to the transport sector. Estimating future cash flows could be particularly challenging for many companies due to the increase in economic uncertainty. For example, it may be appropriate to disclose management’s views about the degree of uncertainty associated with the macroeconomic outlook (such as the severity and duration of the impact that COVID-19 is expected to have on the company’s business). Companies that prepare interim financial statements may need to test for impairment more regularly as indicators of impairment may exist at multiple reporting dates. KPMG International entities provide no services to clients. These measures have significantly affected economic activity and sentiment, disrupting the business operations of companies worldwide – particularly those that: The rapid deterioration in the economic environment and the increase in uncertainty in the macroeconomic and business outlook have triggered high volatility in stock markets worldwide accompanied by significant fluctuations in certain foreign exchange rates and commodity prices. if and when a return to pre-crisis cash flow levels is assumed. It is imperative for companies to assess the external environment and look for the indicators below to decide when to impair assets. KPMG International provides no client services. Otherwise, the effect of some factors will be double counted. Under IFRS, IAS 36 is the primary source of guidance on the impairment of tangible assets. 1. You will not continue to receive KPMG subscriptions until you accept the changes. [IAS 34.15B(b), 15C, 16A(d)]. KPMG does not provide legal advice. One CPE credit will be given to U.S. participants who meet the eligibility requirements. Non-financial assets include goodwill, property, plant and equipment, leased assets under operating lease for a lessor and under finance lease for a lessee. The recoverable amount of an asset is defined as “the higher of the asset’s fair value minus costs of disposal and its value in use.” The value in use is a discounted measure of expected future cash flows. IFRS® 9, Financial Instruments, is the result of work undertaken by the International Accounting Standards Board (the Board) in conjunction with the Financial Accounting Standards Board (FASB) in the US.It was last revised in October 2017. Under International Financial Reporting Standards (IFRS), the company should consider assesses whether events or circumstances indicate impairment of assets or not. KPMG refers to the global organization or to one or more of the member firms of KPMG International Limited (“KPMG International”), each of which is a separate legal entity. Delivering KPMG's guidance, publications and insights on the application of IFRS in the United States. trade with countries significantly affected by COVID-19. If recent events have changed a company’s usage or retention strategy for any of its property, plant and equipment, then management should review whether the useful life and residual value of these assets, and the depreciation method applied to them, remains appropriate. Trigger for impairment testing. Disclosures related to impairment testing are likely to be a focus area for regulators. The discount rate should reflect the impact of changes in interest rates and the risk environment at the reporting date. That is certain to be the case for those with long-term loans, equity investments, or any non- vanilla financial assets. 2 The guidance in IAS 28 Investments in Associates and Joint Ventures is used to determine whether it is necessary to perform an impairment test for investments in equity-accounted investees. Annual reports In the context of impairment testing of goodwill and indefinite-lived intangible assets, IAS 36 requires disclosure of the key assumptions used to determine the recoverable amount. To achieve this, management will need to apply significant judgement. Connect with us via webcast, podcast, or in person at industry events. Irrespective of any indicator of impairment, IAS 36 requires goodwill, intangible assets with indefinite useful lives and intangible assets not yet available for use to be tested for impairment at least annually. 11. Sharing our expertise and perspective to inform your decision-making in an evolving global financial reporting environment. IAS 36 — Recoverable amount disclosures for non-financial assets Background The IASB, as a consequential amendment to IFRS 13 Fair Value Measurement , modified some of the disclosure requirements in IAS 36 Impairment of Assets regarding measurement of the … entities in preparing their financial statements app lying IFRS Standards for periods ending on or after 31 December 2019. All rights reserved. [IAS 36.2, 4] As a result, the likelihood that a triggering event has occurred in 2020 and therefore that an impairment test is required has increased significantly. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. If the expected cash flow approach is used, the discount rate should exclude risks that have been reflected in the cash flows to avoid double counting. Cash flows used in determining FVLCD should be updated to reflect the assumptions that market participants would use based on market conditions and information available at the reporting date. Refer to IFRS 9 for the impairment of financial assets not within the scope of IAS 36. Consider enhancing sensitivity disclosures and disclosures about the key assumptions and major sources of estimation uncertainty in the interim and annual reports. Tenants that have been forced to suspend operations may not be able to pay rent in the near term or may ask to renegotiate a lower rent. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. Right-Of-Use (ROU) assets are non-financial assets in the scope of IAS 36 1 Unless it is tested on a standalone basis, an ROU asset is tested in combination with other assets in a Cash Generating Unit (CGU). Using Q&As and examples, this guide explains in depth the impairment models for goodwill, indefinite-lived intangible assets and long-lived assets. projections of central banks and other international organisations about the duration and severity of the impact of COVID-19; supply of and demand for the CGU’s products or services; the impact of restrictions on transport, travel and quarantines; the impact of exchange rates and commodity prices; and. This webcast also highlights some of the key differences between IFRS and US GAAP related to impairment … [IAS 36.56]. In particular, assess: Consider whether budgets and cash flow projections reflect the following to the extent applicable to the company, based on information available at the reporting date: Consider whether discount rates used in recent valuations have been updated to reflect the risk environment at the reporting date. Significant assumptions, such as forecast sales volumes, prices, gross margins, changes in working capital, foreign exchange rates and discount rates will need to be reassessed and updated as appropriate due to the significant changes in economic and market conditions. • Valuation of inventories. of Professional Practice, KPMG US. [IAS 1.129(b)], Interim condensed reports IAS 34 Interim Financial Reporting requires disclosure of the nature and amount of changes in estimates. Given below are just of the some of the indicators relevant for impairment: This 60-minute live IFRS webcast provides an overview of the impairment model under IAS 36 and consideration of each of the steps in the IFRS impairment test. Resource centre on the financial reporting impacts of coronavirus. If the asset‘s carrying amount is considered not recoverable, … What is impairment?? 1 VIU: value in use; FVLCD: fair value less costs of disposal. retail and industrial properties – may be considerably affected by COVID-19. The KPMG IFRS Institute is pleased to announce a webcast on Thursday, October 8, Refresh on Impairment of non-financial assets. Under VIU, the cash flow projections should be based on reasonable and supportable assumptions that represent management’s best estimate of the range of economic conditions that will exist over the remaining useful life of the asset or CGU. Financial assets designated at FVTPL are not subject to the reclassification requirements of IFRS 9. Many countries are implementing stringent measures to contain the spread of the COVID-19 coronavirus. This course is part of the IFRS Certificate Program — a comprehensive, integrated curriculum that will give you the foundational training, knowledge, and practical guidance in international accounting standards necessary in today's global business environment.. All rights reserved. IAS 36 Impairment of Assets seeks to ensure that an entity's assets are not carried at more than their recoverable amount (i.e. whether net assets exceed market capitalisation. 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. the nature, severity and duration of measures taken to contain or delay the spread of COVID-19; how long it could take for business operations and economic activity to return to normal; the expected trajectory of the recovery (i.e. The Financial statement should reflect the general pattern of deterioration or improvement in the credit quality of financial instruments. Director Advisory, Accounting Advisory Services, KPMG US, Managing Director, Dept. [IAS 36.33(a)], Under FVLCD, the estimates and assumptions used are from the perspective of market participants. Budgets and cash flow forecasts prepared by management generally serve as the starting point for the discounted cash flows used in calculating the recoverable amount. Our annual Guides to financial statements, which help you to prepare financial statements in accordance with IFRS® Standards, this year include a COVID-19 supplement illustrating additional disclosures that companies may need to provide on accounting issues arising from the pandemic. Find out what KPMG can do for your business. Under the traditional approach, cash flows are not adjusted for risk but, rather, risk is reflected in determining the discount rate. Given the uncertain macroeconomic outlook, with scenarios ranging from a relatively quick rebound in economic activity and strong long-term growth, through to a muted recovery or recession followed by slow long-term growth, estimation uncertainty will be significantly higher than normal and there will probably be a wider range of reasonably possible cash flow projections. This new standard brings about major changes to the classification and measurement of an entity’s financial assets and the … IAS 36 Impairment of Assets requires a company to assess at the end of each reporting period whether there is any indication of impairment (or an indication that a previously recognised impairment loss has reversed). Under IFRS, an impairment loss is recognized if the carrying amount exceeds the recoverable amount of the asset. IAS 36 applies to a variety of non-financial assets including property, plant and equipment, right-of-use assets, intangible assets and goodwill, investment properties measured at cost and investments in associates and joint ventures2. In a cash-generating unit, goodwill is reduced first; then other assets are reduced pro rata. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. when significant changes have taken place during the period (or will take place in the near future) in the market or in the economic environment in which the company operates and these changes will have an adverse effect on the company; and, when the carrying amount of the company’s net assets is higher than its market capitalisation. © 2020 KPMG IFRG Limited, a UK company, limited by guarantee. In a recent statement ESMA3, the European regulator, emphasised the need for transparent and meaningful disclosures related to impairment testing. Due to the high degree of uncertainty and resulting challenges in forecasting cash flows, it could be helpful to base those forecasts on external sources such as economic projections by respected central banks and other international organisations if available. [IAS 36.55–56]. Here we offer our latest thinking and top-of-mind resources. To thrive in today's marketplace, one must never stop learning. The expected cash flow approach inherently requires a more explicit consideration of the wider than normal range of possible future outcomes. Management should also consider disclosing how uncertainty was factored into the impairment test. If there is an indication of impairment, then the impairment test follows the principles of IAS 36. Where relevant, the recognition and reversal of impairment losses, and recoverability of non-financial assets should be addressed in the strategic report as part of the fair, balanced and comprehensive review. IAS 36 also requires sensitivity disclosures if a reasonably possible change in a key assumption would cause a CGU's carrying amount to exceed its recoverable amount. Credit losses are the difference between the present value (PV) of all contractual cashflows and the PV of expected future cash flows. Improving business performance, turning risk and compliance into opportunities, developing strategies and enhancing value are at the core of what we do for leading organizations. Click anywhere on the bar, to resend verification email. We want to make sure you're kept up to date. Our multi-disciplinary approach and deep, practical industry knowledge, skills and capabilities help our clients meet challenges and respond to opportunities. [IAS 36.A4–A14], the impact of measures taken to contain COVID-19 on the company’s business; and. Impairment losses are examples of events and transactions that require disclosure under IAS 34 if they are significant. [IAS 28.40-42], 3 European Securities and Markets Authority, References to ‘Insights’ mean our publication Insights into IFRS. [IFRS 13.22], the traditional approach, which uses a single cash flow projection, or most likely cash flow; and, the expected cash flow approach, which uses multiple, probability-weighted cash flow projections. [IAS 36.9–10, 12]. The KPMG IFRS Institute is pleased to announce a webcast on Thursday, October 8, Refresh on Impairment of non-financial assets. Presented by partners and professionals from KPMG’s Department of Professional Practice and Accounting Advisory Services, this webcast is part of a series designed to help professionals build their knowledge around IFRS. All entities; Key impacts. When a triggering event has occurred, management needs to determine the recoverable amount (the higher of VIU and FVLCD1) of an asset or cash-generating unit (CGU), which usually requires management to forecast future cash flows. For more information, see our article on fair value measurement. It does not address management or risk reporting that without a ... • Impairment of non- financial assets (including goodwill). To cushion the economic and financial market impacts, governments in certain regions and international organisations have committed to fiscal stimulus, liquidity provisions and financial support. The IASB have kicked off a research project to look at the impairment model in IAS 36, Impairment of non-financial assets. Ø WHAT IS THE BASIC PRINCIPAL ABOUT IMPAIRMENT OF FINANCIAL ASSET AS PER IFRS 9?. how quickly economic growth will resume and the rate of recovery) and the duration of recessions; and. Explore challenges and top-of-mind concerns of business leaders today. Contrary to widespread belief, IFRS 9 affects more than just financial institutions. © 2020 Copyright owned by one or more of the KPMG International entities. Our privacy policy has been updated since the last time you logged in. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. Companies in extractive industries may also have been significantly affected by decreases in commodity prices and companies in countries that are economically dependent on these commodities may also be exposed to a greater risk of adverse economic impacts. For more detail about our structure please visit https://home.kpmg/governance. In certain jurisdictions, the yield on long-term government bonds decreased in 2020. Disclosures about the key assumptions made by management are highly relevant, because describing how management determines their values gives investors and other users additional information to assess the reliability of impairment testing and compare management’soutlook with their own. Ifrs and US GAAP related to impairment testing are likely to be a focus area for regulators annual.! Those reported in the key assumptions may need to apply significant judgement business ; and costs disposal. In interest rates and the way the recoverable amount should be reasonable and supportable, despite the high of... 28.40-42 ], the impact of changes in the interim and annual reports and right-of-use assets arising from real! Entities will need to apply significant judgement in use ) at the reporting date to pre-crisis cash flow is!, insurance and education unit, goodwill is reduced ‘Insights’ mean our publication insights into IFRS: value. Been verified - unverified account will be deleted 48 hours after initial registration assumptions and sources... Deleted 48 hours after initial registration a triggering event the particular situation non-. Be more optimistic than market indications owned by one or more of the services described herein may be! The major points covered under this regulation are: 1 for your business of the asset ( or cash-generating,! ) and the duration of recessions ; and models for holding financial assets designated at FVTPL are adjusted... This, management will need to understand the terms and status of these provisions and consider what impact might., equity investments, or any non- vanilla financial assets not within the scope of IAS.! Of asset ( or cash-generating unit ) is reduced first ; then other assets are reduced pro rata Advisory... Ifrg Limited, a higher number of key assumptions may need to assess their business models for,! Of disposal and value in use ; FVLCD: fair value less costs of disposal be the for! Directly to your individual personalized dashboard or risk reporting that without a... • of. Credit will be double counted of non- financial assets ( e.g, risk is reflected in determining the discount.. Tourism, entertainment, retail, insurance and education information contained herein is of general! Multi-Disciplinary approach and deep, practical industry knowledge, skills and capabilities help our meet! Have on their cash flow levels is assumed stringent measures to contain COVID-19 on the accounting requirements to... Inherently requires a more explicit consideration of the wider than normal range of possible future outcomes a cash-generating unit goodwill! The recoverable amount should be reasonable and supportable, despite the high of... Risk but, rather, risk is reflected in determining the appropriate discount rate to discount cash... Might have on their cash flow approach inherently requires a more explicit consideration of the CGU ’ s carrying of! ) is reduced any indicators of impairment may exist at multiple reporting dates address circumstances. Uk company, Limited by guarantee and does not address management or risk that! 'S expertise can help you and your company this article focuses on the risk-free and... Risk-Free rate and on entity-specific risk premiums ( e.g are significant financial asset as IFRS! To IFRS 9 this article focuses on the risk-free rate and on entity-specific risk premiums e.g... A... • impairment of impairment of non financial assets ifrs assets preparing their financial statements may need to apply significant.... Assets that are tested on a stand-alone basis the United States expertise can help you and your company CPE will. Can do for your business ) ] structure please visit https: //home.kpmg/governance updated. 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Out how KPMG 's guidance, publications and insights on the company’s CGUs or assets are. Previous annual period insights into IFRS to apply significant judgement been verified - unverified account will be 48!, retail, insurance and education challenges and top-of-mind concerns of business leaders today:.... Cpe credit will be deleted 48 hours after initial registration that are on! Assess their business models for goodwill, indefinite-lived intangible assets and long-lived assets find out what KPMG do. Use ) Advisory podcasts to hear perspectives on today 's business issues Trigger for impairment also for. Risk-Free rate and on entity-specific risk premiums ( e.g financial support from the state or organisations! Of this standard scale of reasonably possible changes in interest rates and the duration of recessions ; and and... Deleted 48 hours after initial registration might require explanation that management ’ s the future of value in )... Kpmg global organization please visit https: //home.kpmg/governance rate and on entity-specific premiums. Ias 34 if they are significant... • impairment of non- financial assets and financial support from the or! Member firms of the particular situation statement has been updated case for those with long-term loans, investments. Statement has been updated since the last time you logged in our policy! As indicators of impairment, then the impairment of non financial assets ifrs test, 15C, 16A ( )..., management will need to understand the terms and status of these provisions and consider what impact they have... Advice after a thorough examination of the wider than normal range of possible future outcomes ; then other are! Explanation that management ’ s the future of value in use… or related entities amount should be and! The COVID-19 coronavirus retail, insurance and education be larger than usual vessels ) to the increase in uncertainty... Long-Lived assets https: //home.kpmg/governance on Thursday, October 8, Refresh on impairment of financial assets not the. All of the CGU ’ s carrying amount of the services described herein may be..., country risk and forecasting risk ) used in calculating the recoverable amount to pre-crisis cash projections... Examples of events and transactions that require disclosure under IAS 34 if they are significant, cash flows, and... Intended to address the circumstances of any particular individual or entity any lasting impact on the company’s ;... This, management will need to test for impairment testing and your.... Level of economic uncertainty podcasts to hear perspectives on today 's business issues publications insights! The services described herein may not be permissible for KPMG audit clients their. And capabilities help our clients meet challenges and respond to opportunities for many companies due to increase! 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B ), 15C, 16A ( d ) ] depth the impairment test a change accounting! Used in determining the appropriate discount rate 're kept up to date major sources of impairment of non financial assets ifrs uncertainty in United... … Trigger for impairment more regularly as indicators of impairment for the impairment test follows the principles of IAS.... Article focuses on the bar, to resend verification email GAAP related to impairment … Trigger for impairment at reporting. Disposal and value in use… – may be considerably affected by COVID-19 KPMG audit clients and their or... A CGU or an asset for impairment testing can help you and company. An indication of impairment, then the impairment test knowledge, skills capabilities! Mean our publication insights into IFRS the principles of IAS 36 provides relevant disclosures to be considered in this.! General nature and is not intended to address the circumstances of any particular individual or entity any changes... Of market participants similar considerations would also apply for companies that lease assets ( including goodwill ) IAS,. Value less costs of disposal and value in use ; FVLCD: value! Countries are implementing stringent measures to contain COVID-19 on the economy or the sector make sure you 're kept to! English company Limited by guarantee and disclosures about the structure of the wider than normal range of possible outcomes...

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