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Formerly known as A275v: Applying Impairment Models under Volatile Environment

The general procedures for assessing impairment of assets are based on information derive from historical experience, adjusted where necessary with an assessment of existing conditions and also a forecast of future economic conditions. These procedures are inherently complex and required significant professional judgement, especially when such procedures are overlapping with unpredictable events occurring after the reporting period under volatile economic conditions environment that is volatile and unpredictable, such as those caused by Covid-19 pandemic.

The main principle of impairment is set out in ‘IASFRS36 Impairment of Assets’ for most non-financial assets which is based on the concept of ‘recoverable amount’, while ‘IFRS9 Financial Instruments’ prescribes a single impairment principle for financial assets based on the concept of ‘expected credit loss’.  Besides the foregoing, there are also various impairment models for different classes of assets.

Programme Objective

This seminar evaluates the principles of various impairment models contained in FRSs and to provide practical guidance to accountants and auditors on the process of assessing conditions of impairment, as well as the principles of recognition and measurement of the amount of impairment losses in each of the impairment models.

The objectives of this seminar are to:

• highlights contentious and controversial issues on how the impairment principles are practiced by management and auditors
• provide a clarification of the interrelationship between event after reporting period and the
• examines under what conditions an event after the reporting date could lead to an adjusting event or a non-adjusting, and how these events can affect the assessment of impairment

Programme Outline

The fundamental concepts of impairment of assets:

• Scope of impairment across various asset classes
• Interactions between ‘events after reporting date’ and impairment procedures
• Future economic benefit of an asset
• Evaluating conditions when an asset is likely to be impaired

The main impairment principles in FRS36

• Determining recoverable amount:
  • Evaluating fair value less cost of disposal in accordance with FRS13 and determining cost of disposal
  • estimating value-in use: determining cash flows and discount rate
• Dealing with Cash generating unit (CGU)
  • Unit of measurement for CGU at company level and group level
  • Treatment of impairment of CGU and allocation of impairment loss
  • Pro-rata of impairment losses to individual asset contained in a CGU
• Impairment of consolidated goodwill:
  • Allocating goodwill arising from business combinations to CGU
  • Interrelationship between impairment of cost of investment in a subsidiary and the related consolidated goodwill
• Impairment procedures for intangible assets with indefinite useful life and those that are not yet available for use

Impairment of Financial Assets

• Financial assets (including contract assets) within the scope of FRS109:
  • Determining ‘Expected Credit Loss” (ECL) the “three-steps” considerations:
    • 1^st An examination of whether past experience is still a good estimate of ECL
    • 2^nd An assessment of current conditions
    • 3^rd Forecast of future economic conditions (forward-looking information)
  • “Full models”: including ECL for Stage-1 (12-months ECL), state-2 and Stage-3
  • “Simplified model”: including ECL for Stage 2 and Stage 3 only
• Financial assets outside the scope of FRS109:
  • Investment in subsidiaries, associates and joint ventures (JV) using cost method
  • Associates and joint ventures using equity method – order of impairment:
    • 1^st Applying ‘ECL’ to receivables (including ‘net investments’ in associates & JV)
    • 2^nd Share of losses of associates and JV
    • 3^rd Applying FRS36 ‘Recoverable amount’

Impairment principles for other assets

• Estimating with lower of cost and net realisable (FRS2)
• Dealing with lower of carrying amount and fair value less cost to sell (FRS105)
• Review of sufficient taxable profit that a deferred tax asset can be utilised (FRS12)
• Assessing the recoverability of contract cost recognised as an assets (FRS15)
• Process of impairment leading to a provision for onerous contracts (FRS37)

Training Methodology

Practical case studies and interactive discussions.

Closing Date for Registration

1 week before programme or until full enrolment.

Intended For

Finance Directors; Senior Accountants and Auditors; Financial Controllers

Programme Facilitator(s)