IAS 36 Impairment Review Guide
IAS 36 Impairment Review Guide
IAS 36 Impairment Reviews: When and How to Test Assets for Impairment
Under IAS 36 Impairment of Assets, entities must ensure non-current assets are carried at no more than their recoverable amount. When an asset's carrying value exceeds its recoverable amount, an impairment loss exists and must be recognized.
Determining if and when to perform a detailed, quantified impairment test is a critical compliance step for financial statement preparers and governance teams.
Direct Answer: Impairment Testing Timing Matrix
IAS 36 splits assets into two core operational categories: indicator-based testing and mandatory annual testing.
Asset Type | Require Indicator Review at Period End? | Require Mandatory Annual Test? |
Goodwill (acquired in a business combination) | Yes | Yes |
Indefinite-Life Intangibles | Yes | Yes |
Intangibles Not Yet Available for Use | Yes | Yes |
All Other Scope Assets (e.g., Property, Plant & Equipment, Finite-Life Intangibles) | Yes | No |
Note: For assets requiring mandatory annual testing, indicator reviews are practically necessary only at reporting period ends that do not coincide with the annual test date.
1. Indicator-Based Impairment Testing
At the end of each reporting period, an entity must assess whether any internal or external indications of impairment exist for individual assets or Cash-Generating Units (CGUs). If an indicator exists, the entity must formally calculate the asset’s or CGU’s recoverable amount (the higher of Fair Value Less Costs of Disposal and Value in Use).
External Indicators
Decline in Market Value: Observable, unexpected drops in an asset's market worth.
Adverse Macro Environment: Significant negative shifts in technology, markets, economy, or legal frameworks.
Rising Interest Rates: Increases in market rates that raise the discount rate used to compute Value in Use (VIU), lowering the recoverable amount.
Market Capitalization Shortfall: The entity's net assets exceed its total market capitalization.
Internal Indicators
Physical Damage or Obsolescence: Visible wear, tear, or structural redundancy.
Operational Restructuring: Idle assets, plans to discontinue operations, or early disposal plans.
Underperformance in Internal Reporting: Actual cash flows or operating profits falling significantly short of budgeted figures, or unexpected cash needs for maintenance.
Special Investment & Market Indicators
Dividend Trigger: A parent entity receives a dividend from a subsidiary, joint venture, or associate, and either:
The carrying amount of the investment exceeds the investee's net assets (including goodwill) in the consolidated statements.
The dividend exceeds total comprehensive income in the period declared.
Inactive Markets: Loss of an active market for a revalued intangible asset.
Key Takeaway on Useful Life: Identifying an impairment indicator requires an immediate review of the asset's remaining useful life, depreciation/amortization method, and residual value—even if the quantified test reveals no impairment loss.
2. Mandatory Annual Impairment Testing
For Goodwill, Indefinite-Life Intangibles, and Intangible Assets Not Yet Ready for Use, IAS 36 mandates a quantified impairment test at least once per year, regardless of whether impairment indicators exist.
Special Timing Rules
New Additions: If goodwill or an intangible asset was acquired or recognized during the current annual period, it must be tested for impairment before the end of that current reporting year.
Flexible Date Selection: The annual test can take place at any point during the fiscal year, provided it occurs at the same time every year. Different assets or CGUs may be tested at different annual dates to spread operational workloads.
Changing the Annual Test Date
While IAS 36 does not explicitly address changing the testing date, shifting dates (e.g., aligning with new budget cycles) is generally acceptable under standard practice if it does not avoid recognizing an impairment loss.
Best Practice Approach: To change a testing date from June 30 to December 31, perform tests at both dates in the transition year. In subsequent years, test only at December 31.
Policy Note: Changing the testing date is usually treated as an operational update rather than a change in accounting policy, but entities should clearly disclose the adjustment and rationale in their financial notes.
Practical Example: Linking External Indicators to CGUs
Scenario: BioTech Research Company (BTRC) operates three distinct manufacturing hubs, each treated as a separate CGU. BTRC's carrying amount of net assets is CU 5,000,000, but its total market capitalization at year-end drops to CU 3,000,000.
Assets (CU 000s) | CGU 1 | CGU 2 | CGU 3 | Total |
Goodwill | 1,900 | — | — | 1,900 |
Other Intangibles | 1,100 | 500 | 1,000 | 2,600 |
Property, Plant & Equipment | 500 | 1,500 | 700 | 2,700 |
Subtotal | 3,500 | 2,000 | 1,700 | 7,200 |
Corporate Assets / Net Items | — | — | — | (2,200) |
Net Book Value | — | — | — | 5,000 |
Execution Strategy
External Indicator Identified: Market cap falling below net asset book value serves as an entity-wide indicator under IAS 36.
Mandatory Testing: CGU 1 must be tested annually regardless, because it holds goodwill (CU 1.9M).
Indicator Allocation: Management must exercise judgment to allocate the entity-wide market capitalization indicator across CGU 2 and CGU 3 to determine whether full, quantitative tests are required for these units as well.
How Bestar Singapore Can Assist with IAS 36 Impairment Reviews
IAS 36 Impairment Review Guide
Under IAS 36 / SFRS(I) 1-36 Impairment of Assets, entities must ensure non-current assets are recorded at no more than their recoverable amount. Calculating recoverable amount—the higher of Fair Value Less Costs of Disposal (FVLCD) and Value in Use (VIU)—requires technical financial modeling, valuation expertise, and statutory compliance insights.
Bestar Singapore provides end-to-end impairment testing and valuation support to help management teams, CFOs, and finance departments navigate complex IAS 36 standards with full audit-readiness.
Core IAS 36 Requirements & Testing Matrix
IAS 36 mandates specific testing schedules depending on asset category and triggering events:
Asset Classification | Annual Mandatory Review | Indicator-Based Review (At Period End) | Key Valuation Requirement |
Goodwill (from business combinations) | Required | Required | CGU allocation & Discounted Cash Flow (DCF) modeling |
Indefinite-Life Intangibles | Required | Required | Multi-Period Excess Earnings or Relief-from-Royalty method |
Intangibles Not Yet Available for Use | Required | Required | Development phase cash flow projections |
Property, Plant & Equipment (PPE) | Not Required | Required | Market valuation or net replacement cost assessment |
Finite-Life Intangibles | Not Required | Required | Remaining useful life assessment & impairment test |
How Bestar Singapore Supports Your IAS 36 Compliance
1. Impairment Indicator Identification & CGU Structuring
Cash-Generating Unit (CGU) Definition: Identifying the smallest identifiable group of assets that generates largely independent cash inflows.
Internal & External Trigger Screening: Evaluating market capitalisation shortfalls, rising discount rates, asset obsolescence, or operational underperformance against target budgets.
Useful Life & Amortisation Reviews: Reassessing depreciation methods, residual values, and useful lives alongside impairment assessments.
2. Value in Use (VIU) & Financial Modeling
Discounted Cash Flow (DCF) Models: Building financial models aligned with IAS 36 rules (using 5-year maximum projections unless longer periods are justified).
Weighted Average Cost of Capital (WACC): Calculating objective, market-based discount rates using Capital Asset Pricing Model (CAPM) benchmarks tailored to local and regional market risks.
Sensitivity & Scenario Analysis: Performing stress testing on key variables such as terminal growth rates, revenue assumptions, and operating margins.
3. Fair Value Less Costs of Disposal (FVLCD)
Independent Valuation Services: Determining fair value using market comparison approaches, cost approaches, or income approaches in compliance with IFRS 13 / SFRS(I) 13.
Direct Disposal Cost Estimation: Estimating incremental costs directly attributable to the disposal of an asset or CGU.
4. Goodwill Allocation & Business Combination Integration
Provisional & Final Goodwill Allocation: Allocating acquired goodwill to relevant CGUs that benefit from the synergies of a business combination.
Impairment Loss Allocation: Applying IAS 36 ordering rules (writing down goodwill first before pro-rating remaining losses across other non-current assets).
Why Choose Bestar Singapore?
Audit-Ready Documentation: Comprehensive valuation papers designed to withstand scrutiny from external auditors and statutory authorities.
Integrated Advisory Services: Seamless cross-functional support covering financial reporting, statutory audit co-piloting, and tax advisory.
Tailored Practical Solutions: Clear implementation roadmaps that balance technical compliance with efficient operational execution.
Engaging Bestar Singapore for an IAS 36 Impairment Assessment Consultation
WI’d be delighted to assist with this. Let’s outline the key details so we can structure the right scope and support for your IAS 36 / SFRS(I) 1-36 impairment review.
Initial Consultation Checklist
To help us tailor the consultation and prepare a precise engagement proposal, please share a few details regarding your reporting requirements:
Scope & Assets: What specific assets or Cash-Generating Units (CGUs) are being evaluated (e.g., goodwill from a recent acquisition, indefinite-life intangibles, or specific PPE/finite-life assets showing indicators)?
Financial Year-End: What is the relevant reporting period end, and what is your target timeline for audit finalization?
Existing Documentation: Do you currently have multi-year financial forecasts, budget projections, or past valuation models ready for review?
Auditor Directives: Are there specific focus areas, discount rate expectations, or sensitivity requirements requested by your external auditors?
How Bestar Prepares for the Initial Discussion
Information Exchange: We will review your balance sheet breakdown, asset schedules, and acquisition background to identify which IAS 36 testing triggers apply.
Methodology Alignment: We outline the scope for determining Value in Use (DCF modeling, WACC determination, cash flow adjustments) or Fair Value Less Costs of Disposal.
Timeline & Engagement Scope: We establish a clear roadmap for model development, management discussion, draft report delivery, and direct engagement with your audit team to ensure seamless clearance.
Next Steps
Please provide any initial details or let us know your preferred schedule for a introductory meeting, and we can prepare the discussion points accordingly.
Ready to streamline your IAS 36 compliance and ensure audit-ready valuation models?
Contact Bestar Singapore today to schedule your initial IAS 36 impairment review consultation with our financial reporting and valuation experts.
Email: admin@bestar-asia.com
Phone / WhatsApp: +65 6299 4730 / +65 8836 4489
Website: bestar.-sg.com
Request Your Consultation
Service Area | Key Support Included |
Impairment Testing | Indicator screening, CGU identification, DCF model development, and sensitivity analysis. |
Valuation Advisory | Independent WACC calculation, IFRS 13 / SFRS(I) 13 fair value assessments, and goodwill allocation. |
Audit Defense | Direct technical support and paper documentation working alongside your external audit team. |
Reach out to our team with your balance sheet details and reporting deadlines, and we will deliver a customized engagement proposal within 24 hours.
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