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 there is any

indication that an asset may...