Aranca has considerable experience in valuations for impairment testing of goodwill and long-lived intangible assets under IAS 36. We have helped our clients save significant review time and cost by proactively addressing auditors’ concerns relating to suitable application of valuation methods and independent review of key assumptions behind forecasts. By building well structured valuation models for impairment testing and ongoing business review, we enable CFOs to comply with IAS 36 provisions.
Challenges in Application of IAS 36
IAS 36 Impairment of Assets requires an entity to ensure that it carries its assets at no more than their recoverable amount. Companies must recognize impairment in their assets or Cash Generating Units (CGU) if their carrying value is higher than their Fair Value Less Costs to Sell (FVLCS) and Value in Use (VIU).
The practical application of provisions of IAS 36 is fraught with challenges, especially in recent times of economic uncertainty and every changing environment of financial reporting standards. Entities need to conduct impairment test for goodwill and long lived intangible assets at least annually upon end of reporting period, if there are potential indicators of impairment. If there is occurrence of events or change in circumstances around the business indicating potential impairment, more than one test may have to be done in an annual reporting period.
Determining FVLCS or VIU of an asset group or CGU may involve dealing with a wide array of issues around accounting provisions and use of several assumptions and estimates that may demand significant management team time. Aranca’s in-depth experience in valuation of intangibles acquired in business combinations and Intellectual Property research capabilities uniquely position us in providing defensible valuation opinions and help CFOs comply with the reporting responsibilities with confidence.