Valuation for impairment testing

An organisation's assets must reflect their fair value to be a useful basis for shareholders' decisions. Assets drive a company's performance, and its financial statements show its financial position at a given time.

Assets can become impaired for many reasons, including changes in regulation or the business climate, lower usage rates, technology changes, or a significant drop in the long-term profitability of an asset. Impaired assets can include fixed assets, long-term investments such as investments in subsidiaries and affiliates, investments accounted for using the equity method, and intangible assets, except those excluded from IAS 36 (for example inventories, deferred tax assets and financial assets within IFRS 9).

Impairment testing of non-financial assets is governed by International Accounting Standard IAS 36 Impairment of Assets: an asset is impaired when its carrying amount (book value) is greater than its recoverable amount, the higher of its fair value less costs of disposal and its value in use. At each reporting date the entity assesses whether any asset shows signs of impairment; goodwill, intangible assets with an indefinite useful life and intangibles not yet available for use are tested every year. Impairment of financial assets falls under IFRS 9, which replaced IAS 39.

Because little information is available on the investment environment of unquoted subsidiaries and affiliates, Mart Solution plays a significant role in helping clients test assets for impairment and determine the impairment loss, if any, to be recognised in the financial statements.