[IFRS 13.B26, IAS 36.A7, Insights 3.10.220], Whichever approach a company adopts, the rate used to discount cash flows should not reflect adjustments for factors that have been incorporated into the estimated cash flows and vice versa. aircraft and shipping vessels) to the transport sector. [IFRS 13.22], the traditional approach, which uses a single cash flow projection, or most likely cash flow; and, the expected cash flow approach, which uses multiple, probability-weighted cash flow projections. IAS 36 — Recoverable amount disclosures for non-financial assets Background The IASB, as a consequential amendment to IFRS 13 Fair Value Measurement , modified some of the disclosure requirements in IAS 36 Impairment of Assets regarding measurement of the … To cushion the economic and financial market impacts, governments in certain regions and international organisations have committed to fiscal stimulus, liquidity provisions and financial support. Estimating future cash flows could be particularly challenging for many companies due to the increase in economic uncertainty. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. Non-financial assets include goodwill, property, plant and equipment, leased assets under operating lease for a lessor and under finance lease for a lessee. 11. Furthermore, IAS 1 Presentation of Financial Statements requires disclosure of the key assumptions that a company makes about the future and other major sources of estimation uncertainty at the reporting date that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities in the next financial year. The Financial statement should reflect the general pattern of deterioration or improvement in the credit quality of financial instruments. [IAS 36.33(a)], Under FVLCD, the estimates and assumptions used are from the perspective of market participants. To achieve this, management will need to apply significant judgement. For more information, see our web article on ESMAâs enforcement priorities for 2020. The KPMG IFRS Institute is pleased to announce a webcast on Thursday, October 8, Refresh on Impairment of non-financial assets. Please take a moment to review these changes. The recoverable amount of an asset is defined as “the higher of the asset’s fair value minus costs of disposal and its value in use.” The value in use is a discounted measure of expected future cash flows. Financial assets designated at FVTPL are not subject to the reclassification requirements of IFRS 9. This new standard brings about major changes to the classification and measurement of an entity’s financial assets and the … This webcast also highlights some of the key differences between IFRS and US GAAP related to impairment of non-financial assets. Â© 2020 KPMG IFRG Limited, a UK company, limited by guarantee. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. All rights reserved. IAS 36 applies to a variety of non-financial assets including property, plant and equipment, right-of-use assets, intangible assets and goodwill, investment properties measured at cost and investments in associates and joint ventures 2. IFRS® 9, Financial Instruments, is the result of work undertaken by the International Accounting Standards Board (the Board) in conjunction with the Financial Accounting Standards Board (FASB) in the US.It was last revised in October 2017. Under the expected cash flow approach, uncertainty about future cash flows is reflected in different probability-weighted cash flow projections, rather than in the discount rate. All rights reserved. Applicability. Tune in to KPMG Advisory podcasts to hear perspectives on today's business issues. Due to the high degree of uncertainty and resulting challenges in forecasting cash flows, it could be helpful to base those forecasts on external sources such as economic projections by respected central banks and other international organisations if available. This can be ascertained by the physical verification of the asset such as the look and calculation of output or productivity of the assets in a given period. IFRS 9 Financial Instruments, published in July 2014, is the new financial instruments standard which replaced IAS 39 Financial Instruments: Recognition and Measurement, and is effective for annual periods beginning on or after 1 January 2018. Join us for upcoming webcast events. Using Q&As and examples, this guide explains in depth the impairment models for goodwill, indefinite-lived intangible assets and long-lived assets. Please note that your account has not been verified - unverified account will be deleted 48 hours after initial registration. 2 The guidance in IAS 28 Investments in Associates and Joint Ventures is used to determine whether it is necessary to perform an impairment test for investments in equity-accounted investees. To thrive in today's marketplace, one must never stop learning. Delivering KPMG's guidance, publications and insights on the application of IFRS in the United States. Due to the increase in the level of uncertainty, a higher number of key assumptions may need to be disclosed â e.g. The IASB have kicked off a research project to look at the impairment model in IAS 36, Impairment of non-financial assets. Consider enhancing sensitivity disclosures and disclosures about the key assumptions and major sources of estimation uncertainty in the interim and annual reports. of Professional Practice, KPMG US. IFRS 9 mandatory for use since January 01, 2018, was intended to eliminate the shortcomings of then applicable IAS 39, simplify the logic of classification of financial instruments, increase the reliability of information about impairment of financial assets. [IAS 1.129(b)], Interim condensed reports IAS 34 Interim Financial Reporting requires disclosure of the nature and amount of changes in estimates. Any such changes are accounted for prospectively as a change in accounting estimate. KPMG International provides no client services. You will not receive KPMG subscription messages until you agree to the new policy. IAS 36 Impairment of Assets requires a company to assess at the end of each reporting period whether there is any indication of impairment (or an indication that a previously recognised impairment loss has reversed). [Insights 3.10.300.120]. PPE, intangible assets and goodwill? Cash flows used in determining FVLCD should be updated to reflect the assumptions that market participants would use based on market conditions and information available at the reporting date. Sharing our expertise and perspective to inform your decision-making in an evolving global financial reporting environment. This self-study course addresses requirements of IAS 36, Impairment of Assets, including the following: What is impairment?? IAS 36 provides relevant disclosures to be considered in this regard. Trigger for impairment testing. Resource centre on the financial reporting impacts of coronavirus. Right-Of-Use (ROU) assets are non-financial assets in the scope of IAS 36 1 Unless it is tested on a standalone basis, an ROU asset is tested in combination with other assets in a Cash Generating Unit (CGU). [IAS 36.A4âA14], the impact of measures taken to contain COVID-19 on the companyâs business; and. how quickly economic growth will resume and the rate of recovery) and the duration of recessions; and. Find out what KPMG can do for your business. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-Ã -vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. IAS 36 also requires sensitivity disclosures if a reasonably possible change in a key assumption would cause a CGU's carrying amount to exceed its recoverable amount. If there is an indication of impairment, then the impairment test follows the principles of IAS 36. With the exception of goodwill and certain intangible assets for which an annual impairment test is required, entities are required to conduct impairment tests where there is an indication of impairment of an … As a result, the likelihood that a triggering event has occurred in 2020 and therefore that an impairment test is required has increased significantly. Two approaches can be used to project cash flows: Given the high degree of uncertainty, it may be helpful to consider using an expected cash flow approach as opposed to the traditional approach. Have non-financial assets become impaired â e.g. Practical guide to Phase 2 amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 for interest rate benchmark (IBOR) reform The IASB has issued amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 that address issues arising during the reform of benchmark interest rates including the replacement of one benchmark rate with an alternative one. Archived recordings can be accessed anytime. IFRS 9 requires entities to base their measurement of expected credit losses on reasonable and supportable information that is available without undue cost or effort. Disclosures about the key assumptions made by management are highly relevant, because describing how management determines their values gives investors and other users additional information to assess the reliability of impairment testing and compare management’soutlook with their own. Explore challenges and top-of-mind concerns of business leaders today. Tenants that have been forced to suspend operations may not be able to pay rent in the near term or may ask to renegotiate a lower rent. 3.3angible assets and goodwill Int 26 3.4vestment property In 28 3.5ssociates and the equity method A 30 3.6oint arrangements J 32 3.7 [Not used] 3.8 Inventories 33 3.9 Biological assets 34 3.10 Impairment of non-financial assets 35 3. retail and industrial properties â may be considerably affected by COVID-19. As noted in IAS 34, when an event or transaction is significant to an understanding of the changes in an entity's financial position or performance since the last annual reporting period, as may be the case with material impairment losses recognised in an interim period, the companyâs interim financial report should provide an explanation of and an update to the relevant information included in the financial statements of the last annual reporting period. Corporate strategy insights for your industry, Explore Corporate strategy insights for your industry, Financial Services Regulatory Insights Center, Explore Financial Services Regulatory Insights Center, Explore Risk, Regulatory and Compliance Insights, Explore Corporate Strategy and Mergers & Acquisitions, Customer service transformation & technology. have been hit by a fall in demand for their products or services, or by restrictions imposed by the state; are dependent on supply chains or have production facilities in countries significantly affected by COVID-19; and/or. if and when a return to pre-crisis cash flow levels is assumed. Observation Entities will need to assess their business models for holding financial assets. [IAS 36.2, 4] Considering the approach to projecting cash flows. Ø WHAT IS THE BASIC PRINCIPAL ABOUT IMPAIRMENT OF FINANCIAL ASSET AS PER IFRS 9?. However, a decrease in the risk-free rate following a decrease in the yield on government bonds may not translate into declines in a companyâs discount rate due to possible increases in credit and/or other risk premiums. Get the latest KPMG thought leadership directly to your individual personalized dashboard.