Disclosure requirements of IAS 36 Impairment of Assets are set out in paragraphs IAS 36.126-137. Key requirements are those of IAS 36.134 and require disclosure on how an entity arrived at the recoverable amount in its impairment test. Note that those disclosures are required for CGUs with goodwill or intangible assets with indefinite useful lives only. IAS 36 encourages, but doesn’t require, such disclosures for other CGUs.
In practice, disclosures made by entities are often too general to enable a user of financial statements to assess how an entity calculated the recoverable amount (e.g. value in use) in its impairment test. Entities often mistakenly believe that disclosing the value of WACC and PGR along with generic discussion relating to evolution of business activities is sufficient.
Particular attention to disclosure is required when ‘a reasonably possible change in a key assumption on which management has based its determination of the CGU’s recoverable amount would cause the CGU’s carrying amount to exceed its recoverable amount’ (IAS 36.134f). In such cases, entities are required to disclose the value of so-called safety margin, the value assigned to key assumptions (note that WACC and PGR are not the only key assumptions) and sensitivity analysis. The criterion from IAS 36.134f is always met when an impairment loss was recognised.
National regulatory and supervisory bodies often focus on disclosures relating to IAS 36 and some even issue their own requirements applicable to companies reporting within their jurisdiction. Therefore, it is always a good idea to check whether a regulator didn’t issue anything that entities listed in a specific country need to comply with.
See the disclosures made by Vodafone Group Plc provided for illustrative purposes below:
More about IAS 36
See other pages relating to IAS 36:
Scope of IAS 36 Impairment of Assets
IAS 36 Impairment of Assets: Cash-Generating Units (CGU)
IAS 36 Impairment of Assets: Value in Use as the Recoverable Amount
IAS 36 Impairment of Assets: Allocation and Reversal of Impairment Losses
IAS 36 Impairment of Assets: Disclosure