highlights the ITG’s discussions on the . IMPAIRMENT OF GOODWILL, TANGIBLE AND INTANGIBLE ASSETS BDO’S US GAAP AND IFRS COMPARISON SERIES JUNE 2020 / www.bdo.com INTRODUCTION Guidance related to assessing and recording impairment of assets is found in IAS 36, Impairment of Assets and in IFRS 5, Non-current Assets Held for Sale and Discontinued Operations for entities complying with international accounting … Yes, unfortunately the combined effect of IFRS 16 and pandemic is the need to perform even greater volume of impairment testing. Be sure to check this page on a regular basis. Impairment of goodwill U.S. GAAP IFRS Measurement of impairment loss Before adoption of the simplifications in ASU 2017-04, the impairment loss is the amount by which the carrying amount of goodwill in a reporting unit exceeds its implied fair value. Sensitivity analysis 7.3. IAS 36 Impairment of Assets Effective Date ... FOR IMPAIRMENT? Disclosure 7.1. A special impairment indicator: market capitalisation An impairment test must be undertaken if there are indications of impairment. Other practical considerations 9.1. ... Trade receivables are financial assets which fall within the scope of IAS 39 & IFRS 9. This “market cap” indicator is not included in IFRS 6. Warning: You MUST test also ROU assets for impairment! within the IFRS 9 impairment model? Impairment Indicators (Triggering Events US GAAP & IFRS) 5. This is demonstrated if the new accounting policy aligns better with requirements of IAS 8 even if not necessarily complying fully.eval(ez_write_tag([[580,400],'xplaind_com-medrectangle-3','ezslot_0',105,'0','0'])); An entity shall classify exploration and evaluation assets consistently into tangible and intangible assets depending on their nature. Page 1 of 25 Agenda ref 18D STAFF PAPER June 2019 IASB® meeting Project Goodwill and Impairment 15 13. However, IFRS 6 specifies different indicators of impairment, such as inability to complete exploration in or non-extension of the time period specified in the legal rights to explore, no further budgeting of exploration expenditures, etc. 5. An important consideration in the impairment model in IFRS 9 is the use of forward-looking information in the models. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. An important consideration in the impairment model in IFRS 9 is the use of forward-looking information in the models. We hope you like the work that has been done, and if you have any suggestions, your feedback is highly valuable. An entity applies IAS 36 in assessing for and recognizing impairment of exploration and evaluation assets. 4 IFRB 2020/03 Potential Effects of the Coronavirus – 2020 Onward IFRS Standard Potential impact of the coronavirus BDO Comments IFRS 6, Exploration for and Evaluation of Mineral Resources If the reporting entity has elected to capitalise exploration and evaluation assets, indicators of impairment may exist (see points under IAS 36). Impairment of assets (disposal groups) held for sale in accordance with IFRS 5 9.2. The IFRS for SMEs also contains important simplifications to the recognition and measurement principles in full IFRS. The new expected credit loss (ECL) model for the impairment of financial instruments has . CPA Canada is committed to providing information to help you address the challenges arising from COVID-19. 15 13. Under IAS 36, Audit readiness (6): Impairment of Trade receivables. How should the IFRS 9 impairment model be applied when interest rate is re-set in response to a deterioration in the borrower’s credit risk (ratchet loans)? IAS 37 is applied to accounting for any removal and restoration obligations. Example 1 Entity A, a telecoms company, has both goodwill and intangibles with indefinite useful lives and a 31 December year end. 3 Step 6: Recognise or reverse any impairment loss 45 3.1 Recognising an impairment loss for an individual asset 46 3.2 Recognising an impairment loss for cash generating units 48 3.3 Considerations for foreign operations 50 3.4 Reversing an impairment loss 51 3.4.1 Indicators for reversing an impairment loss 51 7. impairment requirements of IFRS 9 . 3 Step 6: Recognise or reverse any impairment loss 45 3.1 Recognising an impairment loss for an individual asset 46 3.2 Recognising an impairment loss for cash generating units 48 3.3 Considerations for foreign operations 50 3.4 Reversing an impairment loss 51 3.4.1 Indicators for reversing an impairment loss 51 Costs incurred after technical feasibility has been determined is accounted for under IAS 38 Intangible Assets and the Conceptual Framework. But if any impairment indicator arises between the date of the test and the balance sheet date, the impairment assessment should be updated. Impairment test may be performed at any time during the year, at the same time every year. (IAS 36). Upon adoption of the simplifications in ASU 2017-04, the impairment loss will be the Then the impairment loss calculation is exactly the same as above (without grossing up). IFRS 6 has the effect of allowing entities adopting the standard for the first time to use accounting policies for exploration and evaluation assets that were applied before adopting IFRSs. This Standard deals with the accounting treatment of investment in associate and joint venture. On transition to IFRS 9 do the historical measures of credit risk at … Some of ROU assets were not in the balance sheet before IFRS 16, especially if you had operating leases with all expenses recognized straight in profit or loss. the higher of fair value less costs of disposal and value in use). IFRS Newsletter. We use cookies to personalise content and to provide you with an improved user experience. Audit readiness (6): Impairment of Trade receivables. Under the assumption that the impact of IFRS 1 6 is similar for other market participants. An entity is required to assess at each reporting date whether there is any ind ication of impairment. IAS 36 Impairment of Assets Effective Date ... FOR IMPAIRMENT? IFRS 6 requires management to apply their judgement in formulating accounting policy for recognizing exploration and evaluation assets which results in information which is relevant and reliable. Disclosures per CGU 8. Paragraph 12(d) of IAS 36 requires impairment testing when the carrying amount of the net assets of the entity is more than its market capitalization. A decision to sell an asset is an indicator of impairment (see section 6) and will trigger an impairment review. Examples of indicators of impairment are set out in paragraph 10 of Section 3063. Upon adoption of the simplifications in ASU 2017-04, the impairment loss will be the Once impairment is assessed, the amount is determined in accordance with IAS 36.eval(ez_write_tag([[580,400],'xplaind_com-medrectangle-4','ezslot_3',133,'0','0'])); IFRS 6 requires allocation of exploration and evaluation assets to cash-generating units but requires them to be no bigger than operating segments as defined in IFRS 9. Expected Cash Flows and Scenarios 8. triggered a variety of implementation issues. US GAAP / IFRS Similarities & Differences 4. An entity shall recognize the exploration and evaluation assets initially at cost and subsequently by applying either the cost model of the revaluation model (under either IAS 16 or IAS 38).eval(ez_write_tag([[300,250],'xplaind_com-box-3','ezslot_2',104,'0','0'])); Costs which may be capitalized include costs related to “(a) acquisition of rights to explore; (b) topographical, geological, geochemical and geophysical studies; (c) exploratory drilling; (d) trenching; (e) sampling; and (f) activities in relation to evaluating the technical feasibility and commercial viability of extracting a mineral resource.” However, this list is not exhaustive. The impairment loss of CU 25 is fully recognized in profit or loss. In general, since the ROU asset is a non-financial asset, the IAS 36 requirements apply. The new expected credit loss (ECL) model for the impairment of financial instruments has . Reversing an impairment 7. 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. approach to adoption of IFRS 16 in IAS 36 impairment testing. 7. Reversing an impairment 7. Issue 22 Contents Spotlight—Reflecting on the financial reporting challenges stemming from covid-19; In Profile—Florian Esterer, Head of Core Equities, Bank J Safra Sarasin and member of the Capital Markets Advisory Committee However, IFRS 6 specifies different indicators of impairment, such as inability to complete exploration in or non-extension of the time period specified in the legal rights to explore, no further budgeting of exploration expenditures, etc. Then the impairment loss calculation is exactly the same as above (without grossing up). The International Accounting Standards Board is the independent standard-setting body of the IFRS Foundation, a not-for-profit corporation promoting the adoption of International Financial Reporting Standards. IMPAIRMENT If indicators of impairment: measure, present and disclose impairment in accordance with IAS 36. Information Asymmetry 7. net cash flows of the asset or CGU, 3. decline in market value of the asset, 4. changes in economy such as an increase in labor cost, raw materials, etc. IMPAIRMENT OF GOODWILL, TANGIBLE AND INTANGIBLE ASSETS BDO’S US GAAP AND IFRS COMPARISON SERIES JUNE 2020 / www.bdo.com INTRODUCTION Guidance related to assessing and recording impairment of assets is found in IAS 36, Impairment of Assets and in IFRS 5, Non-current Assets Held for Sale and Discontinued Operations for entities complying with international accounting … Under the assumption that the impact of IFRS 1 6 is similar for other market participants. This will result in IAS 36 being applied immediately before the asset is classified as held for sale (assuming the relevant criteria are met) and treated in accordance with IFRS 5. CPA Canada has put together resources to help manage your finances and provide you with the tools you need during this crisis – and beyond. How should the IFRS 9 impairment model be applied when interest rate is re-set in response to a deterioration in the borrower’s credit risk (ratchet loans)? IFRS 6 Impairment of exploration/evaluation assets, International financial reporting standards (IFRS), CPA Canada Handbook: Standards and guidance collection, Accounting standards for private enterprises (ASPE), Sustainability, environmental and social reporting, how IFRS 6 modifies the requirements of IAS 36, circumstances under which an entity should test E&E assets for impairment, the interaction between market capitalization and the carrying amount of an entity’s net assets, the level at which impairment testing should be conducted. Let's connect! IFRS 6 Exploration for and Evaluation of Mineral Resources Last updated: March 2017 This communication contains a general overview of the topic and is current as of March 31, 2017. The simplified approach. Assumptions used 7.2. For purposes of assessing E&E assets, paragraph 20 of IFRS 6 applies rather than paragraphs 8-17 of IAS 36 Impairment of Assets. The general approach, and B. For more information visit www.ifrs.org. Disclosures per CGU 8. Any impairment loss on an E&E asset recognized in accordance with IAS 36 (following the assessment of indicators of impairment in accordance with IFRS 6 Exploration for and Evalu-ation of Mineral Resources) needs to be reversed if there is evidence the loss no longer exists or has decreased. Timing of impairment tests. Paragraphs IAS 36.88-99 set out the criteria for timing of impairment tests. Please choose between the following three options for navigation. Consequently, the identification of indicators of impairment becomes a crucial stage in the process. Paragraph 12 of IAS 36 sets out examples of impairment indicators, both external and internal indicators. This will result in IAS 36 being applied immediately before the asset is classified as held for sale (assuming the relevant criteria are met) and treated in accordance with IFRS 5. Examples of indicators of impairment are set out in paragraph 10 of Section 3063. (IAS 36). Impairment test may be performed at any time during the year, at the same time every year. Indicators are assessed at each reporting date. This Standard deals with the accounting treatment of investment in associate and joint venture. by Obaidullah Jan, ACA, CFA and last modified on Oct 18, 2020Studying for CFA® Program? In general, since the ROU asset is a non-financial asset, the IAS 36 requirements apply. Both standards require the testing of goodwill and intangible assets with indefinite lives for impairment at least annually, and more frequently if impairment indicators … IFRS Newsletter. IMPAIRMENT IFRS 6 effectively modifies the application of IAS 36 Impairment of Assets to exploration and evaluation assets recognised by an entity under its accounting policy. Standard practices and further guidance on the implications of IFRS 16 are expected to become available in the course of 2019, following the adoption of IFRS 16 by all IFRS reporters. Goodwill and intangible assets with an indefinite useful life or not yet available for use must be tested for impairment at least annually (IAS 36.10). Decisions around classification of assets into different stages and the calculation of the expected credit losses require consideration of forward-looking macroeconomic information. IFRS 6 Exploration for and Evaluation of Mineral Resources Last updated: March 2017 This communication contains a general overview of the topic and is current as of March 31, 2017. Under IAS 36, The International Financial Reporting Standards Foundation is a not-for-profit corporation incorporated in the State of Delaware, United States of America, with the Delaware Division of Companies (file no: 3353113), and is registered as an overseas company in England and Wales (reg no: FC023235). On transition to IFRS 9 do the historical measures of credit risk at … It also prescribes the guidelines for the application of the equity method to account for investments in associates and joint ventures. An entity is required to assess at each reporting date whether there is any ind ication of impairment. IAS 36.2 IAS 36.4 Access notes and question bank for CFA® Level 1 authored by me at AlphaBetaPrep.comeval(ez_write_tag([[250,250],'xplaind_com-box-4','ezslot_9',134,'0','0'])); XPLAIND.com is a free educational website; of students, by students, and for students. You are welcome to learn a range of topics from accounting, economics, finance and more. Financial Instruments. Warning: You MUST test also ROU assets for impairment! Impairment of assets (disposal groups) held for sale in accordance with IFRS 5 9.2. Once exploration and evaluation assets have demonstrated technical feasibility and commercial viability, they shall be assessed for impairment and henceforth no longer classified as exploration and evaluation assets (but as development assets). There are only two exemptions from the IAS 36 impairment model. Both standards require the testing of goodwill and intangible assets with indefinite lives for impairment at least annually, and more frequently if impairment indicators … IMPAIRMENT If indicators of impairment: measure, present and disclose impairment in accordance with IAS 36. in September 2015. Goodwill and intangible assets with an indefinite useful life or not yet available for use must be tested for impairment at least annually (IAS 36.10). highlights the ITG’s discussions on the . Assumptions used 7.2. IAS 36 provides guidance in the form of a list of internal and external indicators of impairment. In the consolidated statement of financial position, the journal entry is: Debit Retained earnings: CU 20 (80%*CU 25) Debit Non-controlling interest: CU 5 (20%*CU 25) Credit Goodwill: CU 25 US GAAP and IFRS contain similar impairment indicators for assessing the impairment of long-lived assets (“non-current assets” in IFRS). There are two methods of calculating the expected credit losses; A. Other practical considerations 9.1. In the consolidated statement of financial position, the journal entry is: Debit Retained earnings: CU 20 (80%*CU 25) Debit Non-controlling interest: CU 5 (20%*CU 25) Credit Goodwill: CU 25 triggered a variety of implementation issues. But if any impairment indicator arises between the date of the test and the balance sheet date, the impairment assessment should be updated. CGUs with non-controlling interests 9. By continuing to browse this site, you consent to the use of cookies. Prepared by Chartered Professional Accountants of Canada (CPA Canada) and the Prospectors and Developers Association of Canada, this useful resource for junior mining companies features information on: CPA Canada is carefully monitoring COVID-19 for any new developments relating to its impacts. For purposes of assessing E&E assets, paragraph 20 of IFRS 6 applies rather than paragraphs 8-17 of IAS 36 Impairment of Assets. A decision to sell an asset is an indicator of impairment (see section 6) and will trigger an impairment review. US GAAP and IFRS contain similar impairment indicators for assessing the impairment of long-lived assets (“non-current assets” in IFRS). It exempts the entity from the requirements to refer to IFRS standards dealing with similar and related issues and the Conceptual Framework, and to pronouncements issued by other standard-setting bodies. Financial Instruments. At one end, IFRS 6®, Exploration for and evaluation of mineral resources has introduced certain issues for the industry, and, at the other, IFRS Standards is shifting the boundaries of cash-generating units down to the level of the petrol station or smallest group of retailing assets under IAS 36®, Impairment of assets. Viewpoints: Applying IFRS in the Mining Industry — Impairment of Exploration and Evaluation Assets provides views on how such modifications affect impairment testing of E&E assets. 4 IFRB 2020/03 Potential Effects of the Coronavirus – 2020 Onward IFRS Standard Potential impact of the coronavirus BDO Comments IFRS 6, Exploration for and Evaluation of Mineral Resources If the reporting entity has elected to capitalise exploration and evaluation assets, indicators of impairment may exist (see points under IAS 36). An entity shall disclose (a) its accounting policy relevant for exploration and evaluation assets, (b) amounts of assets and liabilities, incomes and expenses and operating and investing cash flows resulting from exploration and evaluation activities, and (c) treat explorations and evaluation assets as a separate asset class. The application of the principles addressed will depend upon the particular facts and circumstances of each individual case. Viewpoints: Applying IFRS in the Mining Industry — Impairment of Exploration and Evaluation Assets provides views on how such modifications affect impairment testing of E&E assets. This “market cap” indicator is not included in IFRS 6. Decisions around classification of assets into different stages and the calculation of the expected credit losses require consideration of forward-looking macroeconomic information. Market Approach & Market Cap Reconciliation 9. Recognising an impairment 6. Disclosure 7.1. Yes, unfortunately the combined effect of IFRS 16 and pandemic is the need to perform even greater volume of impairment testing. Market Prices in the Current Environment 6. Learn how the modifications in International Financial Reporting Standard (IFRS) 6 Exploration for and Evaluation of Mineral Resources affect the assessment of exploration and evaluation assets for impairment. Impairment review is required each year to assess whether there are indications that impairment might have occurred. Impairment of goodwill U.S. GAAP IFRS Measurement of impairment loss Before adoption of the simplifications in ASU 2017-04, the impairment loss is the amount by which the carrying amount of goodwill in a reporting unit exceeds its implied fair value. An entity applies IFRS 6 in accounting for exploration and evaluation expenditures it incurs on mineral resources except for the costs incurred before the entity obtains the legal rights to explore and the costs incurred after technical feasibility and commercial viability of the resources has been demonstrated. CGUs with non-controlling interests 9. 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. of impairment. If your company is involved in a mining project, you may be wondering: how do modifications in IFRS 6 affect the way we assess E&E assets for impairment? approach to adoption of IFRS 16 in IAS 36 impairment testing. Accounting policy required for allocating E&E assets into cash-generating units (CGUs) or groups of CGUs (no larger than an operating segment) – level identified for testing impairment … Recognising an impairment 6. Sensitivity analysis 7.3. IFRS 9 notes that information on individual asset level may not be available and a collective assessment for groups of financial assets may be necessary to ensure that significant increase in credit risk is recognised on a timely manner and not only after the instrument becomes past due (IFRS 9.B5.5.1-6). of impairment. These include: 1. obsolescence due to new technological changes, 2. decline in performance i.e. Timing of impairment tests. Issue 22 Contents Spotlight—Reflecting on the financial reporting challenges stemming from covid-19; In Profile—Florian Esterer, Head of Core Equities, Bank J Safra Sarasin and member of the Capital Markets Advisory Committee It also prescribes the guidelines for the application of the equity method to account for investments in associates and joint ventures. The application of the principles addressed will depend upon the particular facts and circumstances of each individual case. Introduction –COVID-19 Economic Impact on Goodwill Impairment Testing 3. There are only two exemptions from the IAS 36 impairment model. If your company is involved in a mining project, you may be wondering: how do modifications in IFRS 6 affect the way we assess E&E assets for impairment? within the IFRS 9 impairment model? value in the market is less than its value recorded on the balance sheet of the company For the purpose of recognition and measurement of an IAS 36 seeks to ensure that an entity's assets are not carried at more than their recoverable amount (i.e. When applying the general approach, an assessment has to be made of the stage in which the debt falls as this will affect whether 12-month or lifetime expected credit losses should be recognised. implemented, IFRS 9 impairment provision overlays/Post Model Adjustments, Macroeconomic scenarios structure and weightings, sensitivity analysis disclosures and revolving facility expected lifetime assumptions. The IFRS for SMEs also contains important simplifications to the recognition and measurement principles in full IFRS. 17 14. Standard practices and further guidance on the implications of IFRS 16 are expected to become available in the course of 2019, following the adoption of IFRS 16 by all IFRS reporters. Accounting policy required for allocating E&E assets into cash-generating units (CGUs) or groups of CGUs (no larger than an operating segment) – level identified for testing impairment … Measurement of exploration and evaluation assets. Indicators are assessed at each reporting date. An entity must apply an accounting policy consistently and change it only if it improves relevance and/or reliability of the financial statements but not at the cost of each other. Paragraphs IAS 36.88-99 set out the criteria for timing of impairment tests. IFRS 9 requires impairment of financial assets based on expected credit losses. in September 2015. Some of ROU assets were not in the balance sheet before IFRS 16, especially if you had operating leases with all expenses recognized straight in profit or loss. IAS 36 Impairment of Assets 2017 - 07 2 An assets value in use is the present value of the future cash flows expected to be derived from an asset or cash generating unit. impairment requirements of IFRS 9 . Example 1 Entity A, a telecoms company, has both goodwill and intangibles with indefinite useful lives and a 31 December year end. An entity applies IAS 36 in assessing for and recognizing impairment of exploration and evaluation assets. IAS 36.2 IAS 36.4 The impairment loss of CU 25 is fully recognized in profit or loss. Any impairment loss on an E&E asset recognized in accordance with IAS 36 (following the assessment of indicators of impairment in accordance with IFRS 6 Exploration for and Evalu-ation of Mineral Resources) needs to be reversed if there is evidence the loss no longer exists or has decreased. 5. Paragraph 12 of IAS 36 sets out examples of impairment indicators, both external and internal indicators. For the purpose of recognition and measurement of an IAS 36 Impairment of Assets 2017 - 07 2 An assets value in use is the present value of the future cash flows expected to be derived from an asset or cash generating unit. The impairment of ROU assets recognized by a lessee is fairly similar to the accounting for impairment of a leased asset by a lessor in case of operating leases under IAS 17. Paragraph 12(d) of IAS 36 requires impairment testing when the carrying amount of the net assets of the entity is more than its market capitalization. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. 2. 17 14. The impairment of ROU assets recognized by a lessee is fairly similar to the accounting for impairment of a leased asset by a lessor in case of operating leases under IAS 17. ... 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Technical feasibility has been done, and if you have any suggestions, your is... Accordance with IFRS 5 9.2 with IFRS 5 9.2 and joint venture any removal and restoration.! Date of the principles addressed will depend upon the particular facts and circumstances of individual... General, since the ROU asset is a non-financial asset, the of! Information to help you address the challenges arising from COVID-19 assessing for and recognizing impairment of Trade.! Modified on Oct 18, 2020Studying for CFA® Program at any time during the year at... Treatment of investment in associate and joint venture ROU assets for impairment assets! Triggering Events us GAAP & IFRS 9 an indicator of impairment: market an! The scope of IAS 39 & IFRS 9 IFRS 16 and pandemic is the to. Model for the application of the equity method to account for investments in associates and venture! Rou assets for impairment, both external and internal indicators ) and will trigger an impairment may! 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Any ind ication of impairment indicators for assessing the impairment of Trade receivables are financial assets which within... External and internal indicators indications of impairment under IAS 36 in assessing for recognizing! Under IAS 38 Intangible assets and the balance sheet date, the identification indicators!

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