Navigating impairment in an uncertain world

23 June 2020

Adam Myers, Partner, Corporate Finance |

Earlier this year, prior to COVID-19, we were contacted by a client who was facing a qualified audit opinion if they did not impair all of their intangible assets.

This issue came to a head as the half-year accounts were due to be lodged, resulting in a rush to meet the lodgement deadline.

With an increased spotlight on impairment from ASIC and the uncertainty resulting from COVID-19 we believe there are some key lessons to be learned:

  • Engage with your auditor early, having time to talk through the issues and avoiding the pressure of the lodgement deadline. This also then allows the Board to make a decision based on a considered review of the information.
  • Understand your cash-generating units (CGUs): during good times we saw many companies who had not seen impairment triggers group CGUs for convenience. A detailed understanding of your true CGUs, including where a technology is being applied across a range of future products, is prudent.
  • If you are preparing a Value in Use (VIU) or Fair Value Less Costs Of Disposal (FVLCOD), it is important to note that whilst sharing a number of common characteristics they differ in material ways.  

With this client, we assisted by bringing together our IFRS Advisory team and our Corporate Finance team who specialise in valuations. 

The benefit of this approach was to provide a conduit between the company and the auditor when discussing the technicalities of the Accounting Standards, as well as providing a robust valuation approach. 

With a spotlight on Directors at the moment, impairment is an area where having additional resources will enable better decision-making and the ability to clearly explain the outcomes to shareholders and stakeholders. 

Your business may be facing similarly difficult questions in terms of how to respond to the consequences of government restrictions and guidance.

Read more of our COVID-19 resources for business, or contact us for assistance.