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Impairment disclosures for non-financial assets

The Financial Reporting Council (FRC) would like entities to provide more transparent reporting of the recognition or reversal of an impairment loss. It has conducted a Thematic Review - Impairment of non-financial assets to look at compliance with the disclosure requirements in IFRS and commentary in the strategic report.

The review identified instances of better practice but also a number of common disclosure omissions and opportunities to clarify and enhance disclosures. Specifically, the FRC encourage companies to pay greater attention to:

The FRC encourages clear disclosures about the events and circumstances that lead to the recognition or reversal of an impairment loss and the basis on which the directors concluded the carrying amounts of non-financial assets are recoverable. Common disclosure omissions and areas of good practice are summarised below.

Strategic Report

Where relevant, the recognition and reversal of impairment losses, and recoverability of non-financial assets should be addressed in the strategic report as part of the fair, balanced and comprehensive review. This might require explanation that management’s forecasts may be more optimistic than market indications.

Events and circumstances

Better disclosures:

Assets and Cash Generating Units subject to impairment

Better disclosures:

Omitted disclosures included:

Recoverable amount

Better disclosures:

Omitted disclosures included:

Key assumptions

Better disclosures:

Omitted disclosures included:

Discount rate

Better disclosures:

Growth rates

Better disclosures:

Period of cash flow projections

Better disclosures:

Sensitivity analysis

Better disclosures:

Omitted disclosures included:

Estimates and judgements

Clearer distinction between matters of significant judgement (such as the determination of CGUs, allocation of revenue and costs to CGUs) and estimating uncertain amounts (such as future cash flows and discount rates) is encouraged.

There is also an expectation when the net assets of the company exceed the market capitalisation, that relevant information about estimates and assumptions carrying significant risk of material adjustment in the following year are disclosed.

Better disclosures:

Investments in subsidiaries

Better disclosures:

2020 disclosures

Key points to consider in 2020 for impairment-related disclosures are:

For more information on any of the above areas, please speak to Stella Cooper.

authors:stella-cooper