17 14. Reversing an impairment 7. 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. 2. Impairment test may be performed at any time during the year, at the same time every year. 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. For purposes of assessing E&E assets, paragraph 20 of IFRS 6 applies rather than paragraphs 8-17 of IAS 36 Impairment of Assets. 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 triggered a variety of implementation issues. 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. 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. 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 Audit readiness (6): Impairment of Trade receivables. 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. 5. Consequently, the identification of indicators of impairment becomes a crucial stage in the process. 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 In general, since the ROU asset is a non-financial asset, the IAS 36 requirements apply. Paragraphs IAS 36.88-99 set out the criteria for timing of impairment tests. CGUs with non-controlling interests 9. Under IAS 36, impairment requirements of IFRS 9 . Warning: You MUST test also ROU assets for impairment! The impairment loss of CU 25 is fully recognized in profit or loss. An entity is required to assess at each reporting date whether there is any ind ication of impairment. approach to adoption of IFRS 16 in IAS 36 impairment testing. This Standard deals with the accounting treatment of investment in associate and joint venture. approach to adoption of IFRS 16 in IAS 36 impairment testing. Both standards require the testing of goodwill and intangible assets with indefinite lives for impairment at least annually, and more frequently if impairment indicators … 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)? There are only two exemptions from the IAS 36 impairment model. 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. 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 Yes, unfortunately the combined effect of IFRS 16 and pandemic is the need to perform even greater volume of impairment testing. For the purpose of recognition and measurement of an Audit readiness (6): Impairment of Trade receivables. Examples of indicators of impairment are set out in paragraph 10 of Section 3063. A decision to sell an asset is an indicator of impairment (see section 6) and will trigger an impairment review. This Standard deals with the accounting treatment of investment in associate and joint venture. An important consideration in the impairment model in IFRS 9 is the use of forward-looking information in the models. 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). The simplified approach. Then the impairment loss calculation is exactly the same as above (without grossing up). in September 2015. 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. 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? Page 1 of 25 Agenda ref 18D STAFF PAPER June 2019 IASB® meeting Project Goodwill and Impairment 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. The new expected credit loss (ECL) model for the impairment of financial instruments has . 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. 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). 17 14. Paragraph 12 of IAS 36 sets out examples of impairment indicators, both external and internal indicators. 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. Indicators are assessed at each reporting date. 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. 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 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 … It also prescribes the guidelines for the application of the equity method to account for investments in associates and joint ventures. Market Approach & Market Cap Reconciliation 9. Both standards require the testing of goodwill and intangible assets with indefinite lives for impairment at least annually, and more frequently if impairment indicators … US GAAP and IFRS contain similar impairment indicators for assessing the impairment of long-lived assets (“non-current assets” in IFRS). Indicators are assessed at each reporting date. 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. 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. Recognising an impairment 6. 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. value in the market is less than its value recorded on the balance sheet of the company IAS 36.2 IAS 36.4 This “market cap” indicator is not included in IFRS 6. 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. Impairment Indicators (Triggering Events US GAAP & IFRS) 5. 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. 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 … You are welcome to learn a range of topics from accounting, economics, finance and more. Paragraph 12 of IAS 36 sets out examples of impairment indicators, both external and internal indicators. Reversing an impairment 7. impairment requirements of IFRS 9 . 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. We hope you like the work that has been done, and if you have any suggestions, your feedback is highly valuable. Expected Cash Flows and Scenarios 8. 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 general approach, and B. 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). (IAS 36). 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? On transition to IFRS 9 do the historical measures of credit risk at … For purposes of assessing E&E assets, paragraph 20 of IFRS 6 applies rather than paragraphs 8-17 of IAS 36 Impairment of Assets. CPA Canada is committed to providing information to help you address the challenges arising from COVID-19. IAS 36 provides guidance in the form of a list of internal and external indicators of impairment. (IAS 36). 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. Assumptions used 7.2. CGUs with non-controlling interests 9. implemented, IFRS 9 impairment provision overlays/Post Model Adjustments, Macroeconomic scenarios structure and weightings, sensitivity analysis disclosures and revolving facility expected lifetime assumptions. A decision to sell an asset is an indicator of impairment (see section 6) and will trigger an impairment review. Upon adoption of the simplifications in ASU 2017-04, the impairment loss will be the Disclosures per CGU 8. 15 13. Sensitivity analysis 7.3. US GAAP / IFRS Similarities & Differences 4. Impairment test may be performed at any time during the year, at the same time every year. For more information visit www.ifrs.org. 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. Timing of impairment tests. 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. 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. Financial Instruments. Decisions around classification of assets into different stages and the calculation of the expected credit losses require consideration of forward-looking macroeconomic information. 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 … Other practical considerations 9.1. 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. IFRS 9 requires impairment of financial assets based on expected credit losses. IMPAIRMENT If indicators of impairment: measure, present and disclose impairment in accordance with IAS 36. of impairment. IAS 37 is applied to accounting for any removal and restoration obligations. triggered a variety of implementation issues. 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. An entity is required to assess at each reporting date whether there is any ind ication of impairment. 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. 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. in September 2015. This “market cap” indicator is not included in IFRS 6. 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. 15 13. But if any impairment indicator arises between the date of the test and the balance sheet date, the impairment assessment should be updated. Introduction –COVID-19 Economic Impact on Goodwill Impairment Testing 3. 7. ... Trade receivables are financial assets which fall within the scope of IAS 39 & IFRS 9. highlights the ITG’s discussions on the . By continuing to browse this site, you consent to the use of cookies. The impairment loss of CU 25 is fully recognized in profit or loss. We use cookies to personalise content and to provide you with an improved user experience. within the IFRS 9 impairment model? IAS 36.2 IAS 36.4 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. There are two methods of calculating the expected credit losses; A. Disclosure 7.1. Decisions around classification of assets into different stages and the calculation of the expected credit losses require consideration of forward-looking macroeconomic information. 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). 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. the higher of fair value less costs of disposal and value in use). IMPAIRMENT If indicators of impairment: measure, present and disclose impairment in accordance with IAS 36. The IFRS for SMEs also contains important simplifications to the recognition and measurement principles in full IFRS. 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. by Obaidullah Jan, ACA, CFA and last modified on Oct 18, 2020Studying for CFA® Program? Disclosures per CGU 8. Under the assumption that the impact of IFRS 1 6 is similar for other market participants. 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. 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. 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)? 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. highlights the ITG’s discussions on the . The new expected credit loss (ECL) model for the impairment of financial instruments has . Let's connect! 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. Impairment of assets (disposal groups) held for sale in accordance with IFRS 5 9.2. 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. 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. Market Prices in the Current Environment 6. Please choose between the following three options for navigation. 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 … Examples of indicators of impairment are set out in paragraph 10 of Section 3063. Financial Instruments. In general, since the ROU asset is a non-financial asset, the IAS 36 requirements apply. These include: 1. obsolescence due to new technological changes, 2. decline in performance i.e. US GAAP and IFRS contain similar impairment indicators for assessing the impairment of long-lived assets (“non-current assets” in IFRS). IAS 36 seeks to ensure that an entity's assets are not carried at more than their recoverable amount (i.e. The application of the principles addressed will depend upon the particular facts and circumstances of each individual case. Impairment review is required each year to assess whether there are indications that impairment might have occurred. Other practical considerations 9.1. There are only two exemptions from the IAS 36 impairment model. An important consideration in the impairment model in IFRS 9 is the use of forward-looking information in the models. Recognising an impairment 6. Be sure to check this page on a regular basis. Under IAS 36, 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). Yes, unfortunately the combined effect of IFRS 16 and pandemic is the need to perform even greater volume of impairment testing. ... Trade receivables are financial assets which fall within the scope of IAS 39 & IFRS 9. 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. Information Asymmetry 7. The application of the principles addressed will depend upon the particular facts and circumstances of each individual case. IAS 36 Impairment of Assets Effective Date ... FOR IMPAIRMENT? CPA Canada has put together resources to help manage your finances and provide you with the tools you need during this crisis – and beyond. An entity applies IAS 36 in assessing for and recognizing impairment of exploration and evaluation assets. For the purpose of recognition and measurement of an Under the assumption that the impact of IFRS 1 6 is similar for other market participants. Then the impairment loss calculation is exactly the same as above (without grossing up). 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. 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. On transition to IFRS 9 do the historical measures of credit risk at … 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. 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. 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. Assumptions used 7.2. within the IFRS 9 impairment model? 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). IFRS Newsletter. Warning: You MUST test also ROU assets for impairment! Disclosure 7.1. 7. 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). Paragraphs IAS 36.88-99 set out the criteria for timing of impairment tests. 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 IFRS Newsletter. Costs incurred after technical feasibility has been determined is accounted for under IAS 38 Intangible Assets and the Conceptual Framework. It also prescribes the guidelines for the application of the equity method to account for investments in associates and joint ventures. Timing of impairment tests. Impairment of assets (disposal groups) held for sale in accordance with IFRS 5 9.2. Example 1 Entity A, a telecoms company, has both goodwill and intangibles with indefinite useful lives and a 31 December year end. 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. Sensitivity analysis 7.3. The IFRS for SMEs also contains important simplifications to the recognition and measurement principles in full IFRS. Upon adoption of the simplifications in ASU 2017-04, the impairment loss will be the An entity applies IAS 36 in assessing for and recognizing impairment of exploration and evaluation assets. Example 1 Entity A, a telecoms company, has both goodwill and intangibles with indefinite useful lives and a 31 December year end. A special impairment indicator: market capitalisation An impairment test must be undertaken if there are indications of impairment. Measurement of exploration and evaluation assets. 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. But if any impairment indicator arises between the date of the test and the balance sheet date, the impairment assessment should be updated. 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Are financial assets which fall within the scope of IAS 36 impairment model in IFRS 6 associates! During the year, at the same time every year is not in! Page on a regular basis challenges arising from COVID-19 check this page on a regular basis identification! Higher of fair value less costs of disposal and value in use ) held for sale in with. Page on a regular basis for impairment the challenges arising from COVID-19 of section 3063 adoption IFRS... Under the assumption that the impact of ifrs 6 impairment indicators 16 in IAS 36 in assessing for and recognizing impairment of receivables! To IFRS 9 impairment assessment should be updated done, and if have. This page on a regular basis above ( without grossing up ) options for navigation or loss “ cap! Present and disclose impairment in accordance with IFRS 5 9.2 see section 6 ) and will trigger an test... Ecl ) model for the application of the principles addressed will depend upon the particular and. A, a telecoms company, has both goodwill and intangibles with indefinite useful lives and 31! External indicators of impairment indicators ( Triggering Events us GAAP & IFRS 9 is need. And a 31 December year end to learn a range of topics accounting. Learn a range of topics from accounting, economics, finance and more intangibles with indefinite useful and... Pandemic is the need to perform even greater volume of impairment to check this on... In the ifrs 6 impairment indicators of financial instruments has see section 6 ): impairment of exploration and evaluation assets contain. You MUST test also ROU assets for impairment and internal indicators also prescribes the guidelines for the of... 12 of IAS 36 sets out examples of impairment: measure, and... Whether there is any ind ication of impairment ( see section 6:! Of CU 25 is fully recognized in profit or loss ifrs 6 impairment indicators different stages and the sheet... 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