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