Impairment – a commercial perspective

Abstract

Purpose

This paper aims to identify conceptual changes in the practical application of asset impairment testing methods as required under IAS (International Accounting Standards) 36.

Design/methodology/approach

The paper explores general principles for an impairment testing framework, to address impairment issues that arise in valuation practice.

Findings

This paper shows that the way value in use is required to be assessed is technically flawed, prone to application error, and creates conceptual and financial mismatches with the requirements of other accounting standards.

Practical implications

From a practical perspective, the consequential scope for valuation errors is further exacerbated by the reluctance of company directors to accept the need for impairment and, in some cases, by gaming.

Originality/value

This paper provides a practitioner's viewpoint to impairment testing under the IAS, and identifies several inconsistencies with the application of the standard.

Citation

Lonergan, W. (2010), "Impairment – a commercial perspective", Managerial Finance, Vol. 36 No. 9, pp. 812-826. https://doi.org/10.1108/03074351011064672