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