Impairment Tests
Challenges in impairment testing
The key challenge of an impairment test under IAS 36 is deriving reliable cash flow projections for assets and groups of assets. These projections are discounted using the weighted average cost of capital (WACC) to determine the recoverable amount of the asset (group) being tested.
Assessment Requirements
The valuation requirements of an impairment test relate to single assets or cash-generating units.
Plausibility
The assumptions must be inherently consistent and based on objective, consistent, and reliable data.
Documentation
The impairment test must be presented by complete and clearly structured documentation.
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Our support
We carry out impairment tests with specialist expertise and many years of experience.
Yield curves for your needs
Yield curves are highly relevant for companies seeking to make sound financial decisions.
Valuation of bonds
Yield curves are used to discount bonds' future cash flows in order to assess their market value. Adjusting the yield curve to reflect creditworthiness, rating-related factors, and country-specific risk components is essential for accurate valuation.
Discount rates in IFRS accounting
In IFRS accounting, items are frequently depicted by the present value of their future cash flows. The prerequisite for this is the proper calculation of an appropriate discount rate. Typical areas of application include fair value valuations, the valuation of provisions as well as accounting for pension obligations.
Calculation of borrowing costs
Based on current market data, we derive risk-appropriate interest rates — using methods such as the analysis of comparable corporate bonds, or model-based approaches like Merton's structural models.
Risk Management and Hedging
Yield curves are a core component of risk management, particularly in the context of derivatives and interest rate hedging. Banks, insurance companies, and corporates rely on them to develop and assess strategies for mitigating interest rate volatility.
This is how we assist you with Impairment Tests
Cash Generating Units
We first identify your cash-generating units and, based on this, create robust valuation models that precisely reflect all the requirements of IAS 36.
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Parameter derivation
We determine market-oriented cost of capital (WACC) and validate your planning assumptions using external benchmarks in order to create a reliable basis for usage value.
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Audit-Proof Documentation
We summarize the results in a detailed valuation report, which, including all sensitivity analyses, is designed directly for audit by the auditor.
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FAQ
What are Impairment Tests in accordance with IFRS?
If the carrying amount exceeds this realizable value, a corresponding impairment is made to present the financial position realisably.
The systematic review consistently prevents an overvaluation of assets and sustainably strengthens the quality of financial reporting.
When are impairment tests required?
In addition, specific internal or external indaicators of a potential impairment, such as technological changes or significant market value decreases, require a triggered review.
How are impairment tests carried out?
This recoverable amount is the higher of fair value less costs to sell and value in use based on discounted cash flows. If the value determined in this manner is lower than the carrying amount, a corresponding impairment loss is recognized.
What are the key challenges in impairment tests?
Since many parameters are based on discretionary powers, well-founded and verifiable documentation is essential for acceptance by auditors.
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