Impairment testing during COVID-19

Overview

In the context of the far-reaching economic consequences of COVID-19, a significant number of entities face indicators of impairment. In our view, the cash flows (at least in the near term) of most companies will be affected by COVID-19. Besides goodwill and long-lived intangible assets, this may trigger the requirement for impairment tests for property, plant and equipment (PPE), inventory, financial assets, real estate and investments (including investments in associates and joint ventures). Although not all of these impairment tests are performed in accordance with IAS 36, the principle that the carrying value cannot exceed the recoverable amount is typically applied.

This document sets out to highlight potential challenges that preparers of impairment assessments are likely to face in the current environment. For 31 March 2020 reporting dates and thereafter, companies may be faced with triggering events and be compelled to assess recoverable amounts of assets and/ or cash generating units (CGUs) in terms of International Accounting Standard 36 ‘Impairment of Assets’ (“IAS 36”). These valuations will require significant professional judgement.

 

Impairment testing during the global pandemic

Contact us

Fatima Rajah

Fatima Rajah

Partner, PwC South Africa

Tel: +27 (0) 11 797 5741

Matthew Human

Matthew Human

Partner, PwC South Africa

Tel: +27 (0) 11 797 5279

Jan Groenewald

Jan Groenewald

Partner, PwC South Africa

Tel: +27 (0) 11 797 5380

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