Question

Identify specific issues that the directors should consider when reviewing the impairment calculations that will shortly...

Identify specific issues that the directors should consider when reviewing the impairment calculations that will shortly be prepared by management. For each issue identified, explain how it is specifically relevant to company.

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Answer #1

Impairment testing relies on the value of assets estimated by discounting future cashflows with appropriate discounting rates.The extent to which directors can rely on the Management's work in impairment depend on the circumstances which include:

  • Whether assets are material.
  • Level of expertise of management and staff in impairment.
  • How the performance of the company and the environment in which it operates affect the recoverability of value of assets or sale of those assets.
  • Appropriate use of external experts.
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