Question

"If management review useful lives annually, impairment reviews will rarely by necessary." Give your views on...

"If management review useful lives annually, impairment reviews will rarely by necessary."

Give your views on this statement. What audit procedures should you carry out to see if an impairment review is necessary?

Homework Answers

Answer #1

I disagree with the statement, if management review useful lives annually, impairment reviews will rarely be necessary.

The useful life of an asset must be reviewed at least once in a year, may be at each balance sheet date.

The change as a result of difference in expectation, must be treated as a change in an accounting estimate.

Impairment reviews are done to check whether the asset is impaired or not. An asset is considerd to be impaired if its market price is less than the carrying value of the asset in company's books.

The purpose of both the reviews are different and therefore both the exercises are necessary in their own way.

Carrying value should be compared with the market values and if there is significant difference, one should go deep, assess and estimate the appropriate values to give effect to the impaired asset.

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