This free, guided checker walks your finance team through the key decision points for IAS 36 Goodwill Impairment Testing. Answer a few questions to see the likely treatment and the evidence to document.
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This tool is a high-level IFRS screening aid for general information only and is not accounting, audit or legal advice. Conclusions require entity-specific evidence and judgement - confirm the treatment with your advisor.
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Goodwill acquired in a business combination must be tested for impairment annually and whenever an indicator arises (IAS 36.10(b)); the annual test may be performed at any time during the year but at the same time every year (IAS 36.96). Check the goodwill rollforward for balances from prior acquisitions, step acquisitions, and foreign-currency retranslation before concluding that no test is needed.
IAS 36.10(b) annual goodwill testing does not apply; assess other assets for impairment indicators at each reporting date under IAS 36.9.
Official guidance: IFRS issued standards
IAS 36.80 requires each unit or group of units carrying goodwill to represent the lowest level at which goodwill is monitored for internal management purposes and to be no larger than an operating segment before aggregation. Trace the allocation to the synergy case in the acquisition model rather than to where the acquired assets happen to sit. If a reorganization changed the reporting structure, reallocate goodwill using a relative value approach under IAS 36.87.
Complete the goodwill allocation before the end of the first annual period beginning after the acquisition, as IAS 36.84 requires, then perform the annual test.
Official guidance: IFRS issued standards
Identify CGUs as the smallest group of assets with largely independent cash inflows, using evidence such as separate revenue streams, discrete customer bases, and how management monitors operations or makes disposal decisions (IAS 36.6, IAS 36.68-69). An active market for an intermediate product makes the producing assets a separate CGU even if output is consumed internally (IAS 36.70). Grouping too high can mask impairment of an underperforming unit with headroom elsewhere - a common regulator finding.
Redefine CGU boundaries around largely independent cash inflows per IAS 36.68-69 and re-map goodwill monitoring under IAS 36.80 before testing.
Official guidance: IFRS issued standards
Recoverable amount is the higher of FVLCD and VIU (IAS 36.6, IAS 36.74); you need not calculate both if one already exceeds carrying amount (IAS 36.19). FVLCD follows IFRS 13 fair value measurement less incremental disposal costs (IAS 36.28), while VIU uses entity-specific discounted cash flows. Document which measure was used and why - a market-participant FVLCD cannot include entity-specific synergies a buyer would not pay for.
Determine recoverable amount as the higher of FVLCD and VIU per IAS 36.74 (using the IAS 36.19 shortcut where one measure suffices) before concluding on goodwill impairment.
Official guidance: IFRS issued standards
IAS 36.33 requires cash-flow projections based on reasonable and supportable assumptions and the most recent budgets or forecasts approved by management, generally covering a maximum of five years. Exclude cash flows from financing activities and income taxes (IAS 36.50) and from future restructurings not yet committed or from enhancing the asset's performance (IAS 36.44). The most common misapplication is discounting post-tax cash flows at a pre-tax rate - the cash flows and the discount rate must be on a consistent basis (IAS 36.55, IAS 36.A20).
Rebuild the VIU model on approved budgets with tax-consistent discounting per IAS 36.33, IAS 36.50 and IAS 36.55 before impairment sign-off.
Official guidance: IFRS issued standards
IAS 36.55 requires a pre-tax rate reflecting current market assessments of the time value of money and the risks specific to the asset that are not already reflected in the cash flows; risks must not be double counted in both the rate and the flows (IAS 36.56). Appendix A permits starting from the entity's WACC, incremental borrowing rate, or other market borrowing rates, then adjusting for country, currency, and price risk (IAS 36.A17-A18). Document each build-up component with market data - a single unadjusted group rate applied to CGUs with different risk profiles is rarely supportable.
Document the CGU-specific discount-rate build-up required by IAS 36.55-56 and IAS 36.A17 before finalizing goodwill impairment testing.
Official guidance: IFRS issued standards
IAS 36.33(c) requires extrapolation beyond approved budgets using a steady or declining growth rate, capped at the long-term average growth rate for the products, industries, or countries in which the entity operates unless a higher rate can be justified (IAS 36.36). Because terminal value typically dominates VIU, benchmark the rate against long-run GDP and inflation expectations and test sensitivity to small movements. Growth assumptions inconsistent with declining historical performance are a frequent audit challenge (IAS 36.34).
Cap terminal growth at supportable long-term averages per IAS 36.33(c) and IAS 36.36 and reperform the recoverable-amount calculation.
Official guidance: IFRS issued standards
IAS 36.75 requires the carrying amount of the CGU to be determined on a basis consistent with the way its recoverable amount is measured; IAS 36.76 limits it to assets directly attributable or allocable on a reasonable and consistent basis, excluding recognized liabilities unless recoverable amount cannot be determined without them (IAS 36.78-79). Allocate corporate assets such as headquarters or shared IT on a reasonable and consistent basis (IAS 36.102). Consistency errors - for example including working-capital inflows in VIU while excluding working capital from carrying amount - are the most common cause of overstated headroom.
Reconcile the CGU carrying amount, including allocated goodwill and corporate assets, on a basis consistent with IAS 36.75-76 before comparing to recoverable amount.
Official guidance: IFRS issued standards
IAS 36.90 requires a goodwill-carrying unit to be tested by comparing its carrying amount, including the goodwill, with its recoverable amount; a loss arises only when carrying amount is higher. Perform the comparison at the tested level - do not offset a deficit in one CGU against headroom in another, because goodwill impairment cannot be reversed later (IAS 36.124). Retain the comparison schedule; it drives both the loss allocation and the IAS 36.134 disclosures.
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Official guidance: IFRS issued standards
IAS 36.104 requires the impairment loss to reduce goodwill first, with any remainder allocated pro rata to the other assets of the unit based on their carrying amounts. No asset may be written below the highest of its fair value less costs of disposal, its value in use, and zero; any excess is reallocated to the remaining assets (IAS 36.105). The loss is recognized immediately in profit or loss (IAS 36.60), and goodwill impairment is never reversed (IAS 36.124).
Recognize the impairment loss immediately in profit or loss (IAS 36.60), reducing goodwill first and other CGU assets pro rata subject to the IAS 36.105 floors. Complete the allocation schedule applying the goodwill-first order of IAS 36.104 and the individual-asset floors of IAS 36.105 before posting.
Official guidance: IFRS issued standards
For each CGU with significant goodwill, IAS 36.134 requires disclosure of the basis of recoverable amount, the key assumptions, and management's approach to determining them. If a reasonably possible change in a key assumption would cause carrying amount to exceed recoverable amount, disclose the headroom, the assumption values, and the amount by which each assumption would have to change (IAS 36.134(f)). Run one-way sensitivities on the discount rate, terminal growth, and near-term cash flows; thin headroom without this analysis is a classic disclosure deficiency.
No impairment loss is recognized; retain the headroom and sensitivity file supporting the IAS 36.134 key-assumption disclosures. Quantify reasonably possible changes in key assumptions to complete the IAS 36.134(f) disclosure assessment before sign-off.
Official guidance: IFRS issued standards
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