IAS 36 narrow scope amendment – Recoverable amount disclosures
The IASB, as a consequential amendment to IFRS 13 Fair Value Measurement, modified some of the disclosure requirements in IAS 36 regarding measurement of the recoverable amount of impaired assets. The amendments resulted from the IASB’s decision in December 2010 to require additional disclosures about the measurement of impaired assets (or a group of assets) with a recoverable amount based on fair value less costs of disposal. The IASB took this decision to make the disclosure requirements in IAS 36 consistent with the wording and some of the disclosure requirements in IFRS 13 and with the disclosures about impaired assets in US Generally Accepted Accounting Principles (GAAP).
However, the staff was recently made aware that one of the amendments made to IAS 36 potentially resulted in the disclosure requirements being broader than originally intended. Instead of requiring the disclosure of the recoverable amount of impaired assets, including goodwill, as intended, the amendment is perceived to require disclosure of the recoverable amount of any cash-generating unit (group of units) for which the carrying amount of goodwill or intangible assets with indefinite useful lives allocated to that unit (group of units) is significant in comparison with the entity’s total carrying amount of goodwill or intangible assets with indefinite useful lives.
As a result, the staff proposed a narrow-scope amendment designed to clarify relevant disclosure requirements. The staff recommended the amendment outside the Annual Improvements project in an attempt to finalise the amendment as timely as possible given that IFRS 13 is effective from 1 January 2013. The staff intend for the effective date for the proposed amendment to be 1 January 2014 with earlier application permitted, but not earlier than the date in which an entity first applies IFRS 13. The staff’s proposed amendments would:
- add to paragraph 130(e) of IAS 36 a requirement to disclose the recoverable amount of assets, including goodwill, for which there was a material impairment loss recognised or reversed during the period (i.e., moving the requirement from paragraph 134(c) of IAS 36).
- add a requirement (to paragraph 130(f) of IAS 36) to disclose the following:
- a description of the valuation technique that is used to measure fair value less costs of disposal of the impaired asset and, if there has been a change in the valuation technique, the reason for making it (consistently with the requirements in paragraph 134(e) and 134(e)(iiB) of IAS 36);
- the level in the fair value hierarchy in which the fair value measurement is categorised in its entirety (consistently with the requirement in paragraph 134(e)(iiA)); and
- for the fair value measurements that are categorised within Level 2 and Level 3, the key assumptions used in the measurement (consistently with the requirement in paragraph 134(e)(i)).
- to remove from paragraph 134(c) of IAS 36 the requirement to disclose the recoverable amount of any cash-generating units with a significant carrying amount of goodwill or intangible assets with indefinite useful lives.
With little debate, the Board tentatively agreed with the staff recommendations, including that the:
- proposed amendments should be effective from 1 January 2014 with early application permitted;
- proposed amendments should be applied retrospectively, but not earlier than when an entity first applies IFRS 13; and
- exposure draft for the narrow-scope amendment should have a 60-day comment period.