Impairment of intangible assets: quality of disclosures in the financial crisis period

The role of intangible assets presented in companies’ financial statements cannot be underestimated as in recent years the structure of the companies’ statement of financial position has significantly changed and is mainly presented by intangible assets instead of tangible assets. Global trends suggest a growing importance of intangible assets to business value, at the same time intangibles are one of the most complex assets in terms of their valuation. The widespread economic slowdown means that assets and businesses in many industries will generate lower cash flows than expected. This increases the likelihood that asset carrying amounts are greater than the expected cash flows from the assets. A number of assumptions used by management have increased, therefore there is a need for the detailed analysis of the disclosed information in terms of its reasonableness. IAS 36 Impairment of Assets sets out the requirements for the disclosed information, however, companies impairment testing processes, models and assumptions depend on the certain business and are individual. Impairment of intangible assets should not be treated by the companies as an exercise to conform IFRS requirements as it is the key element of the financial statements faithful representation. Main questions in terms of the quality of disclosed information regarding intangible assets impairment are addressed in this article, including the following: the role of the disclosed assumptions and estimates made by management is analysed, suggestions are made on the documentation of the stages of the impairment test performed, key disclosure requirements are summarised and can be used by companies in self-review purposes.