Impairment of Assets
Comments from the Association of Chartered Certified
Accountants
January 2001
ACCA welcomes the approach taken by IFAC PSC to elicit views on whether it is appropriate to account for impairment of assets in the public sector prior to releasing a proposed accounting standard. We support the IFAC PSC's tentative view that an impairment test should be applied to all assets when certain impairment indicators are triggered, whether assets are held with the objective of generating net cash flows or not. We respond to your specific matters for comments as follows.
Specific Matters for Comment
- We agree that an impairment test should be applied to all
assets, except those assets covered by a specific impairment test in
another accounting standard, regardless of whether the service potential
of the asset is directly related to its ability to generate net cash
flows or not.
- We agree that an impairment test for assets which are held
with the objective of generating net cash inflows should be measured by
comparing the carrying amount of the asset against the higher of net
selling price and value in use.
- It is our view that an impairment loss for assets, which are not
held with the objective of generating net cash inflows, could be
measured by comparing the carrying amount of the asset against the
observable market value or the disposal value or the depreciated
replacement cost.
- We welcome the proposed two step approach to an impairment
test.
- The indicators developed by the IFAC PSC appear to reflect the needs
of entities for identifying impairment of all assets.
- It is ACCA's view that an impairment test should be applied to all
public sector assets when certain impairment indicators are triggered,
regardless of whether the loss is considered to be temporary or
permanent. We agree that it is often difficult to determine whether such
a loss is permanent or temporary. Prompt disclosure of such information
should promote transparency and effective asset management in the public
sector.
- Where temporary and permanent losses are not distinguished, and the conditions leading to the initial impairment loss have reversed, then it appears reasonable to reverse the impairment loss in the accounting treatment. We acknowledge that such treatment could lead to fluctuations in an entity's financial statements and allow room for a degree of manipulation of the surplus and deficits. The over-riding principle, however, is that the rules of disclosure should be designed to give out signals to stakeholders concerning management's use of assets.