CPC 01 – Impairment Test: Tips for Annual Review

(Luiz Paulo Silveira | Technical Vice-President, Apsis)

A new year has started: new challenges come with it, as increased sales targets, reviewed budgets. For market players, there is currently, one more indicator to be monitored in the Financial Statements, mainly for Publicly-held companies: the long-term assets and their pertinent recovery tests.

We have witnessed, in Brazil, in the recent years, a heated demand for investments. While the developed world was stranded in a slow recovery of its economic activity, the so-called emerging countries, like ours, were targeted by investors eager for positive return rates, with real growth prospects. There proliferated then merger and acquisition processes, both of domestic and international companies, aiming to practically consolidate all segments of the economy, promoting scale gains and greater access to final markets. The Investment Funds specialized by industry sector were one of the catalyzers of this expansionist and consolidating process.

As a result of this Brazilian economic boom, we currently have company balance statements laden with appreciations and goodwill. In this aspect, the investors in these companies can thank the IFRS help in implementing a feedback mechanism on investment policy, known as impairment test. Through this test, a company is compelled to check consistency of its actual cash flow with the forecasts made upon each acquisition, which underlay the price paid. This is a most relevant created by the new accounting standard, which should be applied very judiciously for the methodologies and assumptions adopted in appraising the assets acquired to be analyzed vis-à-vis the perceived reality. As I have already stated in previous articles, the implementation of a control and monitoring system for all inputs used in appraisal methodologies is basic for performing the test in a transparent manner to all investors.

Do not wait for your auditor to demand this test from you. Contact us, so that we may perform it systematically in compliance with international accounting standards. Our technical team is accredited before the world’s major appraiser certification institutions, such as ASA (American Society of Appraisers) and IACVA (International Association of Consultants, Valuators and Analysts).