Application of IAS 36 –Impairment of fixed assets -A qualitative study about the main challenges for companies regarding impairments

Abstract

Background and Discussion: Impairment has been debated within the professionals. IAS 36 seems to be a challenging area since it is a focus area for NASDAQs annual review of financial reports in 2012. The report shows that application of IAS 36 is beneath contempt. Assessment of whether an asset has declined in val-ue may be highly subjective and impairments may look like a failure and the management can therefore have incentives to report in a certain way. If the value of assets are overestimated, impairment losses can be avoided and the result is affected. Purpose: The purpose of this thesis is to investigate difficulties for companies when applying IAS 36 for fixed assets, by exploring if there is a gap between the Standard and practice. Delimitation: This study cover companies in Sweden with accounting in accordance with IFRS and the focus area is impairment of fixed assets. This means that goodwill issues are not deeply investigated and disclo-sures as well as reversal of impairments are excluded. Methodology: Data collection has been carried out through a qualitative method. One IFRS expert and four auditors at three different agencies were interviewed. Conclusions: IAS 36 implicates several difficult areas for companies, explained by the gap between regula-tion and practice. The main difficulties are recognition of when impairment tests need to be conducted, distinguished the need for impairment losses from the need for changed depreciation time in practice, ap-plication of value in use and determination of CGUs. Companies may in some cases unintentionally report errors due to that the Standard can be difficult to apply. Further research: The following areas would be interesting for further research:  Accomplish a similar study, but focusing on intangible assets, such as goodwill.  Investigate why IASB has not changed or simplified IAS 36 in a higher extent and how the regula-tion can be improved.  Find out how stakeholders react to impairment losses.  Conduct a similar study but focusing on an industry, in order to compare companies, for example the printing industry, which is standing in the middle of a structural change.