§ 01 — What It Is
The annual question Ind AS 36 forces you to answer.
Impairment testing compares the carrying amount of an asset or cash-generating unit against its recoverable amount — the higher of value in use and fair value less costs of disposal. If the books carry more than the asset can recover, Ind AS 36 requires the difference to be written down, and the assumptions behind that conclusion to be disclosed and defended.
In practice the test is a valuation exercise: a discounted cash flow for value in use, a market-grounded estimate for fair value less costs of disposal, and a reconciliation between the two. We build both legs independently, document the CGU identification, and sign the workings under IVS and ICAI valuation standards — so the number your CFO books is one a reviewer can retrace step by step.
§ 02 — Who Needs It
Common triggers
- Year-end audit — goodwill and indefinite-life intangibles must be tested annually, whether or not anything looks wrong.
- A loss-making unit or market downturn — sustained underperformance, lost contracts or sector decline are indicators that trigger testing of other assets too.
- Goodwill from past acquisitions — deals done at peak multiples that now sit on the balance sheet at values the current business must justify.
- An auditor flag — the audit team has questioned last year's headroom, discount rate or growth assumptions and wants independent support this time.
- Restructuring or disposal plans — a decision to exit, shrink or repurpose a unit changes the cash flows the carrying value relies on.
§ 03 — Our Approach
Built to answer the checklist before it's asked
Most impairment disputes are not about arithmetic — they are about assumptions. Our workings are structured around the questions audit teams actually raise:
- CGU identification — we document why the unit boundaries are drawn where they are, and how goodwill is allocated across them, before any cash flow is modelled.
- Value in use — a DCF constrained the way Ind AS 36 requires: management-approved budgets, growth rates benchmarked against the market, no unapproved restructurings or enhancements baked in.
- Defensible discount rates — pre-tax rates built up from observable market inputs, with every component sourced and the build-up shown, not asserted.
- Fair value less costs of disposal — where market evidence exists, we test the second leg rather than default to value in use, and reconcile the two.
- Sensitivity and disclosure — headroom analysis, the reasonably-possible-change disclosures Ind AS 36 demands, and a plain-English value narrative your audit committee can read in one page.
The deliverable is a signed report the audit file can rest on — with the signing valuer available to walk the audit team through the assumptions, so the review closes in one round rather than three.
§ 04 — FAQ
Questions we hear before every mandate
When is impairment testing mandatory, and when is it indicator-based?
Goodwill, indefinite-life intangibles and intangibles not yet ready for use must be tested every year regardless of circumstances. All other assets and CGUs are tested only when an indicator of impairment exists — internal signs like sustained losses or physical damage, or external ones like market decline, rate rises or adverse regulation. We help assess whether an indicator genuinely exists before scoping a full test.
What drives most auditor challenges on impairment?
Three things, in our experience: discount rates asserted without a visible build-up; growth assumptions that outrun both past performance and market evidence; and cash flow forecasts that quietly include restructurings or capacity the standard does not permit. Our workings address each explicitly — sourced rate build-ups, benchmarked growth, and a forecast basis note stating what is in and what is excluded.
How are cash-generating units identified?
A CGU is the smallest group of assets that generates cash inflows largely independent of other assets — in practice, the level at which management monitors the business and at which output could be sold externally, even if it currently is not. Getting this boundary right matters: draw the unit too wide and losses hide inside profitable operations. We document the identification and the goodwill allocation as a distinct section of the report.
Can an impairment loss be reversed later?
For most assets, yes — if the circumstances that caused the loss have genuinely improved, the loss can be reversed up to the carrying amount that would have existed had no impairment been recognised. The one hard exception: an impairment of goodwill can never be reversed. We flag reversal indicators in the post-delivery advisory note so the position is reviewed, not forgotten.
How long does the test take, and how is the fee structured?
For standard mandates, an indicative view of headroom or shortfall within 5–7 business days and a full signed report within 10–15 — worth building into the audit calendar early. Fees are fixed and scope-bound, agreed in writing per CGU and asset class before work begins; multi-CGU groups are quoted as one scoped engagement, not per meeting.