ASIC today released an information sheet to assist directors and audit committees in considering whether the value of non-financial assets shown in a company’s financial report continues to be supportable.

‘We continue to find issues with the impairment of goodwill and other non-financial assets by a number of companies. The new information sheet is a resource to assist directors when considering the need for impairment, and the adequacy of impairment work,’ ASIC Commissioner John Price said.

ASIC encourages directors to consider the need to impair non-financial assets such as goodwill, identifiable intangibles, and property, plant and equipment. Common issues include impairment calculations that use unrealistic cash flows and assumptions, and mismatches between the cash flows used and the assets being tested for impairment.

While calculations supporting impairment or valuation of significant assets can be complex, directors can review the cash flows and assumptions used in the calculations prepared by management or experts, using their knowledge  and understanding of the business, the assets and the future prospects of the business.

Even though directors do not need to be accounting experts, they should seek explanations and expert involvement if needed and where appropriate, challenge asset values in the financial report.

ASIC Information Sheet 203 Impairment of non-financial assets: The role of directors and audit committees (INFO 203) discusses mattersincluding:

• the need for impairment testing
• the process for assessing impairment
• common issues with impairment calculations
• questions that may be asked of external auditors.