Different Impairment approaches

Impairment - we are used to this term being used for fall in value of fixed assets below their carrying amount in books. Soon, Impairment would be the "word" to be careful of for the company's preparing financial statements. Of course that means, we auditors will have honeymoon period rather a prolonged one. We have our BADA friends who will threaten their clients and if possible general public!! Coming why it is going to be such an important factor in the future. Now, impairment will be require to be tested for financial assets as well.

There are variety of approaches that IASB deliberated. To name them, (i) expected loss approach, (ii) incurred loss approach, (iii) fair value based approach and (iv) IAS 36 based - value in use approach. Finally, they have decided to go ahead with expected loss method, as practically incurred loss is not line with framework, while fair value and value in use concepts require undue costs and efforts on the entity to comply with.

Now, the question is how to determine expected loss. The important variable in determining what expected loss is, is the consideration of conditions surrounding the assets. The conditions that existed through the cycle of similar assets, determination based on conditions of past and existing situations and third appropriate alternative is to have consideration to all reasonable and supportable informations and conditions - may be termed as 'full scope - expected loss method'.

The task is going to get tougher. But the deliberations before standard comes helps in understanding the concepts in better light. Isn't it??