Impairment Insights and Fair Value - COVID-19 Impact

 The global shutdown associated with the 2020 pandemic has put significant pressure on businesses, their operations, cash flows and future prospects. Businesses are struggling to plan for the road ahead, and this extends to their ability to forecast for uncertainty, prepare cash flow models for liquidity and solvency management, and to build the valuation models to support the carrying amounts of its assets (including goodwill) for year-end reporting.

Regulators also continue to identify impairment testing as one of their principal focus areas and accordingly CFO’s and auditors are under increasing pressure from directors and regulators to ensure the accounts are prepared correctly and they can support the carrying value of goodwill and other assets across the business.

This four-part webinar series will delve into the key issues affecting impairment assessments in year-end reporting. By using detailed examples and discussing various real-world scenarios, our expert presenters will outline a path to navigate the complex mix of valuation methodologies and accounting principles that must be applied when preparing for impairment in this era of COVID-19. 

Session 1: Impairment Fundamentals

The presenters will set the scene for impairment testing in year-end reporting and outline the impairment approach in AASB 136 (IAS 36) Impairment of Assets and AASB (IFRS) 13 Fair Value Measurement.

Topics in this session include:

• The basis for recognising and measuring assets,
• Identifying assets that may be impaired, including Right-of-Use Assets (leased assets under AASB 16 Leases),
• Assigning assets to Cash Generating Units (CGUs) for impairment testing,
• Adapting the impairment process for the impact of COVID-19, and
• Planning for cash flow forecasts that incorporate the affects and uncertainties of a global pandemic.

Session 2: Valuation Theory

Before attempting an impairment calculation, it is important to understand the fundamental valuation concepts that underpin its use. In this session, you will be guided through the basics of preparing valuations, including discussing: 

• The different valuation methods and when to use them,
• The advantages and disadvantages of each valuation method,
• The components and application of a good Discounted Cash Flow Model, and
• The components of the discount rate, and its interaction with the rest of the valuation model.

Session 3: Interaction of Standards and Valuation theory

The presenters will examine further the interconnection between valuation theory and accounting standards in this session, using a host of practical examples and real-life scenarios that they have encountered in their professional careers. 

Topics to be addressed include:

• Dealing with foreign currencies and lease liabilities in impairment assessments,
• Common errors to avoid when working with impairment models, and
• Analysing and communicating the impairment result.

The session will introduce a “Road Map to Year End”, which is provided to assist participants and help businesses establish and run a successful impairment project.

Session 4: Bringing it into the Model

In this final session, the presenters will demonstrate the application of the impairment concepts in a Value-in-Use Model for a hypothetical business. The Model’s key assumptions will be explained, together with an analysis of the components of the discount rate and how they all interact. 

The presenters will conclude the “Road Map to Year End” segment of the series, discussing matters of stakeholder management, sensitivity testing, disclosures related to impairment testing and cash flow modelling, and how to manage the Board and the CEO’s expectations with regard to asset valuations.

Learning Outcomes

Upon satisfactory completion of this activity, you will be able to:

• Apply the fundamentals of IAS 36 (AASB 136) Impairment of Assets and IFRS 13 (AASB 13) Fair Value Measurement
• Explain the difference between Fair Value and Value-in-Use, and the impact of COVID-19 on the application of these approaches for impairment
• Develop a framework to prepare for your financial reporting season, including being able to identify indicators of impairment
• Explain the components of a good valuation model
• Describe the components of a discount rate
• Identify the most common errors made when preparing valuation models and undertaking impairment assessments
• Interpret the valuation result and explain how to translate it to compare to goodwill, right-of-use assets, and other assets in the business unit
• Articulate the approach to communicating information about impairment to investors and other stakeholders
• Develop a strategy to prepare cash flow forecasts and manage the expectations of the business, the Boards and the CEO when it comes to asset valuations

Benefits

The four-part webinar series will provide participants with a solid understanding of valuation theory, including the core concepts involved in building/evaluating a discounted cash flow model, and then applying these concepts to develop a comprehensive and detailed understanding of the Value-in-Use and Fair Value approaches to undertaking impairment testing in accordance with the accounting standards.

Participants will benefit from the expertise of two highly experienced presenters, Simon Dalgarno and Kevin Frohbus, who will share their key insights, tips and things to look out for when preparing cash flow forecasts and when performing the impairment and valuation analysis.