Impairment Disclosure and Analysis as per AASB 136 - Desklib
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This report analyzes the impairment charged in the financial statements of Reliance Worldwide Corporation Limited and the key issues involved in the testing of impairment. It also checks whether the required disclosures align with the requirements laid down in AASB 136 and fulfill the requirement of financial reporting.
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RELIANCE WORLDWIDE CORPORATION LIMITED
DISCLOSURES REQUIRED
IN FINANCIAL
REPORTING-
IMPAIRMENT
DISCLOSURE AND
ANALYSIS AS PER AASB
136
Student Name:
Student ID:
4/27/2018
DISCLOSURES REQUIRED
IN FINANCIAL
REPORTING-
IMPAIRMENT
DISCLOSURE AND
ANALYSIS AS PER AASB
136
Student Name:
Student ID:
4/27/2018
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Contents
EXECUTIVE SUMMARY..............................................................................................................3
INTRODUCTION........................................................................................................................4
IMPAIRMENT REPORTED IN ANNUAL REPORT.........................................................................5
IMPAIRMENT TESTING CHALLENGES........................................................................................8
DISCLOSURES IN ANNUAL REPORT CONFORMITY WITH DISCLOSURES IN AASB 136...............9
FULFILLMENT OF REQUIREMENT OF FINANCIAL REPORTING.................................................10
CONCLUSION AND RECOMMENDATION.................................................................................11
REFERENCES...........................................................................................................................12
2
EXECUTIVE SUMMARY..............................................................................................................3
INTRODUCTION........................................................................................................................4
IMPAIRMENT REPORTED IN ANNUAL REPORT.........................................................................5
IMPAIRMENT TESTING CHALLENGES........................................................................................8
DISCLOSURES IN ANNUAL REPORT CONFORMITY WITH DISCLOSURES IN AASB 136...............9
FULFILLMENT OF REQUIREMENT OF FINANCIAL REPORTING.................................................10
CONCLUSION AND RECOMMENDATION.................................................................................11
REFERENCES...........................................................................................................................12
2
EXECUTIVE SUMMARY
Financial disclosures are necessary part of reporting by the company and its
management. The assets of the company plays important role through which the
wealth of its security holders can be assessed. The report has been prepared with the
four basic objectives. First aim of this report is to make an analysis of the impairment
charged in the financial statements. Second aim is to make an analysis of the key
issues involved in the testing of impairment as mentioned in the annual report. The
third objective of report is to check whether the required disclosures are aligning with
requirements laid down in AASB 136- financial disclosures for impairment of assets
of the company. The last major objective is to assess whether the disclosures are
adequate in terms of the objectives of the general purpose financial reporting. With
these considerations the report has been presented with the divisions into appropriate
headings and sub headings.
3
Financial disclosures are necessary part of reporting by the company and its
management. The assets of the company plays important role through which the
wealth of its security holders can be assessed. The report has been prepared with the
four basic objectives. First aim of this report is to make an analysis of the impairment
charged in the financial statements. Second aim is to make an analysis of the key
issues involved in the testing of impairment as mentioned in the annual report. The
third objective of report is to check whether the required disclosures are aligning with
requirements laid down in AASB 136- financial disclosures for impairment of assets
of the company. The last major objective is to assess whether the disclosures are
adequate in terms of the objectives of the general purpose financial reporting. With
these considerations the report has been presented with the divisions into appropriate
headings and sub headings.
3
INTRODUCTION
As the title suggest the report revolves around the impairment of assets. Each
company operating across the globe is involved in increment of its Assets base.
Higher asset base of any company shows its strong nature of working in the economy.
For high asset base, correct valuation of asset is required to be done after considering
the necessary depreciation and impairment. This report helps to understand
impairment of asset in detail. The report has been framed using proper structure and
is divided into major five parts. First part helps to understand impairment policies
adopted by the company and their disclosure in annual report of the company. Second
part describes the major challenges faced by the board while checking the asset for
impairment. Third part describes that the chosen company discoursers are as per the
required principles laid in AASB 136. The forth part helps in understanding the need
of proper impairment disclosures which ultimately helps in achieving the objective of
general purpose financial reporting. The report has been ended with proper conclusion
and recommendations. Reliance Worldwide Corporation Limited has been chosen for
the analysis. The report has been prepared using the information present in annual
report of the company for the year ending 30th June 2017 along with secondary data
available on reliable internet sources.
4
As the title suggest the report revolves around the impairment of assets. Each
company operating across the globe is involved in increment of its Assets base.
Higher asset base of any company shows its strong nature of working in the economy.
For high asset base, correct valuation of asset is required to be done after considering
the necessary depreciation and impairment. This report helps to understand
impairment of asset in detail. The report has been framed using proper structure and
is divided into major five parts. First part helps to understand impairment policies
adopted by the company and their disclosure in annual report of the company. Second
part describes the major challenges faced by the board while checking the asset for
impairment. Third part describes that the chosen company discoursers are as per the
required principles laid in AASB 136. The forth part helps in understanding the need
of proper impairment disclosures which ultimately helps in achieving the objective of
general purpose financial reporting. The report has been ended with proper conclusion
and recommendations. Reliance Worldwide Corporation Limited has been chosen for
the analysis. The report has been prepared using the information present in annual
report of the company for the year ending 30th June 2017 along with secondary data
available on reliable internet sources.
4
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IMPAIRMENT REPORTED IN ANNUAL REPORT
Reliance Worldwide Corporation Limited is the company having head quarters in
Australia and is doing business across the Globe. The company's annual report for the
year ending 30th June 2017 reported the following impairment which has been done
by company:-
a) As per Note no 10, Property plant and equipment the company has a policy of
recognizing the asset after having accumulated depreciation and accumulated
impairment deducted from carrying amount of asset. Any impairment
recognized in property plant and equipment has been charged to statement of
profit and loss for that particular year.
b) As per Note No 11 of the Annual report, Goodwill and other unidentified
intangibles consists of goodwill and other intangibles acquired in business
combination which has been tested for impairment annually or more regularly
as the event for its impairment comes. The goodwill of the company of $ 44.6
million belongs to Asia Specific region Goodwill which has been impaired
and determined that the goodwill is recoverable. There are the cases where the
goodwill has not been impaired and not even tested. It is because of the fact
that the business combination from where the goodwill has been accounted for
has completed in the month of June 2017.
c) As per Note No 12, Other intangibles such as License fee has been valued at
carrying amount less accumulated impairment which has been tested on Cash
Generating unit basis. On the hand development costs are recognized at initial
level which was valued at cost less accumulated impairment.
d) As per Note No 17, the impairment provision has been made by the company
in respect of the receivables. The company is assuming future receivables as
5
Reliance Worldwide Corporation Limited is the company having head quarters in
Australia and is doing business across the Globe. The company's annual report for the
year ending 30th June 2017 reported the following impairment which has been done
by company:-
a) As per Note no 10, Property plant and equipment the company has a policy of
recognizing the asset after having accumulated depreciation and accumulated
impairment deducted from carrying amount of asset. Any impairment
recognized in property plant and equipment has been charged to statement of
profit and loss for that particular year.
b) As per Note No 11 of the Annual report, Goodwill and other unidentified
intangibles consists of goodwill and other intangibles acquired in business
combination which has been tested for impairment annually or more regularly
as the event for its impairment comes. The goodwill of the company of $ 44.6
million belongs to Asia Specific region Goodwill which has been impaired
and determined that the goodwill is recoverable. There are the cases where the
goodwill has not been impaired and not even tested. It is because of the fact
that the business combination from where the goodwill has been accounted for
has completed in the month of June 2017.
c) As per Note No 12, Other intangibles such as License fee has been valued at
carrying amount less accumulated impairment which has been tested on Cash
Generating unit basis. On the hand development costs are recognized at initial
level which was valued at cost less accumulated impairment.
d) As per Note No 17, the impairment provision has been made by the company
in respect of the receivables. The company is assuming future receivables as
5
bad and creating the provision on estimated basis to find out actual cash flows
operations from cash generating units.
IMPAIRMENT TESTING CHALLENGES
Many challenges have been engaged in doing testing of an asset for impairment.
Some of the issues have been listed below:
i. The first and major issue of identification of correct of correct discount rate
after considering all the situations and elements according to nature and
working of the company. Most of the companies consider the Weighted
Average Cost of Capital as discount rate which in turn is without considering
6
operations from cash generating units.
IMPAIRMENT TESTING CHALLENGES
Many challenges have been engaged in doing testing of an asset for impairment.
Some of the issues have been listed below:
i. The first and major issue of identification of correct of correct discount rate
after considering all the situations and elements according to nature and
working of the company. Most of the companies consider the Weighted
Average Cost of Capital as discount rate which in turn is without considering
6
the effect of risk available in the market or industry in which company
operating. For example, in the impairment of Asia region Goodwill, the
discount rate has been calculated using 5 different assumptions which not
based on actual market conditions (Dolson, 2015).
ii. The second issue deals with the regularity of the impairment testing. The
selected company checks for the impairment at reporting date. It is difficult to
include all the impairment of the asset which has been done during the year.
This difficulty can be removed by having the system of continuous
impairment testing of asset.
iii. The third major issue involved is extent to which the impairment has to done
for particular asset. Similar asset shall be combined in cash generating unit as
a result impairment testing cannot done to the full extent otherwise. The cash
generating units should be identified according to geographical locations,
nature and size so that the testing level of impairment can be determined
(Chow and Marchev,2012).
iv. The next issue involved is the estimation of tax rate. The impairment testing
should done using similar cash flows with similar discount rate. The rate so
utilized shall be after tax. (Riedl, 2014).
v. The other major issue which has been faced in the chosen company is
identification of difference in fair value or value in use. Fair value is external
and value in use in internal generated value. Confusion among the two values
makes the impairment testing a difficult task for the management of the
company.
DISCLOSURES IN ANNUAL REPORT CONFORMITY WITH
DISCLOSURES IN AASB 136
The following are the disclosures made by Reliance Worldwide Corporation Limited
in its annual report for the period ending 30th June, 2017 with are required to be
disclosed as per the requirements of AASB 136 :-
The first requirement that impairment loss shall recognized and disclosed
separately for individual asset, goodwill or cash generating unit. The company
7
operating. For example, in the impairment of Asia region Goodwill, the
discount rate has been calculated using 5 different assumptions which not
based on actual market conditions (Dolson, 2015).
ii. The second issue deals with the regularity of the impairment testing. The
selected company checks for the impairment at reporting date. It is difficult to
include all the impairment of the asset which has been done during the year.
This difficulty can be removed by having the system of continuous
impairment testing of asset.
iii. The third major issue involved is extent to which the impairment has to done
for particular asset. Similar asset shall be combined in cash generating unit as
a result impairment testing cannot done to the full extent otherwise. The cash
generating units should be identified according to geographical locations,
nature and size so that the testing level of impairment can be determined
(Chow and Marchev,2012).
iv. The next issue involved is the estimation of tax rate. The impairment testing
should done using similar cash flows with similar discount rate. The rate so
utilized shall be after tax. (Riedl, 2014).
v. The other major issue which has been faced in the chosen company is
identification of difference in fair value or value in use. Fair value is external
and value in use in internal generated value. Confusion among the two values
makes the impairment testing a difficult task for the management of the
company.
DISCLOSURES IN ANNUAL REPORT CONFORMITY WITH
DISCLOSURES IN AASB 136
The following are the disclosures made by Reliance Worldwide Corporation Limited
in its annual report for the period ending 30th June, 2017 with are required to be
disclosed as per the requirements of AASB 136 :-
The first requirement that impairment loss shall recognized and disclosed
separately for individual asset, goodwill or cash generating unit. The company
7
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in Note 11 disclosed the impairment for goodwill and in Note No 17 disclosed
the impairment for Trade receivables separately.
As per AASB 136, the assumptions used in determination of discount rate
which has been utilized to calculate value in use for impairment should be
mentioned. The company in Note no 11 has mentioned the four assumptions
which has been used for the calculation of the discount rate which ultimately
help in determination of value in use (Reliance Worldwide Corporation,
2017).
The company has disclosed the each class of asset or cash generating unit
separately as per AASB 136 requirements. For example, the company has
disclosed in Note no 10 the carrying amount of different components of the
property, plant and equipment for beginning of the reporting period.
The company has disclosed in Note no 17 the amount of impairment loss as
separate line item to comply with the requirements of the Para 126 of AASB
136 (AASB 136, 2010).
FULFILLMENT OF REQUIREMENT OF FINANCIAL
REPORTING
The objective of General purpose financial reporting is to provide full and accurate
information to its different stakeholders along with future stakeholders so that they
can take decisions regarding the investments in the company. The full information to
users can be communicated through annual report which contains the financial
information along with policies adopted by company in generation of financial
information.
The disclosures in annual report regarding impairment of asset has been consistent
with requirements of the general purpose financial reporting in the following manner:-
The major reason of alignment can be shown from the disclosures made
regarding the each and every aspect of the impairment process like disclosure
of carrying amount, value in use fair value which helps the users to calculate
the impairment amount by themselves showing the simplicity of presentation
of information.
8
the impairment for Trade receivables separately.
As per AASB 136, the assumptions used in determination of discount rate
which has been utilized to calculate value in use for impairment should be
mentioned. The company in Note no 11 has mentioned the four assumptions
which has been used for the calculation of the discount rate which ultimately
help in determination of value in use (Reliance Worldwide Corporation,
2017).
The company has disclosed the each class of asset or cash generating unit
separately as per AASB 136 requirements. For example, the company has
disclosed in Note no 10 the carrying amount of different components of the
property, plant and equipment for beginning of the reporting period.
The company has disclosed in Note no 17 the amount of impairment loss as
separate line item to comply with the requirements of the Para 126 of AASB
136 (AASB 136, 2010).
FULFILLMENT OF REQUIREMENT OF FINANCIAL
REPORTING
The objective of General purpose financial reporting is to provide full and accurate
information to its different stakeholders along with future stakeholders so that they
can take decisions regarding the investments in the company. The full information to
users can be communicated through annual report which contains the financial
information along with policies adopted by company in generation of financial
information.
The disclosures in annual report regarding impairment of asset has been consistent
with requirements of the general purpose financial reporting in the following manner:-
The major reason of alignment can be shown from the disclosures made
regarding the each and every aspect of the impairment process like disclosure
of carrying amount, value in use fair value which helps the users to calculate
the impairment amount by themselves showing the simplicity of presentation
of information.
8
The disclosure of assumptions used in determination of discount rate and its
calculation shows the transparency feature which is required as per financial
reporting disclosures. This helps the investors to analyze the situations which
has been assumed and not actual in determination of the value in use.
The above points shows that the disclosures as per AASB 136 in annual report of the
company is ultimately follow the objective of financial reporting disclosures (Lohrke,
2012; Colson, 2015).
CONCLUSION AND RECOMMENDATION
Disclosures in annual report of any company are mandatory requirements as per the
corporation act, 2001 and are main objectives of preparation of annual report by the
company which facilitate its investors in decision making. Asset and asset valuation is
major concern of the investors because their hard core money has involved in
generation of the asset. In valuation of assets, impairment is the major factor which
can manipulate the value in such a way that the company can enhance its performance
in one transaction. So, impairment testing along impairment disclosures is the main
issue for consideration by different users of accounting information. To conclude the
report, it has said the impairment disclosures in Reliance Worldwide Corporation
Limited has been done as per the rules laid in AASB 136 and all the relevant
disclosures have been made in annual report of the company despite of some
pendency in respect of assumptions made by company.
It is recommended to have the test for impairment of assets on regular basis or as and
when the need arises. Secondly, the company shall identify the cash generating units
properly which shall be adequate to the needs of the company.
9
calculation shows the transparency feature which is required as per financial
reporting disclosures. This helps the investors to analyze the situations which
has been assumed and not actual in determination of the value in use.
The above points shows that the disclosures as per AASB 136 in annual report of the
company is ultimately follow the objective of financial reporting disclosures (Lohrke,
2012; Colson, 2015).
CONCLUSION AND RECOMMENDATION
Disclosures in annual report of any company are mandatory requirements as per the
corporation act, 2001 and are main objectives of preparation of annual report by the
company which facilitate its investors in decision making. Asset and asset valuation is
major concern of the investors because their hard core money has involved in
generation of the asset. In valuation of assets, impairment is the major factor which
can manipulate the value in such a way that the company can enhance its performance
in one transaction. So, impairment testing along impairment disclosures is the main
issue for consideration by different users of accounting information. To conclude the
report, it has said the impairment disclosures in Reliance Worldwide Corporation
Limited has been done as per the rules laid in AASB 136 and all the relevant
disclosures have been made in annual report of the company despite of some
pendency in respect of assumptions made by company.
It is recommended to have the test for impairment of assets on regular basis or as and
when the need arises. Secondly, the company shall identify the cash generating units
properly which shall be adequate to the needs of the company.
9
REFERENCES
AASB 136, (2010), “Impairment of Assets”, available at
http://www.aasb.gov.au/admin/file/content102/c3/AASB136_07-04_ERDRjun10_07-
09.pdf accessed on 26-04-2018.
Chow E and Marchev M, (2012), “Impairment Issues to watch” available at
https://www.pwc.com.au/assurance/ifrs/assets/ifrsinbrief-se-15may13.pdf accessed
on 26-04-2018
Colson, R.H., (2015), “General purpose financial statements”, The CPA
Journal, 134(3), p.78 - 82.
Reliance Worldwide Corporation, (2017) available at http://www.rwc.com/accessed
on 26-04-2018.
Dolson M, (2015), “A Look at Current Financial Measures” available at
https://www.pwc.com/hu/hu/services/assets/ifrs_kiadvanyok/in_depth/
testing_for_impairment_in_the_upstream_industries.pdf accessed on 26-04-2018
Lohrke, C., (2012), “The effects of differing information presentations of general
purpose financial statements on users' decisions” Journal of Information
Systems, 12(2), pp.99-107
10
AASB 136, (2010), “Impairment of Assets”, available at
http://www.aasb.gov.au/admin/file/content102/c3/AASB136_07-04_ERDRjun10_07-
09.pdf accessed on 26-04-2018.
Chow E and Marchev M, (2012), “Impairment Issues to watch” available at
https://www.pwc.com.au/assurance/ifrs/assets/ifrsinbrief-se-15may13.pdf accessed
on 26-04-2018
Colson, R.H., (2015), “General purpose financial statements”, The CPA
Journal, 134(3), p.78 - 82.
Reliance Worldwide Corporation, (2017) available at http://www.rwc.com/accessed
on 26-04-2018.
Dolson M, (2015), “A Look at Current Financial Measures” available at
https://www.pwc.com/hu/hu/services/assets/ifrs_kiadvanyok/in_depth/
testing_for_impairment_in_the_upstream_industries.pdf accessed on 26-04-2018
Lohrke, C., (2012), “The effects of differing information presentations of general
purpose financial statements on users' decisions” Journal of Information
Systems, 12(2), pp.99-107
10
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Renshall, M, (2012), “Added Value in External Financial Reporting: A Study of Its
Aims and Uses in the Context of General Purpose Financial Reports” Institute of
Chartered Accountants in England and Wales.
Riedl, E.J., (2014), “ An examination of long-lived asset impairments” The
Accounting Review, 85(9), pp.936-945
Zucca, L.J., (2012), “A closer look at discretionary write-down’s of impaired assets”,
Accounting horizons, 58(5), pp. 52-71.
11
Aims and Uses in the Context of General Purpose Financial Reports” Institute of
Chartered Accountants in England and Wales.
Riedl, E.J., (2014), “ An examination of long-lived asset impairments” The
Accounting Review, 85(9), pp.936-945
Zucca, L.J., (2012), “A closer look at discretionary write-down’s of impaired assets”,
Accounting horizons, 58(5), pp. 52-71.
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