Professional Judgement and Asset Impairment Analysis: ALTIUM LIMITED

This report provides an in-depth analysis of professional judgement in accounting, specifically focusing on asset impairment within ALTIUM LIMITED. It examines how accountants use their skills and experience to make critical decisions regarding accounting policies and estimates, especially con...Read More

PROFESIONAL JUDGEMENT AND IMPAIRMENT 1
UNIVERSITY NAME
STUDENT NAME
STUDENT ID
COURSE
DATE.

PROFESIONAL JUDGEMENT AND IMPAIRMENT 2
EXECUTIVE SUMMARY
The purpose of this research is to discuss the issue of professional judgement of accountants of
ALTIUM LIMITED regarding impairments of assets.it critically analyses how an accountant
uses their professional judgement in determination of various accounting decisions regarding
policies and rules governing impairments.it also examine how accountants treat various assets
such as goodwill and other intangible assets. This report also points out the implications that
unreasonable professional judgement can bring to the users of financial information.
It describes how to make various provisions regarding trade receivables. Accountant uses
professional judgement in determination of amount to be provided for doubtful debts.it is noted
that ALTIUM LIMITED has between 30-90 days’ terms of accounts receivables.
It also discusses how professional judgment regarding the determination of impairments will
assist the users of those financial information in making various decisions such as investment
decision.

PROFESIONAL JUDGEMENT AND IMPAIRMENT 3
Table of Contents
INTRODUCTION.......................................................................................................................................4
PROFESSIONAL JUDGEMENT...............................................................................................................4
IMPLICATIONS TO USERS OF ACCOUNTING INFORMATION IF PROFESSIONAL
JUDGEMENT HAS NOT BEEN MADE IN THE MOST REASONABLE MANNER.............................5
IMPAIRMENT............................................................................................................................................5
ASSETS IMPAIRED..................................................................................................................................6
GOODWILL AND OTHER INTANGIBLE ASSETS................................................................................6
ESTIMATION USED TO DETERMINE IMPAIRMENT.........................................................................6
AMOUNT OF WRITE-DOWNS AND RECONCILIATION THEREOFF................................................7
DISCLOSURE ON IMPAIRMENT TEST.................................................................................................7
HOW PROFESSIONAL JUDGEMENT ON IMPAIRMENTS ALIGN WITH OBJECTIVES OF
GENERAL PURPOSE FINANCIAL STATETEMENTS..........................................................................9
CONCLUSION...........................................................................................................................................9
REFERENCES..............................................................................................................................................10

PROFESIONAL JUDGEMENT AND IMPAIRMENT 4
INTRODUCTION.
Professional judgement is the use of skills and experience acquired from training. In accounting,
this is used in determination of accounting estimates and policies to be applied in determination
of various accounting decisions like measurement of impairments and calculation of fair values
of different assets.
PROFESSIONAL JUDGEMENT.
This involves use of knowledge, skills and experience amassed from long-term conduct of the
same job and from training through utilization of ethical codes relevant in the field and from
making some decisions such as accounting treatment of various transactions (Stefan, 2015, pg.
713).
Various companies would like to present their financial statements in the most impressive way
and in a way that can portray a good image of the company. To do this, companies must utilize
skills and experience of various accountants who can use skills and experience in determination
of various economic decisions affecting the company’s transactions.
When a professional judgement is used in making accounting decisions, relevant disclosures
must be adequately made and necessary documentations as to how various analysis and
conclusion were arrived at must be made.
It is applied when making some decisions in areas where there are some uncertainties and where
the elements concerned might have adverse effects on other parties. Professional judgement is
applied in various areas in accounting treatment and disclosures of various assumptions relating
to various economic transactions such as;
1. Accounting policies and estimates used in a particular transaction such as depreciable
useful life of a certain asset utilizes professional judgement of an accountant.
2. It is applicable in the determination of impairment of various assets, if such impairments
have happened and any provisions if any.

PROFESIONAL JUDGEMENT AND IMPAIRMENT 5
3. Utilized in definition of “value” of various accounting items such as fair value, net
realizable value, replacement value etc. This is done through selection of one basis of
measurement either historical, FV, NRV or PV.
Experience and long term professional skills are highly applicable in professional
judgement as someone short of experience may not be able to make judgement
accurately.
Professional judgement is an important skill for accountants who prepares financial
statements more so under principle based accounting.
IMPLICATIONS TO USERS OF ACCOUNTING INFORMATION
IF PROFESSIONAL JUDGEMENT HAS NOT BEEN MADE IN
THE MOST REASONABLE MANNER.
 If impairments of assets have not been determined in the most reasonable manner
and accurate carrying amount of the assets determined, it will lead to
misstatement of entity’s financial position. This might also have been transferred
into the income statement which will give a wrong picture to investors thus
making wrong investment decisions. This will affect them negatively (Trotman,
Tan & Ang, 2011, pg. 279).
 Wrong picture of the company’s financial position will impact negatively to the
image of the organization as financiers such as lenders of funds will not be able to
make appropriate lending decisions (Linnenluecke , Birt, Lyon &Sidhu, 2015,
pg.921).
IMPAIRMENT
This refers to a reduction in the carrying amount of an intangible asset such as goodwill
(Jackling, Howieson & Natoli, 2012, pg.340). GOODWILL for instance is tested for
goodwill impairment on an annual basis so as to ascertain the amount reduced in its
carrying amount from the start of the year to the end of the year. According to the
disclosure made by ALTIUM LIMITED, it states that goodwill is tested for impairment
annually. It is further disclosed that impairment of goodwill is taken into income
statement and are not reversed. Goodwill is not amortized but tested for impairment on an
annual basis.

PROFESIONAL JUDGEMENT AND IMPAIRMENT 6
The provision of AASB9 is brought out in the annual reports of ALTIUM LIMITED
where it addresses the issue regarding the measurement and recognition of financial
instruments, that is, hedging and impairment model (Xu, Anandarajan &Curatola , 2011,
pg. 147).
ASSETS IMPAIRED
 Goodwill, Intellectual property, Software intangibles and Customer relationships
GOODWILL AND OTHER INTANGIBLE ASSETS.
This is an intangible asset of a company that arises as a results of its reputation and good
image in the face of the public.
CONSOLIDATED.
2018
US $000
2017
US $000
Goodwill-at cost 27,151 19,612
Intellectual ppty-at
cost
Less:acc.amortisation
7,354
(1,336)
6018
3,979
(680)
3,299
Customer
relationships-at cost
Less:acc.amortization
16,333
(3,110)
13,223
16,333
(1,775)
14,558
Software -at cost
Less:acc.amortization
3,710
(1,034)
2,676
49,068
3,518
(528)
2,990
40,459
Source: annual report of ALTIUM LIMITED for the year 30th June 2018.

PROFESIONAL JUDGEMENT AND IMPAIRMENT 7
ESTIMATION USED TO DETERMINE IMPAIRMENT
It has been disclosed that ALTIUM LIMITED uses “value in use calculations”to
determine various carrying amounts of intangible assets. Estimation of goodwill
impairment can be arrived at by taking into account various factors such as customer base
of the entity, capital base and market share (Ramanna &Watts, 2012, pg. 752).
AMOUNT OF WRITE-DOWNS AND RECONCILIATION
THEREOFF
CONSOLIDATED GOODWILL
US $000
INTEL.PPTY
US $000
CUSTOMER
RELATION
US $000
SOFTWARE
INTANGIBLES
US $000
TOTAL
US $000
Bal b/d (1/6/2016)
Addition
Addition thro’ b/s
combination
Exchange diff
Transfers-in/(out)
Amortization
Bal at 30/6/2017
Addition
Addition thro’ b/s
combination
Exchange diff
Amortization
Bal at 30/6/2018
17,280
-
2,332
-
-
-
19,612
-
7,539
-
-
27,151
3,676
-
-
17
-
(394)
3,299
-
3,403
(28)
(655)
6,029
12,302
-
3,435
-
-
(1,179)
14,558
-
-
-
(1,335)
13,223
250
515
-
-
2,263
(38)
2,990
748
-
(191)
(872)
2,675
33,508
515
5,767
17
2,263
(1,611)
40459
748
10,942
(219)
(2,862)
49,068
Source: ALTIUM LIMITED 30TH JUNE 2018 annual report pg. 52.

PROFESIONAL JUDGEMENT AND IMPAIRMENT 8
DISCLOSURE ON IMPAIRMENT TEST
It has been fully disclosed by the company that goodwill is annually reviewed or tested for any
impairment so that excess book value is not to carried.
(C) Based on the above write downs in values, reasonable professional judgement and due care
has been adhered to in the determination of such values and relevant disclosures. According to
the requirements of professional judgement, there must be a level of consistency with regard to
items under question and relevant disclosures must be made accordingly (Nguyen, Hooper
&Sinclair, 2013, pg.480).
It is noted that, ALTIUM LIMITED has made various disclosures regarding impairment of
various assets, for instance they have disclosed to the public that they have applied “value in use
calculation” to determine carrying amounts of various intangible assets.
It is further noted that, goodwill is annually tested for impairment (Chalmers, Godfrey
&Webster, 2011, pg. 646). This fact has been sufficiently disclosed in the report so that other
interested parties can understand the information contained in the annual reports better.
They have further indicated that their terms regarding receivables range between 30-60 days.
This has been clearly disclosed.
According to the information in the above table extracted from the books of ALTIUM
LIMITED, goodwill is seen to be rising, for instance goodwill b/d from 2016 is 17280 and there
is goodwill gained as a results of business combination (note 30) of 2,332. this has led to an
increase in goodwill to US $ 19,612 in 2017.It is also noted that there is an increment of US
$7,539 in the course of 2018.This is also as a results of addition from business combination. In
the event that businesses combine, goodwill is revalued to ascertain their carrying amount and in
the case above, it shows that accountants have used their professional judgements to establish
goodwill for business combination in the respective years.
Intellectual property has been impaired from US $ 3,676 in 2016 to US $ 3,299 in 2017.This is
due to amortization value of US $ 394.It increased in value in 2018 due to addition from business
combination of US $ 3403 resulting to a new value of US $ 6,019 in 2018.

PROFESIONAL JUDGEMENT AND IMPAIRMENT 9
Customer relation increased from US $ 12,302 in 2016 to US $ 14,558 in 2017 due to addition
through business combination resulting to an increase in value in 2017.in the course of 2018,
amortization resulted to decrease in the value of customer relation to US $ 13,223. this lead to an
impairment write-down of US $ 1,335.
Software intangible was US $ 2,990 in 2017 and amortization led to decrease in value to US $
2,675 in 2018.This indicate that accountants have used their professional judgement in
determination of this.
HOW PROFESSIONAL JUDGEMENT ON IMPAIRMENTS
ALIGN WITH OBJECTIVES OF GENERAL PURPOSE
FINANCIAL STATETEMENTS
General purpose financial statements are basically prepared to provide information to users of
financial reports who do not have skills and expertise on how to prepare financial statements
(Caramanis &Dedoulis, 2011, pg.240). These users solely rely on the statements that are
prepared by the entity (Donelson, McInnis &Mergenthaler, 2012, pg., 1250). Therefore, the
entity should prepare their financial information in the best way that can be read and understood
by an ordinary person. Relevant disclosures relating to various methods used such as basis of
depreciation and impairments of assets should be adequately disclosed. In the case of ALTIUM
LIMITED, relevant disclosures on impairments of assets have been sufficiently disclosed
including how impairment of goodwill is determined. This will greatly improve the information
required by users of these financial statements (Alexander & Alon, 2017, pg. 270). This shows
how professional judgement relating to impairment align with the objective of general purpose
financial statements.
CONCLUSION.
In conclusion, accountants responsible for the preparation of financial statements of ALTIUM
LIMITED should increase their disclosures regarding basis of provisions of doubtful debts as it
is not very clear on how they have arrived at it.Accountants of ALTIUM limited have used their
professional judgements in the determination of provisions made on accounts receivables and
full disclosure relating to the same has not been made fully so that third parties interested on the
information can make relevant decision based those disclosures. I therefore recommend that
accountants of ALTIUM LIMITED should make full disclosure regarding any method adopted

PROFESIONAL JUDGEMENT AND IMPAIRMENT 10
in determination of any accounting policy and rules such as impairments of intangible assets
(Devalle &Rizzato, 2012, pg.104)
REFERENCES.
Alexander, D. and Alon, A., 2017. Layering of IFRS and dual institutionality of accounting
standards in Belarus. Accounting in Europe, 14(3), pp.261-278.
ALTIUM LIMITED annual report for 30th June
2018<https://www.altium.com/resources/investor-announcement/2018_annual_report-
2018_final.pdf>
Caramanis, C. and Dedoulis, E., 2011. Accounting and Auditing Practices. In Business and
management practices in Greece (pp. 236-255). Palgrave Macmillan, London.
Chalmers, K.G., Godfrey, J.M. and Webster, J.C., 2011. Does a goodwill impairment regime
better reflect the underlying economic attributes of goodwill? Accounting & Finance, 51(3),
pp.634-660.
Devalle, A. and Rizzato, F., 2012. The quality of mandatory disclosure: the impairment of
goodwill. An empirical analysis of European listed companies. Procedia Economics and
Finance, 2, pp.101-108.
Donelson, D.C., McInnis, J.M. and Mergenthaler, R.D., 2012. Rules-based accounting standards
and litigation. The Accounting Review, 87(4), pp.1247-1279.
Jackling, B., Howieson, B. and Natoli, R., 2012. Some implications of IFRS adoption for
accounting education. Australian Accounting Review, 22(4), pp.331-340.
Linnenluecke, M.K., Birt, J., Lyon, J. and Sidhu, B.K., 2015. Planetary boundaries: implications
for asset impairment. Accounting & Finance, 55(4), pp.911-929.
Nguyen, L., Hooper, K. and Sinclair, R., 2013. Conservatism versus change in the Vietnamese
accounting field. Corporate Ownership & Control, 11(1), pp.471-482.
Ramanna, K. and Watts, R.L., 2012. Evidence on the use of unverifiable estimates in required
goodwill impairment. Review of Accounting Studies, 17(4), pp.749-780.

PROFESIONAL JUDGEMENT AND IMPAIRMENT 11
Stefan-Duicu, V.M., 2015. The Accountant Professional as a Current User of Professional
Judgment. Challenges of the Knowledge Society, p.713.
Trotman, K.T., Tan, H.C. and Ang, N., 2011. Fifty‐year overview of judgment and decision‐
making research in accounting. Accounting & Finance, 51(1), pp.278-360.
Xu, W., Anandarajan, A. and Curatola, A., 2011. The value relevance of goodwill
impairment. Research in Accounting Regulation, 23(2), pp.145-148.