Value In Use Impairment Models
We are putting the spotlight on common errors that arise in the application of AASB 136 Impairment of Assets in a four-part series.
In this month’s issue, being Part 1, we look at the common errors in value in use models relating to a failure to:
- Reflect expectations about possible variations in the amount or timing of future cash flows;
- Base cash flow projections on reasonable and supportable assumptions;
- Apply a maximum period of 5 years for cash flow projections or if greater than 5 years, subject to the specific restrictions within AASB 136;
- Exclude the effect of capital improvements or restructuring; and
- Include the cost of servicing the asset.
Failure to comply with the requirements of AASB 136 is one of the principal reasons for litigation against company directors, management, and their auditors of failed companies.
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