Reading and Understanding an IFRIC Interim Financial Reporting and Impairment, r
ID: 2342902 • Letter: R
Question
Reading and Understanding an IFRIC Interim Financial Reporting and Impairment, resolves a conflict between the require- Now YOU Try 12.9 e of IAS 34 (Interim Financial Reporting) and IAS 36 (Impairment of Assets). Specifically, FRIC answers the question: Should an entity reverse an impairment charge recorded for this goodwill,if value of the entity's goodwill recovers in a subsequent interim period? IAS 36, par. 124, "An impairment loss recognised for goodwill shall not be reversed in a subsequent period." However, "IAS 34 requires year-to-date measures in interim financial state- ments. This requirement might suggest that an entity should reverse in a subsequent interim period an impairment loss it recognised in a prior interim period" (IFRIC 10, BC3). Here's what the IFRIC decided: "An entity shall not reverse an impairment loss recognised in a previous interim period in respect of goodwill" (FRIC 10, par. 8). The rationale for this decision is described in IFRIC 10's Basis for Conclusions: "The IFRIC concluded that the prohibitions on reversals of recognised impairment losses on goodwill in IAS 36. ..should take precedence over the more general statement in IAS 34 regarding the frequency of an entity's reporting not affecting the measurement of its annual results." (9). [Footnotes omitted] Questions: . Explain the conflicting requirements in IAS 36 and IAS 34 that this Interpretation sets out to clarify 2 Explain the conclusion reached in IFRIC 10 and the rationale for this conclusion. 3. Why do you suppose the IFRIC addressed this issue, as opposed to the lASB? Explain. Why do you supExplanation / Answer
One apparent conflict between IAS 34 directive and IAS 36 requirements is that an impairement loss recognised on goodwill cannot be reversed later. For example if Goodwill impaired is indicated on the first fiscal quarter, but that impairement don't exist at the year end, then it would be impossible to comply with prescriptiom against having interim reporting affevt annual result unless impairment in first quarter were reversed later in the year.
Another apparent conflict is that impairement recognised on financial assets carried at cost could not be reversed. Also losses on available for sale equity securities, id recognised in P&L could not later be reversed into income.
To resolve theses conflicts IFRIC 10 directs that impairment of goodwill recognised in interim period may not be later reversed even if at year's end no impairments have been otherwise reported. IFRIC 10 also appiles to losses recognised regarding equity securities. It directs that once written down as impaired by means of charge against earnings, a subsequent increase in the fair value of available for sale equity securities and for financial assets carried at cost cannot be recognised through income.
Principals within IFRIC that may be contrdicting with IASB will definitelt supersede those as older ones are always disregarded.
If an entity is pursuing the objective of simplifying the accounting for goodwill:
i) not to consider requiring an entity to write off goodwill immediately on initial recognition.
ii) to explore whether to reintroduce amortization of goodwill
iii) to pursure possible relief from mandatory annual quantitative impairement testing of goodwill
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