Goodwill Impairment Testing – Day 1 Transition to IFRS

Adopting International Financial Reporting Standards isn’t only an accounting exercise – it’s also a valuation-based exercise

The 2011 date for mandatory adoption of International Financial Reporting Standards (IFRS) in Canada is in sight and entities are now focusing on preparing first-time IFRS financial statements, including the opening balance sheet as at January 1, 2010.

At the date of transition to IFRS, which for most companies would be January 1, 2010, IFRS requires companies to perform a goodwill impairment test regardless of whether there is any indication that the goodwill may be impaired. First-time adopters will need to apply the concepts under International Accounting Standards (IAS) 36 in testing for goodwill impairment, which differ from current Canadian and US standards.

Companies may be challenged by the new approach and methodology for impairment testing under IAS 36, as well as the new terminology, such as recoverable amount, cash-generating units, value in use and fair value less costs to sell. Testing under IAS 36 is as much a valuation-based exercise as it is an accounting exercise.

The rules under IAS 36 are not simple. Companies should start early and seek professional guidance to help with a smoother transition in 2010 to avoid surprises in 2011.

How PwC can help

The PwC Valuation team understands the critical differences between IFRS and the current Canadian and US standards from a fair value and impairment testing perspective. We have the skills and experience to assist organizations in their valuation needs as they transition to IFRS.

Engaging The PwC Valuation team can:

• Provide your management team with access to valuation professionals with technical knowledge and experience in fair value and impairment testing issues under IFRS
• Help your management team stay on track with respect to fair value and impairment testing issues during the transition year
• Help reduce the risk of significant fair value and impairment testing errors occurring in the transition process
• Assist your management team in starting the transition process early to ensure there are no surprises in 2011
• Assist your management team in a more efficient and less costly implementation
• Support your management team’s fair value and impairment testing needs as and when they arise