Impairment Testing

Impairment Testing: Ensuring Accurate Asset Recoverable Values

Global Consult performs impairment testing in full compliance with CPC-01 (Brazilian accounting standard) established through Law 11.638/07, as well as IAS 36 (international standard). These regulations require entities to assess, at each reporting date, whether there are indications that an asset may be impaired -- and if so, to estimate its recoverable amount and recognize any loss accordingly.

Purpose of Impairment Testing

The core objective of impairment testing is to assess whether the carrying amounts of assets on the balance sheet exceed their recoverable amounts. An asset is considered impaired when its carrying amount is higher than the amount that can be recovered through use or sale. This test is critical for ensuring that financial statements faithfully represent the economic reality of a company's asset base.

Impairment testing applies to a wide range of assets, including:

• Property, plant, and equipment (PP&E)
• Intangible assets, including goodwill
• Right-of-use assets under lease agreements
• Investments in subsidiaries, associates, and joint ventures
• Cash-generating units (CGUs) and groups of CGUs

Our Process

Our impairment testing process follows a rigorous, standards-compliant methodology:

• Identification of indicators: We assess internal and external indicators that suggest potential impairment, including market decline, technological obsolescence, and changes in the economic environment
• Carrying value analysis: We determine the current book value of the asset or CGU as recorded in the entity's financial statements
• Fair value less costs of disposal: We estimate the price that would be received in an orderly transaction between market participants, minus the costs of disposal
• Value in use calculation: We project future cash flows expected from the asset and discount them to present value using a pre-tax discount rate that reflects current market conditions and asset-specific risks
• Recoverable amount determination: The recoverable amount is the higher of fair value less costs of disposal and value in use
• Impairment loss recognition: If the carrying amount exceeds the recoverable amount, we quantify the impairment loss and provide guidance on its recognition

Detailed Reporting

Upon completion of the impairment test, Global Consult delivers a comprehensive report that includes:

• Complete methodology description with references to applicable standards (CPC-01, IAS 36)
• Detailed calculations for fair value less costs of disposal and value in use
• Key assumptions used, including discount rates, growth rates, and projection periods
• Sensitivity analysis showing how changes in key assumptions affect the recoverable amount
• Clear recommendations on impairment loss recognition and reversal, where applicable
• Supporting documentation suitable for external audit review

Our reports are prepared to withstand regulatory and audit scrutiny, providing management and auditors with the transparency and rigor they require.