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20RU-015 Impact of COVID-19 on impairment assessments

20RU-015 Impact of COVID-19 on impairment assessments

The effects of COVID-19 will likely result in indicators of impairment for many entities, driving an increase in impairment testing. In this reporting update we summarise some of the key impacts of COVID-19 on impairment assessments.

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The spread of COVID-19 has seen an unprecedented response by governments, regulators and numerous industry sectors in Australia and around the world. The Australian response to this pandemic has seen the closure of our international and state boarders, significant restrictions on corporate Australia’s ability to operate, volatility and instability in financial markets and significant economic slowdown and uncertainties.

Impairment of non-financial assets is a key area of focus for entities, stakeholders and regulators alike. The effects of COVID-19 will likely crystalise indicators of impairment for many entities, driving an increase in impairment testing.

In this Reporting Update we summarise some of the key impacts of COVID-19 on impairment assessments through a series of frequently asked questions. The reporting update covers the following topics:

  • Recoverable amount cash flows including:
    • the different models that can be used to determine recoverable amounts;
    • how COVID-19 related impacts may be reflected in cash flow assumptions; and
    • the impact of events subsequent.
  • How discount rates may be impacted by COVID-19 related events
  • Using market capitalisation and earnings multiples to assess the reasonsonableness of recoverable amounts
  • Other impairment related considerations including the timing of indicator based impairment testing, use of management forecasts for fair value models and third party valuations
  • How financial statement disclosures are likely to be impacted

Refer to the attached Reporting Update to find out more.

If you have any questions, please reach out to your usual KPMG contact.

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