IFRIC Interpretation 10 - Interim Financial Reporting and Impairment (detailed review)

Objective

This interpretation prescribes the guide lines that whether an entity should reverse an impairment loss on goodwill which is recognized in the interim financial reports of the entity if circumstances at the end of subsequent accounting period indicate that either no loss would have been recognized, or a lesser impairment loss would have been incorporated, if impairment test has been applied only at the end of a subsequent accounting period?

References

IFRS 9 Financial Instruments

IAS 34 Interim Financial Reporting

IAS 36 Impairment of Assets

Background

1. IAS 36 requires an entity to apply impairment test upon goodwill at the end of each accounting period and, if circumstances indicate and require, the entity should incorporate the any resulting impairment loss at that date as per the requirements of IAS 36.

2. The paragraph 28 of the IAS 34 requires an entity should chose and apply the same accounting policies in its interim financial reports which are applied in annual financial statements of the entity.

3. This interpretation prescribes the guide lines that whether an entity should reverse an impairment loss on goodwill which is recognized in the interim financial reports of the entity if circumstances and conditions at the end of subsequent accounting period may have so changed and indicate that either no loss would have been recognized, or a lesser impairment loss would have been incorporated, if impairment test has been applied only at the end of a subsequent accounting period

4. This Interpretation also provide guidelines that how should an entity accounts for the interaction between the recognition of impairment loss on goodwill as per IAS 36 and the requirements of IAS 34, and the effect of this interaction on the subsequent financial statements of the entity

Issue

1. IAS 34 requires an entity should chose and apply the same accounting policies in its interim financial reports which are applied in annual financial statements of the entity and it also includes the requirements stating that ‘the frequency of reporting by the entity (quarterly, half-yearly, or annual) does neither have any effect on the measurement requirements of any standard nor on its annual results

2. The paragraph 124 of the IAS 36 states that ‘the impairment loss recognized on goodwill cannot be reversed later in a subsequent accounting periods.

3. This Interpretation deals with the following issue: whether an entity should reverse an impairment loss on goodwill which is recognized in the interim financial reports of the entity if circumstances at the end of subsequent accounting period indicate that either no loss would have been recognized, or a lesser impairment loss would have been incorporated, if impairment test has been applied only at the end of a subsequent accounting period.

Consensus

The entity will not reverse any impairment loss on goodwill recognized in the previous interim period.

Effective Date

a) The requirements of this Interpretation are applicable to the annual accounting periods commencing on or after 1 November 2006. However, earlier application is permitted and encouraged.

b) If the entity chooses to apply the Interpretation for an annual accounting period commencing before 1 November 2006, it should disclose this fact.

c) The entity should apply the requirements of this Interpretation to goodwill prospectively fright from the date of first time application of IAS 36.