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Impairment of Cash-Generating Assets

Objective

The objective of the project is to develop a standard that prescribes the procedures that an entity applies to determine whether a cash-generating asset is impaired and to ensure that impairment losses are recognized. It will also specify when an entity should reverse an impairment loss and prescribes disclosures. The final standard will be based on IAS 36, Impairment of Assets

Scope

The project applies to certain categories of cash-generating assets (as currently scoped in ED 30) for all public sector entities other than Government Business Enterprises (GBEs) - preparing and presenting financial statements under the accrual basis of accounting.

GBEs are required to apply International Financial Reporting Standards (IFRSs) which are issued by the International Accounting Standards Board (IASB).

Background

In July 2004, the then Public Sector Committee (PSC) approved IPSAS 21, Impairment of Non-Cash-Generating Assets.

Public sector entities holding cash-generating assets were required to apply IAS 36, Impairment of Assets. It was felt requirements should be developed dealing with cash-generating assets rather than relying on IAS 36.

Issues

Issues the project includes (but are not necessarily limited to):

  • Scope - should cash-generating assets carried under the revaluation model in IPSAS 17 Property, Plant and Equipment be considered;
  • Definition of cash-generating assets and distinguishing them and non-cash-generating assets;
  • The need for requirements for corporate assets; and
  • Treatment of non-cash-generating assets contributing to cash-generating units.
Task Force progress / Board discussions to date

January 2008: IPSAS 26, Impairment of Cash-Generating Assets published.

November 2007: The IPSASB approved IPSAS 26, Impairment of Cash-Generating Assets. In doing so, the IPSASB determined that property, plant and equipment on the revaluation model in IPSAS 17 should be outside the scope of IPSAS 26. The IPSASB also decided that goodwill will be outside the scope. IPSAS 26 is planned to be issued early in 2008.

July 2007: The IPSASB reviews analysis of submissions on ED 30 Impairment of Non-cash Generating Assets and directs staff to prepare a draft of an IPSAS based on the ED. Directions include carrying out further work, in consultation with members and technical advisors, on whether property, plant and equipment carried on the revaluation model in IPSAS 17 Property, Plant and Equipment should be within scope of the draft IPSAS and on whether provisions on corporate assets are necessary.

October 2006: ED 30, Impairment of Cash-Generating Assets issued with a comment date of February 28, 2007.

September 2006: ED 30 approved for issue.

April 2006: The subcommittee refined the ED in accordance with the directions of the March 2006 IPSASB meeting and consulted with members out of session, in particular clarifying:

 

  • The treatment of non-cash-generating assets contributing to cash-generating units;
  • That there would be no definition of, and requirements relating to, corporate assets on the basis that assets meeting the IAS 36 definition of corporate assets are unlikely to arise in the public sector; and
  • The illustrative examples.



March 2006: The IPSASB reviewed revised versions of the draft stand-alone ED and the illustrative integrated ED.

It was decided that only a separate ED dealing with the impairment of cash-generating assets should be progressed. It was also agreed that the requirements related to corporate assets and the demarcation between cash-generating and non-cash-generating assets should be clarified.

November 2005: The IPSASB reviewed preliminary drafts of both a stand-alone ED dealing with cash-generating assets and an ED integrating requirements for cash-generating assets with requirements for non-cash-generating assets in IPSAS 21.

It was agreed to progress the project on the basis that a separate ED on cash generating assets would be prepared. IPSAS 21 would also be extended (along the lines in the integrated ED) for illustrative purposes.

November 2004: The IPSASB reviewed an exploratory draft of an ED based on IAS 36 (which excluded the amendments to IAS 36 made by IFRS 3, Business Combinations and intangible assets).

The IPSASB concluded that the development of requirements relating to the impairment of cash-generating assets was worthwhile but that given staff resource constraints it should not be a high priority. The subcommittee agreed to develop proposals during 2005, which would be brought to the IPSASB as staffing resources permitted.