What is Impairment Indicators?
Impairment indicators are events or circumstances that suggest the carrying amount of an asset may exceed its recoverable amount. Under IAS 36, entities must assess at each reporting date whether such indicators exist and, if so, perform an impairment test.
How It Works
- Monitor external indicators: market value decline, adverse changes in technology, market or economy, rising interest rates.
- Monitor internal indicators: physical damage, restructuring plans, evidence of obsolescence.
- If any indicator exists, estimate recoverable amount.
- Recognize an impairment loss if carrying amount exceeds recoverable amount.
Saudi Context
Oil price downturns and Vision 2030 industrial restructuring sometimes act as external impairment indicators for Saudi listed companies’ fixed assets and goodwill.
Example
A factory’s market value drops 30 percent due to a regulatory change. This external indicator triggers an IAS 36 impairment test.