Impairment Testing

In today’s dynamic business environment, assets are crucial in determining a company’s strength and sustainability. However, with ongoing changes in the economic and operational landscape, assets may experience impairment affecting the company’s financial and strategic decisions. This underscores the importance of asset impairment testing service, which is critical for ensuring the accuracy and fairness of financial statements, as well as compliance with regulatory requirements and international standards.

Why Do Companies Need Asset Impairment Testing?

1. Financial Performance Assessment: Impairment testing helps identify assets that may not yield the expected returns, supporting informed financial decision-making.
2. Compliance with Accounting Standards: International standards, such as the International Accounting Standard 36 (IAS 36), mandate periodic reporting on asset impairment.
3. Strategic Planning: The valuation report enhances management’s ability to identify assets requiring improvement or reallocation.
4. Attracting Investors: Demonstrating commitment to transparency and financial governance through impairment testing reports boosts confidence among investors and stakeholders.

What are the Mandatory Methodologies for Preparing Asset Impairment Testing Reports by Listed and Licensed Companies?

There are two types of mandatory methodologies:

1. Local Regulations:

   Resolution No. (11) of 2024 regarding guidelines for the valuation or study of asset impairment, which was Issued by the Capital Markets Authority (CMA) on 04 February 2024.

   In a relevant context, the CMA has released a clarification announcement addressing various questions related to valuation or study of asset impairment.

2. International Financial Reporting Standards (IFRS):

   IFRSs outline specific requirements, which guide the preparation of asset impairment testing reports, through 3 key standards each applicable in its specific context:

   • IFRS 13 – Fair Value Measurement: Provides a framework for measuring fair value and requires disclosures about fair value measurements.
   • IAS 36 – Impairment of Assets: Offers guidance on identifying and accounting for impaired assets.
   • IFRS 9 – Financial Instruments: Addresses impairment of financial instruments through expected credit loss models.

What is the Frequency of Impairment Testing Reports?

Typically, asset impairment testing reports are prepared periodically:

• Annually: In line with statutory and accounting requirements.
• Upon Indications of Impairment: Such as declining financial performance or significant market changes.
• During Mergers or Acquisitions: To ensure accurate valuation of combined assets.

Who are the Beneficiaries of the Impairment Testing Report?

1. Company’s Senior Management: For informed strategic decision-making.
2. Investors and Shareholders: To assess the company’s financial performance and sustainability.
3. External Auditors: To validate the accuracy of financial reports.

What is the Competitive Advantage of Baker Tilly Kuwait?

Baker Tilly Kuwait offers distinguished asset impairment testing services through:

1. Baker Tilly is Licensed and Qualified to develop impairment testing reports:

   From compliance perspective, Baker Tilly has the statutory licenses to provide this service:

   • CMA-Licensed Investment Advisor
   • CMA-Licensed Asset Valuator

2. Global Expertise with Local Insight:

   A global consulting firm with in-depth knowledge of the Kuwaiti market.

3. Comprehensive Valuation Services:

   Expertise in various valuation methodologies, ensuring accurate and reliable asset valuations.

4. Experienced Professional Team:

   A bilingual team with a proven track record in investment consulting and financial services.

5. Customized Advisory Solutions:

   Tailored consulting services that meet client needs and adhere to industry standards.

Leveraging these strengths, Baker Tilly Kuwait ensures clients receive unparalleled support in navigating complex financial challenges and maintaining transparency in their financial reporting.