Understanding IAS 36 and Impairment

Impairment of assets IAS (36)

Literature review is a narrative review that includes current knowledge, methodological contributions, theoretical arguments, as well as objective findings related to a specific topic. Most of the reviews are simply secondary sources and rarely report any empirical or original work. In this context, IAS 36 "Impairment of Assets" which seeks to control the balance between the assets of the enterprise and the recoverable amount in general. Entities are primarily required to perform impairment tests, which play a pivotal role in indicating the impairment of the asset. The literature will include the meaning of IAS 36, the objectives, components and implications of applying IAS 36, the negative revisions to IAS 36 and the strict measure of adoption of IAS 36.

IAS 36 addresses the treatment of impairment of assets and is intended to describe the procedures applied by an entity to ensure that its assets are recorded in an amount not exceeding their recoverable amounts. According to the terms of the standard, the asset is recorded more than its recoverable amount if it is carrying amount exceeds the amount to be recognized through the use or sale of the asset. If this is the case, the asset is described as impaired and the entity is required to recognize an impairment loss. The Standard also specifies when an entity should reflect an impairment loss and describes the disclosures.

IAS 36 applies to:

"Land, buildings, machinery, equipment, investment property carried at cost, intangible assets, goodwill, investment in subsidiaries, associates, joint ventures carried at cost and assets carried at revalued amount under IAS 16 and IAS 38" (Iasplus, 2018)

Identification keys

Recoverable amount: for an asset or a cash-generating unit is the higher of its fair value les cost to sell and its value in use (Barden et al., 2010).

Fair value less cost to sell: "is the amount obtainable from the sale of an asset or cash-generating unit in in an arm's length transaction between knowledgeable, willing parties, less the cost of disposal" (Iasplus, 2018)

Cost of disposal: are incremental cost directly attributable to the disposal of an asset or cash-generating unit, excluding finance cost and income tax expense (Barden et al., 2010)

Value in use: "in the present value of the future cash flows expected to be derive from an asset or cash-generating unit" (Iasplus, 2018)

An Impairment loss: "is the amount by which the carrying amount of an assets or cash-generating unit exceeds its recoverable amount" (Iasplus., 2010).

Carrying amount: "is the amount at which an asset is recognized in the statement of financial position after deducting any accumulated depreciation (amortization) and accumulated impairment losses thereon". (Barden et al., 2010)

A cash-generating unit (CGU): “is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.” (Iasplus, 2018)

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Corporate assets:" are assets other than goodwill that contribute to the future cash flows of both the cash-generating unit under review and other cash-generating units". (Barden et al., 2010)

Determining the asset that may be impaired

At the end of each reporting period, the entity estimates the extent of impairment of the asset. If any such indication exists, the enterprise estimates the recoverable amount of the asset. Apart from any indication of impairment, the establishment also:

An intangible asset with an indefinite useful life or an intangible asset that is not yet available for use on impairment is tested annually by comparing the carrying amount with its recoverable amount. This impairment test may be performed at any time during the annual period. Different intangible assets can be tested for impairment at different times. However, if this intangible asset is initially recognized during the current annual period, that intangible asset is tested for impairment before the end of the current annual period. Goodwill acquired from business combinations is tested for impairment at least annually. Where there is any indication that an asset may be impaired, the recoverable amount of the individual asset should be estimated. If it is possible to estimate the recoverable amount of an individual asset, the entity determines the recoverable amount of the cash-generating unit to which the asset belongs (the cash-generating unit of the asset). The cash-generating unit is the smallest group of identifiable assets that generates cash flows received and is largely independent of cash flows from other assets or groups of assets (Legislation.gov.au, 2018)

Measure of the Measurement recoverable amount

The recoverable amount of the asset or cash-generating unit is higher than its fair value less costs to sell and its value in use It is not always necessary that each fair value is determined from the selling costs of the asset and its value in use. If any of these amounts exceeds the carrying amount of the asset, the asset will not be impaired, and it is not necessary to estimate the other amount. Fair value less costs to sell is the amount that can be obtained from the sale of an asset or cash-generating unit in a transaction on a commercial basis between knowledgeable and willing parties, less disposal cost. The value in use is the present value of future cash flows expected to be derived from the cash-generating unit or asset. Some elements are reflected in the calculation of the asset's value in use, for example the estimation of future cash flows that the entity expects to derive from the asset, expectations of possible changes in the amount or timing of these future cash flows, the time value of the money, Underlying doubts. Other factors, such as the liquidity that market participants may reflect in pricing future cash flows that an entity expects to derive from the asset (Alfredson et al., 2007) Estimates of future cash flows include projections of cash flows from continuing use of the asset and projections of cash flows incurred necessarily to generate cash flows from the continued use of the asset (including cash flows issued for the asset's preparation for use) directly attributable to the asset or allocated to the asset A reasonable and reasonable basis, and net cash flows, if any, to be received (or paid) for disposal at the end of its useful life. The estimated future cash flows of an asset are estimated in its current condition. Estimates of future cash flows should not include estimated future cash flows or future cash flows expected to result from future restructuring that the entity has not yet committed, the improvement or enhancement of the asset's performance and the estimated future cash flows include cash flows from or from financial activities, Receipts or income tax payments.

Recognition and measurement of impairment losses

If the recoverable amount of the asset is less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss, unless the asset is recorded in the revalued amount under another standard (e.g. under the revaluation model in IAS 16 Property, Plant and Equipment). Any impairment loss for any revalued asset is treated as a revaluation decrease under that standard. An impairment loss is recognized for the cash-generating unit (the smallest group of cash-generating units where the goodwill or the asset is allocated) if the recoverable amount of the unit (a group of units) is less than the unit's registered value (a group of units). The impairment loss is allocated to reduce the carrying amount of the unit's assets (a group of units) in the following order, reducing the carrying amount of any goodwill allocated to the cash-generating unit (group of units) and, accordingly, to the other assets of the unit (group of units) pro rata to The basis of the recorded value of each asset in the unit (a set of units).. However, an enterprise does not reduce the carrying amount of the asset to below its fair value less costs to sell (if identifiable, its value in use) if it is determinable and zero. The amount of the impairment loss to be allocated against that asset is allocated pro rata to other assets of the unit (for groups of units)

Goodwill

The purpose of impairment testing and goodwill acquired in a business combination is allocated from each acquisition date to each cash-generating unit or group of cash-generating units of the acquire that is expected to benefit from close co-operation, irrespective of whether the assets or liabilities Other financial assets of the acquire are allocated to those units or to groups of units. (Alfredson et al., 2007)

International Accounting Standard (IAS) 36 Overview

of assets, primarily to adjust the requirements that would consider the decline in non-financial assets. As noted by Capkun et al. (2012) and deepens the quality of business accounting as well as accounting for goodwill. Decision makers and researchers agree that IAS 36 as an impairment principle is consistent with both tangible and intangible asset testing, excluding assets normally covered by IFRS (Glaum et al., 2013; Capkun et al., 2012). Hussman and Schmidt (2008) explained that IAS 36 requires that assets should be managed or carried forward no more than the recoverable amount in order to achieve the objective. The Standard requires that all assets be subjected to tests, which require a large extent of impairment (Carlin, and Finch, 2009; Avallone, and Quagli, 2015). As Wiese (2005) and Cotter (2012) have pointed out, the understanding of IAS 36 attracts further study of the requirements that describe the standard before assessing the entity. First, a reference to the possibility of a decline in the asset's value is required where the recoverable amount can easily be determined (Cotter 2012). Second, the recoverable amount of goodwill in which intangible assets have an indefinite useful life, where measurements are made on an annual basis (Petersen and Plenborg, 2010; Avallone and Quagli, 2015). In addition, the standard becomes more practicable when an impairment loss is recognized or recognized as an expense in the middle of a loss or gain on assets carried at cost (Husmann and Schmidt, 2008; Avallone and Quagli, 2015). Finally, the impairment loss previously recognized for any asset, other than goodwill, requires a reversal in the event of any change in the estimate of the recoverable amount (Feleagă et al., 2012)

Historical background and development of IAS 36

Standards Board (IASC) was found in 1973 through an agreement between members of accounting organizations. As a private entity, IASC was considered independent and focused on achieving uniformity across accounting principles applied in companies and institutions for the preparation of Financial reports (Camfferman and Zeff, 2007). By 1998, IASC had 143 members of accounting institutions, representing 2 million accountants from 103 countries (Glaum et al., 2013). As Bricker (2010) and Garrido et al., 2002), IASC was not the only organization, both nationally and internationally, to try to harmonize accounting standards. Prior to the introduction of IAS 36, several organizations were working on the development of accounting standards that complemented the law. For example, in 1942, the English Institute of Certified Public Accountants defended accounting practices at the national level where the International Accounting Group Accounting practices throughout Canada, America and the UK regarding the growth of professional accountants. (Day, 2000; Cellucci, 2010). The additional mission entailed harmonization of the national accounting rules with IASC international standards bearing the name IAS with IASB standards adopting the initials IFRS. It is of note that the IAS-standards came in the spotlight in the year 2005, which implied that companies could be listed on the stock exchange where they were expected to adhere to new international standards as far as the consolidated financial statements are put into consideration (Feleagă et al. 2012). This formed the platform for international accounting standard 36 whose main objective was to prescribe significant procedures that any entity could apply for the purposes of ensuring that assets are carried at a value that does not exceed the recoverable amount. If the case is witnessed, the asset is regarded as impaired and the IAS 36 defines the entity as an impairment loss. However, IAS 36 is open to prescribed disclosures and the reversal of the impairment loss. IAS 36 demands an entity to consider details from both the internal and external sources before an asset could be valued.

However, the real IAS 36 impairment of Assets is traceable to 1988 with setting operative for financial statements. In 2004, the IAS 36 was revised becoming effective on 31 March 2004 applying to the good and intangible assets acquired in business activities. The standards was later amended in 2008 to corporate the disclosure of estimates used in determining a recoverable amount by Annual Improvements to IFRSs 2007. Beginning on or after 1 January 2014, the amended standards on 2013 by Recoverable Amount Disclosures for Non-Financial Assets where it became a requirement to clarify disclosures took effect.

Components of IAS 36

apply in ensuring that the assets are carried within the value that is never more than the recoverable amounts. In any case, that an asset is carried beyond the recoverable amount, then the asset stands to be impaired and the IAS 36 demands the entity to take note of the impairment loss (Feleagă et al. 2012). Several components, which reflect the financial standards that have been embraced over the recent years, support the objective of IAS 36. The first component includes the indicators of impairment that alludes to the fact that the entity may have indications of impairment upon the reporting date (Andersson, and Wenzel, 2014; Avallone, and Quagli, 2015). The same entity is required to consider details and information from internal and external environments. Some of the external factors include technological changes, market interest rates, legal factors, economic environment, and market capitalization among many other factors. Internal factors include physical damage to the assets, evidence of obsolescence and internal restructurings (Morricone et al. 2010). The second component is the recoverable amount, which is the fair value that comes lower than the costs to sell, as well as the value in use (Avallone, and Quagli, 2015). In the course of measuring the impairment, it is common that IAS 36 demands the asset-carrying amount should further be compared to the recoverable amount. The latter is essentially determined for every asset and in case the asset is unable to generate the cash flows that are independent of other assets, then the recoverable amount can be estimated from the cash generating unit (CGU). As another variable of IAS, CGU can be noted as the smallest identifiable sample or group of assets that are said to generate the cash inflows, which are essentially independent of all the cash flows linked to other assets, as well as groups of assets. Besides, the carrying amount is the amount that an asset can be recognized with especially after deducting the cumulative depreciation, commonly known as amortization and the impairment losses realized thereon (Avallone, and Quagli, 2015). As outlined by Mindermann and Brosel (2009), the corporate assets are those ones, which, apart from the goodwill, contribute towards the future of the cash flows behind the CGU that is under review and the rest of the generating units. Another component includes the costs of disposal, which entails the incremental costs that are commonly attributable to disposal of the cash generating unit or the asset without the income tax expense and the finance costs (Andersson, and Wenzel, 2014). In addition, IAS 36 involves the fair value, which is also the price received after selling an asset or the one paid to the transfer of liability that happens in an orderly transaction (Lhaopadchan, 2010; Alexander, 2012). The impairment loss, on the other hand, includes the reasonable amount through which the CGU and the carrying amount surpass the recoverable amount (Wirtz 2013). Lastly, the value in use is regarded as the present value behind the future cash flows that is commonly derived from the cash generating unit or an asset.

Implementing IAS 36

far as the goodwill narrative is concerned (Boller et al., 2014; Wines et al., 2007; Carlin, and Finch, 2011). Jarva (2009) argued that Impairments over goodwill have worsen and increased in frequency in the face of a firm’s value. Paragraph 134 of the IAS 36, concentrates on impairment testing of goodwill, which is both problematic as well as challenging at the same time. Even the standard setters have gone ahead rejecting or declining the classic system because of amortization and capitalization (Mard et al., 2012; Otonkue et al., 2009). In the course of implementing the IAS 36, Albu et al. (2011) indicated that managers and business owners have developed a tendency of postponing the impairments of goodwill, a habit that leads to lack of quality across the disclosures. Most of the managers, especially in the telecommunications sector, are made to believe that impairments are likely to lead towards negative consequences such as lower compensations, lower stock prices, and lower ratings for bond credit. Many organizations across the global have not shown efforts of implementing or complying with standards set behind the disclosures and the IAS 36. Feleagă et al. (2012) argues regulators have failed to comply with the new standards in the accounting field following a possible decline in terms of performance of the company. Based on this, most of the managers become opportunistic while considering evaluation of the possible impairment tests. In their studies across the Australian and New Zealand firms, Petersen & Plenborg (2010), Carlin & Finch (2011), and Godfrey & Koh (2009) indicate that over 70% of the largest firms show low levels of compliance concerning the accounting standards associated to goodwill. Subsequent studies conducted across the Danish firms held inference that the standards are not tolerable and may take time before hitting full implementation (Bepari et al., 2014; Camodeca et al., 2013; Petersen, and Plenborg, 2010). However, the attention given towards implementation of IAS 36 further attracted a study of the Telecommunication Industry Accounting Group as indicated by Shields (2014). The studies conducted analysing implementation of IAS 36 focusing on the 350 blue chip companies across Europe as the telecoms industry made efforts of balancing the total intangible assets as well as the goodwill demonstrating the essence of asset impairment tests and annual goodwill (Dunne et al., 2008; Klimczaka et al., 2016; Yen, 2007). According to comprehensive annual reports presented by PricewaterhouseCoopers (2009), the goodwill impairment tests across thirteen companies showed that the impairment loss on the intangible assets amounted to £31 million with two companies reporting a possible average of £19 million impairment loss with the indefinite useful lives. Goodwill impairments were seen to be more significant with annual reports giving a different image of the industrial performance. Therefore, it is evident that goodwill, as an intangible asset, cannot be avoided in the modern economy, and the dynamics in the telecommunications industry and other industries.

Hoogendoorn (2006) and D'Alauro (2013) highlighted that the implementation of IAS 36 leads to the implications of mandatory disclosures behind the impairment tests for the purposes of enhancing comparable information as well as enhancing transparency. However, in the course of the transition, some of the firms with reflection to the effects, costs, and complexity, which come along with the implementation process, have underestimated IAS 36 (Carlin, and Finch, 2010; Devalle, and Rizzato, 2012; André et al., 2018). Key complexities have been associated to identification of cash generating units as well as assignment of goodwill. Other complexities include selection of the method meant for the impairment test, calculation of the recoverable amount and identification of the appropriate assumptions. While the requirements of the IAS 36 look familiar, still the impairment review is challenging in the course of practice.

Impact of IAS 36 of firms’ performance

insignificant given that the scale has been too low. Currently, according to Devalle and Rizzato (2012) and D'Alauro (2013), researchers are focused on tapping into the reviews made by the companies and industries that are waiting to feel the positive effects of IAS 36. Nawaiseh (2016) concentrated on the Jordanian context as regards the impairment accounting and the profitability established from the measurements. The study found that companies, within the Jordanian context, showed insignificant positive relationship between the probability of the impairment loss recognition and profitability measured via the ROA (Nawaiseh 2016). This led to the conclusion that higher impairment recognition can only be noted if companies could associate it to higher profits. Nawaiseh (2016), based on the study taking Jordanian perspective, confirms that the relationship between impairment and ROE has constantly been negative with examples extracted from the Jordanian companies (ibid). The experience showcased by these companies indicates that most of them were worried of portraying the inability of generating a better performance if the impairment loss was to be realized (Andersson and Wenzel 2014).

where the ratio of the impaired loss to the total assets keeps fluctuating across the studies. According to Yaacob and Che-Ahmad (2012), this attracted queries from the stakeholders concerning the impairment literature and opting for other methods that would report on the recoverable amount, the impaired assets and discount rates as well as the future cash flows. As pointed out by Kvaal (2007), most of the professionals and scholars are not contended with the research conducted around the impaired loss and the impact of IAS 36 (D’Arcy and Tarca 2016). Amid a crisis environment, most of the companies have a feeling that historical performance is likely to be less reliable in terms of judging the reasons behind the plan (Andersson, and Wenzel, 2014). Proponents of the standards contend that it has set in place steps aimed at reducing range of acceptable accounting treatments while establishing guidelines reflecting better firms’ financial performance and economic position. According to Barth et al. (2008), Ewert and Wagenhofer (2005), and Tennyson, O., & Akani, F. N. (2016), limiting accounting alternatives enhances reporting quality that reflect organization underlying economics hence eliminating opportunities to manage balance sheet amount and earnings. Ideally, this informs the investors decision-making process by taking action based on accurate information and data. Nevertheless, those with opposite opinion counter that introduction of the standards by either organization or country result in shift in system from rules-based to principles-based. This shift requires management to frequently make a decision concerning accounts particularly using own data and information (Jeanjean, and Slolowy, 2008). According to Chatham et al. (2010) and Glaum et al. (2013), applying judgment and discretion presents managing persons opportunities of reporting financial and accounting amounts with personal agendas. For instance, one can under report reducing data and information value to investors. In a study conducted by Van et al. (2005), the findings showed consistencies with this assert by indicating that firms adopting the standards had higher levels of earning management in comparison to those reporting under German accounting standards. Critics argue that many companies are scared that the IAS 36 might compel them to disclose more information that may end up being used against the company. In a case study conducted by Tsalavoutas et al. (2014), it could be found out that over 432 companies confused between the value in use as well as the fair value minus the costs of selling. Over 48 companies utilized the discounted cash flow analysis, which further disclosed more details about the cash flow estimations. Again, 449 companies made use of the post-tax discount rates, a practice that does not comply with the standards requirement. Tsalavoutas et al. (2014) revealed that most of the companies in Germany, Australia, and France rarely understand the parameters needed while computing the impairment loss or the impaired assets (Palea 2013). Such incidents paint a negative picture of the IAS 36 and may not convince other companies to adopt the standards (Palea 2013). This is because companies may end up giving more information that are sensitive and organizational secrets. The only outcome of the excessive information is to know the impaired assets, which is an undertaking that does not have a profitable backup. For companies that embrace the IAS 36 standard, Qasim et al. (2013) indicates that they only end up adjusting on the increased risk premiums, adjusted conservatism, reduced rates of profit growth, and the shorter forecast horizon. However, such adjustments have worsened the outcomes with companies left to account and compensate for the double counting errors with key scenarios seen in Britain and America. Glaum et al. (2013) points out that this paves way for the restrictive values, which are said to result into attribution of the disproportionate effects inclined towards sources of risks, and the circular processes assigned to conservative forecasts. Glaum et al. (2013) alluded to the fact that impairment loss has made companies to be worried of the awaiting reality, which increases the perception of decreased expected profit and performance of the company (Ding et al. 2007). This has further attracted the scale and the analytical angle of the financiers who keep perceiving and focusing on the downward growth rates and higher risk premium. The impounding risk of the avalanche effect is extremely clear as the impairment tests mislead companies in adjusting the cumulative risk with the intention of revamping the structures and the performance of the organization (Avallone and Quagli 2015).

crisis management have worsen the issues. The tests insist on measuring deterioration of the company’s earning power due to the crisis establishing the gap between the companies’ permanent loss of value and the temporary profit drop ((Lhaopadchan 2010). The timeliness of recognizing accountability of losses has again attracted more questions than answers towards crisis management (Avallone, and Quagli 2015). Based on the perception of conservatism, which touches on remeasurement and accounting recognition, companies would always be set for bad news in terms of their earnings as compared to the good news a company would always want to hear. Based on the case study conducted by Qasim et al. (2013) in United Kingdom, the researchers noted that over 76% of the 500 UK firms listed as mergers and acquisitions have increasingly avoided testing goodwill with managerial discretion impeding the applicability of the standard. Qasim et al. (2013) added that IAS 36 could be a sign for negative changes in terms of technology, economy, and markets thereby positing a challenge to firms that have interest in a particular industry. The aspect of bad news behind the goodwill impairment is said to have affected 142 firms out of the possible 500 listed as mergers and acquisitions in UK. With a negatively painted picture, more companies are likely to shy off the tests with reasons aligned to a possible deterioration of performance and a possible business failure (Devalle et al. 2017). IAS 36 seemingly attracts what is referred to as asymmetric accounting as far as the timeliness of the earnings is put into consideration (Barbu et al. 2014). These include the reasons that make countries to retain the domestic accounting standards because of the consistent fight between institutions and the standards. Deming et al. (2007), after conducting studies in China, noted that IAS 36 insisted on the unnecessary transparency and implemented almost vague measurement rules that fought back the company’s earnings. Deming et al. (2007) must have implied that financial reporting rarely depends on the standards but the incentives noted by the companies in adopting the standards. Reports on incentives would rarely depend on the standards but certain economic and financial feature that reside behind the national enforcement bodies (Devalle et al. 2017). The same goes to the corporate ownership structures, the investor protection riles, legal origin, the nature of the financial system in the host country in case of a multinational companies and the judicial efficiency (Alexander 2012). The study on the American impairment reporting noted that high quality judicial systems are likely to attract timely reporting of any reasoned bad news as well as enforcement of the good news (Barbu et al. 2014; Shaari et al. (2017)). Therefore, IAS 36 is never expected to have better feedback due to the differences in the institutional structures about financial reporting (Wirtz 2013). Most of the EU countries argue that adoption of IAS 36 has triggered endless comparison of the accounting standards that do not stop with the scale of adoption and compliance, but the trending behaviour that are consistent with the national financial practices (Shaari et al. 2017). While some of the companies think that adoption and compliance to IAS 36 can trigger the economic value behind the firm’s assets, over 80% of the firms are still trapped in beliefs of the impractical requirements put in place by IAS 36 (Wirtz 2013). Based on the myriad number of companies that complain about the new standards, critics have cited the subjective estimates and judgments at the same time.

net assets and impaired decisions that can lead to mismanagement of the earnings. Based on this assertion, the expected transparency will always be low. The report by ESMA further noted the quality of disclosures and the assumptions on judgments that normally underlie the impairment of the non-financial assets. Mazzi et al. (2016) indicated that lack of justification on the side of the discount rates, business plans and the missing disclosures could trigger the boilerplate language. The notable inconsistencies noted with CGU and the entire IAS 36 can lead to detrimental effects associated with decision usefulness, comparability, as well as transparency. Such findings can trigger the discretionary behaviour on the side of the financial statements as prepared by the Australian firms. Negligence of compliance further makes it hard for companies to adopt part of the requirements put in place by IAS 36 (Barbu et al. 2014).

The stringent scale of adoption of IAS 36

for the stakeholders who have relied on the impact of the financial standards amid the performance of their respective companies. Paul et al. (2014) noted that the study around IAS 36 is not different from the mandatory adoption of the IFRS in year 2005 following the conditional conservatism. Based on the 7251 observations made by Paul et al. (2014), it could be noted that over 16 European countries declined the set degree of the conditional conservatism. This follows the domestic GAAP believed to have shaped the regulations and institutions behind the national economies as well as cultures. The latter was abandoned as firms focused on embracing the principle based accounting standards. Adoption of IAS 36 has been regarded as stringent with conditional conservatism leading to induced aggressiveness towards recognition of the bad news compared to embracing good news. The impact of complying with the standards set by IAS 36, the impact is regarded as priori unclear and less prudent. The cross-country studies and the subsequent surveys noted the international institutional factors, as well as properties of accounting as noted in Canada, Australia, United Kingdom, and the United States. Further studies across the European firms as from 1987 to 1999 concluded that timeliness as well as conservatism became more pronounced in the face of legal tradition and increasing importance of enforcement and the equity markets (Wirtz 2013). Perhaps, IAS 36 must have influenced the asymmetric timeliness across 38 countries. This prompted high quality judicial systems. Cordazzo (2008) noted that companies exhibit different levels of compliance. While reports indicate an increase, though not significant, in terms of compliance, the journey to full compliance is still long. Failure to achieve full compliance and winning the goodwill of the key industrial players can be blamed on IAS 36 and its failure to attain the faithful representation, which is one of the fundamental qualitative characteristics of IFRS. Such a failure seemingly defines the difference in compliance across companies listed in Greece and Sweden. The stringent conditions set by IAS 36 seem to differ with the economic environment and accounting traditions. Less developed countries have exhibited low compliance levels. The least complied criteria of the IAS 36 framework include subparagraph C and subparagraph D, which are associated with the disclosure of the significant value in use. The subparagraphs relate to the growth rates and description of assumptions (D'Alauro 2013). The subparagraphs are well described through the cost benefit theory. The latter indicates that most of the companies would be reluctant to disclose most of the sensitive details. This is because such companies are aware of the harmful effects that come with the disclosure of information. The stringent conditions put on top of the IAS 36 have reduced the scale of compliance noting the impairment loss (Wirtz 2013). The subjective assumption behind the recoverable amount has worsened the worries companies have towards complying to the requirements put in place by IAS 36.

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