As Canadian companies transition to IFRS, it will be necessary to analyze Impairments using data that is different from that which was previously required.
Under Canadian GAAP, when an impairment test is performed, it is based on the ASSET GROUPS – the lowest level of identifiable net cash flows – cash inflows and outflows that are independent of each other.
However, under IFRS, it is the CASH GENERATING UNIT that is required – it looks at independent cash inflows, and not outflows. This may sound like a small difference, but it has a significant impact in that a company can end up with more cash generating units under IFRS, than a company would have asset groups under Canadian GAAP. Furthermore, when you start breaking up these groups into smaller amounts, there is a greater likelihood that impairments will be reported, because you are not offsetting positive cash flows from negative cash flows.
Under Canadian GAAP, it has never been necessary to review independent cash inflows alone – it has always involved combining independent cash inflows and outflows together – so IFRS will require the company to be analyzed in a different way. In this regard, data collection will need to be reviewed carefully, which most likely impact IT systems.
I hope this helps. This is one of a series of blogs that is meant to convey information relating to Canada’s transition from Canadian GAAP to IFRS.
For further information, please refer to the ongoing series of IFRS blogs on the Edelkoort Smethurst Schein CPA’s LLP web-site and please remember to contact your accounting professional for further guidance.