In December 2008 the Financial Reporting Review Panel in the UK wrote to 30 large companies advising them that the impairment disclosures in their next set of financial statements would be subject to review for compliance with IAS 36 "Impairment of assets". The aim of the project was to stimulate improvements in disclosures about impairment and to test assumptions, given the high importance of this information to investors in current market conditions.
The Panel has now completed its initial review of the impairment disclosures and is pleased to report that 22 companies out of the 30 improved the overall quality of their impairment information compared with the previous year, 13 significantly so. There was also a noticeable increase in the level of compliance with the requirements of IAS 36 generally - particularly relating to disclosures of reasonably possible changes in assumptions that could trigger an impairment charge.
The Panel will be writing to 26 of the companies to thank them and to inform them that no further enquiry will be made into their annual accounts at this point. The Panel will conduct a more detailed review of the impairment information disclosed by the remaining four companies and will write to them when that exercise has been completed. The fact that the Panel has selected four sets of company accounts for further review does not mean that the Panel has concluded that their accounts failed to comply with the requirements of IAS 36.
Bill Knight, Chairman of the Panel said:
"We appreciate the work undertaken by the companies involved in this review. It is clear from a comparison of their 2007 and 2008 disclosures that many thought carefully about what information they needed to communicate and the majority made improvements.
A number of the companies found ways to make their disclosures easier to read and understand. In particular, some provided key data and assumptions in tabular form which improved ease of understanding when compared to long notes of closely written text in small print. "
Ian Wright, Head of Corporate Reporting at the Financial Reporting Council, said:
"We hope that many companies will be looking at their peer group disclosures and will be seeking to improve their goodwill and intangible asset disclosures which are so relevant at present."