Impairment Testing On Intangible Assets And Fair Value Reporting – Chandler Macleod Group Limited

Overview of Impairment Testing Conducted by Chandler Macleod Group Limited

i) Finding out from company’s annual report that assets that is used by the firm for testing its impartment:

The company has been conducting impairment testing on intangible assets, goodwill, customer relationships, Branding, project development cost in software. Chandler Macleod Group Limited has been conducting impairment test on all the above-mentioned categories, which helps in identifying the overall loss incurred by the organization during the fiscal year. This detection of the impairment loss directly allows the company to adjust their assets according to its actual value presented in the market. impairment testing of goodwill and intangible assets with indefinite lives are conducted by Chandler Macleod Group Limited, which helps in allocating goodwill to individual business units (Chandlermacleod.com 2018). This impairment testing directly helps in detecting the losses that is incurred by the organization in valuation during the fiscal year.  the cost related project development and software are directly adjusted with the help of impairment testing.

ii) Depicting how impairment testing was conducted by the firm:

The above figure mainly helps in identifying the overall Impairment testing which was conducted by the company during the fiscal year.  the company directly uses goodwill, project development cost, software, leased software, brand names, and customer relationship in their impairment testing. The net book value is directly reported in the annual report which helps in identifying in the fair value that is less than the actual report value. This increases the impairment loss conducted by the organization doing the fiscal year. Impairment loss on software, leased software, brand names and customer relationships were conducted during the fiscal year (Chandlermacleod.com 2018). Organization with the help of impairment loss was able to identify the net carrying amount of each assets that was used in the empowerment testing. This detection is helpful in identifying actual financial position of an organization.

iii) Depicting whether the firm has recorded any impairment expenditure during the fiscal year:

The firm has experienced empanelment lost during the fiscal year, where adequate allowance for impairment loss are conducted by the management. This allowance for impairment loss mainly helped in reducing trade receivables that is entered by the organization during the fiscal year. this allowance for impairment loss on trade receivables are mainly presented, due to the adequate recognition of traditional receivables being impaired. The overall reduction of trade receivables mainly helps in identifying the actual value that will be received by the company during the fiscal year (Chandlermacleod.com 2018). Impairment loss of project development cost, software, leased software, brand names, and customer relationship ate also detected in the annual report.

Detection of Impairment Losses on Various Assets During the Fiscal Year

iv) Identifying the key estimates and assumption used for conducting the impairment testing:

Adequate assumptions were conducted by the organization before the estimation of impairment loss incurred during the fiscal year. The use of adequate accounting policies such as IASB 136   was utilized by the organization for drafting the overall Impairment cost incurred during the fiscal year (Chandlermacleod.com 2018).  reasonable assumptions estimated by the organization for calculating the overall fair value for its assets. majority of the assumption are conducted on intangible assets, which was used by the organization for impairment testing. The organization conducts valuation of goodwill, cost and software’s to detect the actual impairment loss incurred during the financial year. 

v) Depicting whether any kind of subjectivity is involved in impairment testing and stating how this subjectivity could influence outcome of impairment testing:

From the overall evaluation impairment testing of the organizations are conducted with the help of subjectivity, as adequate estimates and developments are used in the impairment process. Moreover, subjectivity is present within the organization, which directly increases the sensitivity and leads to assumptions that need to be conducted to verify terminal growth. Impairment testing is directly influenced by subjectivity, which needs to be controlled by the organization to reduce its negative impact on the improvement process. This prevention could eventually help in detecting actual loss incurred by the organization due to corrections in valuation.

After validating the annual report of Chandler Macleod Group Limited, it could be detected that low subjectivity was present during the impairment testing (Chandlermacleod.com 2018). The organization mainly focused the impairment testing on goodwill, project development cost, software, leased software, brand names, and customer relationship. However, reduction in impairment loss was conducted only on project development cost, software, leased software, brand names, and customer relationship due to the revaluation process. This indicates that low subjectivity was present during the impairment testing process. 

vi) Depicting what was interesting, confusing, surprising or difficult to understand about the impairment testing:

After validating the annual report of Chandler Macleod Group Limited it was surprising to identify that adequate impairment testing process was not depicted in details. The process of the implement testing was not adequately provided by the company in the annual report, where hypothetical changes in the family were conducted. In addition, no impairment loss was deducted from Goodwill which was surprising, while other intangible assets value was deducted during the fiscal.

vii) Depicting new insights about the impairment test conducted by the company:

Impairment Testing Process and Assumptions Made by the Organization

From the evaluation of the annual report no new Insights on the overall impairment testing was identified. In addition, the company has been using impediment testing on intangible assets, which had been conducted by many of the companies. However, test on goodwill was conducted, where no deductions made by the organization, while other intangible assets were deducted and revalued as per fair value.

viii) Commenting on the fair value measurement:

Fair value reporting directly allows the organization to detect its actual financial position to the investors, which takes adequate decisions based on portrayed financial condition. the fair value is mainly identified by using the accounting estimates such as cost of capital, which helps in hotel in the actual value of an asset. This detection of the actual value of the Asset allows the organization to represent is total assets. Hence, fair value measurement is necessary attribute, which needs to be conducted by all the organization to represent the actual financial condition to the shareholders.

i) Explaining why the chairperson of IASB believes that accounting standard for lease did not reflect economic stability:

From the evaluation it could be identified that the existing lease standard did not provide clear picture of the overall company, which was mainly conducted due to the existence of different accounting models for various transactions. Furthermore, there was no possibility under the existing standard to measure actual liabilities of the business, as organizations could represent values according to their perspective (Abuaddous, Hanefah and Laili 2014). Likewise, leased liability and assets are not represented on financial reports as the current accounting for lease does not require organizations to disclose it on the financial statement. Further evaluation is being conducted by IASB regarding lease commitments, where $3.3 million worth of lease all over the world are not been disclosed properly in the balance sheet. However, financial analyst and investors seek information regarding operating lease in the annual report, which is not adequately provided in the statement. This improper implementation of adequate standards directly mitigates the possibility of operating lease been incorporated in financial metrics. Moreover, this non-availability of adequate operating lease could eventually reduce capability of investors and analyst to evaluate the actual financial position of the organization. Adequate financial standard is needed for reducing the problems that arise from operating lease that is maintained by organization to conduct their operations. Nevertheless, the evaluation of available information directly indicates that investor adjust after evaluating the balance sheet to comply with actual financial position of an organization, which does not reflect the economic reality (Banker, Basu and Byzalov 2016).

Subjectivity and Its Impact on Impairment Testing

ii) Depicting why under former accounting measure liabilities were up to 66 times greater than debt reported on their balance sheet:

The previous accounting standard did not force organization to present operating lease on their annual report, which did not represent the actual liabilities that is incurred from operations.  moreover, other financial metrics such as operating cash flow, net income, liabilities, and earnings before interest and tax does not represent the actual value, which could be identified if adequate lease commitments are presented on the balance sheet. Organizations does not list lease commitments in their annual report, as it might affect the actual Assets and liabilities incurred by them (Chang and Yen 2015). This would directly under the total liability and Assets of an organization, as information regarding lease commitments are not provided in the annual report. In addition, the management mainly depicts debt in their annual report, which is less than the leased assets acquired by the management. This is the main reason for off-balance sheet liabilities being higher than the liability listed in annual report. 

iii) Depicting why under former accounting standard there was no level playing field between some airline companies:

The situation directly indicates the controversy that is linked with the former accounting standard, which depicts the complications of creating financing and operating lease.  problems related to lease is directly indicated the current situation, which portraying wrong information in the annual report. Companies having operating lease or not required to make this closes on balance sheet, which is the main reason for airline companies not having level playing field in their annual report. some of the airline companies buys aircraft fleet while others lease assets to conduct its operations. Therefore, the financial position of such airline companies needs to be different in comparison to companies purchasing the aircraft (Filip, Jeanjean and Paugam 2015). There is relevant possibility that financial position of the airline companies are identical, as leased properties are not listed in the annual report, which helps in depicting the actual financial condition of an organization. This is the main reason, why no level playing field between Airlines are identified by investors, as they are not liable to enlist leased aircraft in their annual report.

iv) Depicting the case for unpopularity of the new accounting standard for lease:

The current standard rules are relatively having a lengthy process for controlling, tracking and enlisting the leased property. New process needs to be developed by the organization to account for their leased property in the annual report. Adequate information needs to be collected by the management regarding their leased property, which could be disclosed in their annual report. Changes in the fundamental treatment of lease by the lessee need to be conducted in the annual report which might help in depicting actual liability of an organization. This would eventually increase the reported Assets and liabilities of an organization as leaves properties will be enlisted in the balance sheet. Moreover, under IFRS 16 no distinction between off balance sheet and on balance sheet of the lease amount can be seen (Giner and Pardo 2015). Moreover, it could be assumed that implementation of lease on balance sheet would directly reduce viability of the organization to conduct adequate testing depicting accurate leased standard in their annual report. This implementation would directly increase leverage of the organization and allow investors to identify the actual financial terms in which the company is conducting operations. The collection of information for the leased data is relatively time consuming for the organization. 

Low Subjectivity Detected in Chandler Macleod’s Impairment Testing

v) Depicting the possible reason, why it is said that new visibility of all lease will lead to better investment decision:

The implementation of new account requirements eventually helps in reducing the overall guesswork and rough estimates made by investors regarding leased assets. This implementation could eventually allow the investor to identify leased requirements of the company, which could in turn help in making adequate investment decisions. Moreover, the implementation of the new standard could eventually help in conducting relevant comparison between buying and leasing opportunities presented to an organization. With the help of new accounting standard organizations can disclose leasing commitment in their annual report which increases the transparency level portrayed to their shareholders (Gordon and Hsu 2017). This could eventually allow the organization to bring in more flexible source of Financing to support their financial activity. The disclosure conducted by organizations could eventually allow the management to check their actions, while taking decision regarding leased assets. This measure could eventually allow the management to help create distinction between off balance sheet and on balance sheet operating lease of the organization . 

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