How do you communicate and explain intangible asset impairment to stakeholders and regulators?

1 Identify the impairment indicators

The first step is to identify the signs that indicate that an intangible asset may be impaired. These can be external or internal factors that affect the expected future benefits or cash flows from the asset. For example, external indicators could be a decline in the market share, demand, or profitability of the products or services that use the asset, or a change in the legal, technological, or competitive environment that reduces the asset's protection or usefulness. Internal indicators could be a decision to discontinue or restructure the operations that use the asset, or an evidence of obsolescence or damage to the asset. You should monitor these indicators regularly and document them clearly.

2 Perform the impairment test

The next step is to perform the impairment test, which is a calculation that compares the carrying amount of the intangible asset (the amount recorded in the balance sheet) with its recoverable amount (the higher of its fair value less costs of disposal and its value in use). The fair value is the price that would be received to sell the asset in an orderly transaction between market participants. The value in use is the present value of the future cash flows expected to be derived from the asset. If the carrying amount exceeds the recoverable amount, the intangible asset is impaired and its value must be written down to the recoverable amount. You should use appropriate methods and assumptions to estimate the fair value and the value in use, and disclose them in the financial statements.

3 Explain the impairment loss

The final step is to explain the impairment loss, which is the amount by which the carrying amount of the intangible asset exceeds its recoverable amount. The impairment loss reduces the net income and the equity of the business, and affects the tax liabilities and the transfer pricing policies. You should communicate the impairment loss to the stakeholders and regulators in a transparent and consistent manner, and provide the reasons, impacts, and actions taken to address it. You should also highlight the uncertainties and risks associated with the impairment test, and the sensitivity of the results to changes in the key inputs and assumptions.

4 Here’s what else to consider

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