How do you treat PP&E impairment — IFRS vs. local GAAP?

Answer

IFRS (IAS 36)

Impairment test on 'triggering events' — market changes, technological disruption, margin decline, etc. Test: if carrying amount > recoverable amount (= the higher of fair value − disposal costs and value in use), then impair down to the recoverable amount. Reversal POSSIBLE if value recovers (except goodwill). Local GAAP: a write-down for a permanent impairment of fixed assets. A mandatory write-up when the reasons for the impairment cease — stricter than IFRS.

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Consequence

Local GAAP tends toward earlier / smaller impairments plus reversals; IFRS toward larger, less frequent, less reversible impairments. Concrete example: a steel plant in an economic downturn.

Local GAAP

a write-down when the loss persists 3+ years, then a reversal on recovery.

IFRS

impairment when value in use < carrying amount, based on a detailed cash flow forecast. Cash flow statement effect: impairment is non-cash → add-back in OCF; tax effect only if deductible for tax (often yes for PP&E).

Pitch tip

Repeated impairments over 3+ years signal structural problems — in DD, don't scrub them as 'one-off', model them as a run-rate drag.

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