Vietnamese entities applying VAS recognise depreciation and amortisation over fixed periods and are not required to periodically reassess whether the carrying amount remains recoverable based on the asset’s actual use. Under IAS 36, an entity must proactively review assets for indicators of impairment at each reporting date, irrespective of whether any significant changes have occurred. This is the first step in the overall impairment assessment process and is also the step most easily overlooked on first-time implementation of IFRS: identifying indicators of impairment, including external indicators, internal indicators and circumstances in which impairment testing is mandatory even in the absence of an indicator.
Key conclusions
- At the end of each reporting period, an entity must assess whether there is any indication that an asset within the scope of IAS 36 may be impaired; only when such an indication exists is the entity required to estimate the asset’s recoverable amount. This is the most fundamental difference from VAS.
- Identifying an indicator does not mean that an immediate write-down is required. An indicator merely triggers the next step-estimating the recoverable amount. Whether an impairment loss is recognised depends on the outcome of that estimate.
- Goodwill, intangible assets with indefinite useful lives and intangible assets not yet available for use are the only exceptions that must be tested for impairment at least annually, irrespective of whether any indication of impairment exists.
- VAS has no standard equivalent to IAS 36; impairment is therefore an entirely new concept for many Vietnamese accountants.
Scope of IAS 36
IAS 36 applies to most non-current non-financial assets, including property, plant and equipment (IAS 16), intangible assets (IAS 38), goodwill arising from a business combination (IFRS 3), right-of-use assets under leases (IFRS 16), and investments in subsidiaries, joint ventures and associates carried at cost in separate financial statements (IAS 36.2).
The Standard excludes assets that are subject to a separate loss-measurement mechanism, thereby avoiding the application of two sets of requirements to the same item. Examples include:
- Inventories—apply IAS 2 (measurement at the lower of cost and net realisable value).
- Financial assets within the scope of IFRS 9 (apply the separate expected credit loss model).
- Deferred tax assets—apply IAS 12.
- Biological assets related to agricultural activity measured at fair value less costs to sell under IAS 41.
- Contract assets and assets arising from costs to obtain or fulfil a contract under IFRS 15.
- Assets arising from employee benefits under IAS 19.
- Investment property measured using the fair value model under IAS 40.
- Non-current assets or disposal groups classified as held for sale under IFRS 5.
Correctly determining whether an asset falls within the scope of IAS 36 is a prerequisite because applying the wrong loss-measurement mechanism-for example, applying the IAS 36 model to inventories—will result in an incorrect reported carrying amount.
Why does IAS 36 require a periodic review of indicators rather than recognition only when an event occurs?
The fundamental principle of IAS 36 is that the carrying amount of an asset must not exceed the amount recoverable from the asset through use or sale. Accordingly, rather than prescribing a fixed testing cycle for all assets, the Standard uses an indicator-based approach: at each reporting date, an entity assesses whether there is any indication that an asset may be impaired; only if such an indication exists must the entity estimate the recoverable amount (IAS 36.9), subject to specified mandatory exceptions. This approach prevents carrying amounts from being overstated without requiring complex calculations for every asset in every reporting period.
The identification of impairment indicators inherently involves consideration of materiality. Some indicators in IAS 36.12 use expressions such as “significantly more” or “significant changes with an adverse effect”. However, not every indicator is subject to a “significant” threshold. An entity must consider the specific wording of each indicator and should not apply a single materiality threshold across the entire checklist.
The Standard does not prescribe a quantitative threshold for “significant”. This is a materiality concept that is deliberately left to professional judgement rather than a fixed percentage. In practice, significance is commonly assessed by reference to three factors: (i) the magnitude of the change relative to the carrying amount; (ii) whether the change is persistent or temporary; and (iii) the extent to which the change exceeds what was already anticipated in the depreciation or amortisation plan. An entity may develop an internal judgement framework based on these factors.
Materiality is also considered when determining whether a recoverable amount calculation needs to be reperformed. For example, if the most recent calculation showed that the recoverable amount exceeded the carrying amount by a substantial margin and subsequent events are unlikely to eliminate that headroom, the entity may not need to repeat the full detailed calculation.
Checklist of impairment indicators under IAS 36.12
IAS 36.12 divides indicators into two groups-external sources (market and environmental factors) and internal sources (entity-specific factors).
| Indicator | Explanation | Illustrative procedures for assessing the indicator | Illustrative evidence/information sources | Illustrative example of an impairment indicator |
| EXTERNAL SOURCES OF INFORMATION | ||||
| IAS 36.12(a) The asset’s value has declined significantly more than would be expected as a result of the passage of time or normal use. | The decline must exceed the normal wear and tear, depreciation or reduction in value that was expected. The indicator may arise in relation to an individual asset or a cash-generating unit (CGU). |
| Supplier/dealer quotations; transactions or auctions involving similar assets; price indices; independent valuation reports; and recent purchase or sale records. | A packaging line has a carrying amount of VND80 billion; market quotations for equipment of a similar age are only VND45–50 billion, whereas normal wear and tear would have reduced the value to approximately VND65 billion. |
| IAS 36.12(b) Significant adverse changes in the technological, market, economic or legal environment. | This includes changes that occurred during the period or are expected to occur in the near future in the environment in which the entity operates or in the market to which the asset is dedicated. The entity should demonstrate the adverse effect on cash flows, capacity or the ability to use the asset. |
| Laws and regulations, master plans and licences; industry reports; demand and selling-price data; customer contracts and notices; technology roadmaps; and risk assessment minutes. | A plant must make substantial capital expenditure to comply with new environmental requirements; or a product based on legacy technology loses customers because the supply chain’s technical standards have changed. |
| IAS 36.12(c) Market interest rates or other market rates of return have increased and are likely to reduce the recoverable amount materially. | An indicator arises only when the increase is likely to affect the discount rate used in calculating value in use and materially reduce the recoverable amount. |
| Government bond yields; bank lending rates; cost-of-capital data; industry/country risk premiums; valuation working papers; and sensitivity analyses. | A renewable energy CGU has long-dated cash flows; the cost of capital increases from 10% to 13%, materially reducing the headroom between the recoverable amount and the carrying amount. |
| IAS 36.12(d) The carrying amount of the entity’s net assets exceeds its market capitalisation. | This is an entity-wide indicator and is readily observable for listed or registered-for-trading entities. The difference does not automatically mean that an impairment loss exists, but it must be investigated and considered in relation to the relevant CGUs. |
| Price data from HOSE, HNX or UPCoM; the register of shareholders; financial statements; and a reconciliation of market capitalisation to net assets. | A listed entity has a market capitalisation of VND1,200 billion, while the carrying amount of its net assets in the financial statements is VND1,800 billion at 31 December. |
| INTERNAL SOURCES OF INFORMATION | ||||
| IAS 36.12(e) Evidence is available of obsolescence or physical damage to an asset. | Obsolescence may be technological, commercial or functional; physical damage may result from accidents, natural disasters, corrosion, excessive use or inadequate maintenance. |
| Inventory count records; engineers’ reports; maintenance and downtime logs; photographs of the asset’s condition; incident/insurance files; and quotations for repairs and spare parts. | Machinery is flooded following heavy rainfall; or the control system has been discontinued, replacement parts are no longer available and the system is incompatible with the new production line. |
| IAS 36.12(f) The asset has become idle or is no longer in use. | An asset that is no longer used, or whose utilisation has fallen sharply and persistently, may indicate that the future economic benefits are lower than assumed when the asset was recognised. |
| Capacity reports; operating logs; production plans; order data; operations meeting minutes; and demand forecasts. | An autoclaved aerated concrete block line operates at only 25% capacity for 12 months because the entity has lost its market. |
| IAS 36.12(f) Plans exist to discontinue or restructure the operation to which the asset belongs. | Plans to discontinue operations, close a location, transfer production or restructure may shorten the period over which the asset is used and change the cash flows of the asset/CGU. |
| Board of Directors/Members’ Council resolutions; restructuring plans; approved budgets; notices to employees/contractual counterparties; and closure or relocation files. | The entity decides to close its Central Vietnam plant and transfer production to another industrial park in the following year. |
| IAS 36.12(f) Plans exist to dispose of the asset earlier than previously expected. | A shorter holding period reduces cash flows from use and may make the disposal value the principal component of the recoverable amount. |
| Disposal plans; approval resolutions; brokerage agreements; purchase offers; asset valuations; and equipment replacement schedules. | A truck fleet was expected to remain in use for another five years, but the entity decides to sell it within the next three years and outsource transportation. |
| IAS 36.12(f) The useful life of an asset is reassessed from indefinite to finite. | Reassessing an intangible asset from an indefinite to a finite useful life reflects a significant change in expected use and is an indicator that impairment should be considered. |
| Contracts/legal rights; product life-cycle analyses; market-share data; brand plans; and minutes approving the change in accounting estimate. | A brand was previously assessed as having an indefinite useful life, but a rebranding strategy establishes that its use will cease after four years. |
| IAS 36.12(g), 36.14(a) Cash flows for acquiring the asset, or subsequent cash needs for operating or maintaining it, are significantly higher than originally budgeted. | Capital expenditure overruns or substantial increases in the cost of maintaining an asset may reduce the net cash flows and value in use of the asset/CGU. |
| Capital expenditure budgets; EPC/procurement contracts; cost reports; repair orders; maintenance estimates; and budget variance reports. | A cold-storage project was budgeted at VND200 billion but requires an additional VND70 billion to complete the electrical and fire-protection systems. |
| IAS 36.12(g), 36.14(b) Actual net cash flows or operating profit or loss from the asset are significantly worse than budgeted. | Actual performance below plan indicates that assumptions about volume, selling prices, costs or efficiency may no longer be appropriate. |
| Management reports; profit or loss reports by plant/branch; production-volume data; cost reports; and budget reconciliations. | A hotel was expected to generate EBITDA of VND40 billion but achieved only VND8 billion during the year because occupancy and room rates were below plan. |
| IAS 36.12(g), 36.14(c) Forecast net cash flows or operating profit decline significantly, or forecast losses increase significantly. | Even when current performance has not yet deteriorated, an updated budget or forecast may indicate that future economic performance is below the original expectations. |
| Approved budgets and forecasts; financial models; orders/backlog; sales contracts; market analyses; and management meeting minutes. | The forecast profit of a power plant falls by 35% because expected dispatched output is lower and maintenance costs have increased. |
| IAS 36.12(g), 36.14(d) An operating loss or net cash outflow arises when the current-period results are aggregated with future budgets. | The combined current results and future forecasts show that the asset/CGU does not generate sufficient positive cash flows over the relevant period, even though individual years may fluctuate. |
| Cash flow reports by CGU; medium-term forecasts; business plans; operating loss reports; and break-even analyses. | A retail chain incurs a loss of VND30 billion in the current year and is forecast to generate further net cash outflows of VND20 billion over the next two years. |
| IAS 36.12(h)(i) A dividend from a subsidiary, joint venture or associate has been recognised and the carrying amount of the investment in the separate financial statements exceeds the carrying amount of the investee’s net assets in the consolidated financial statements, including associated goodwill. | This indicator applies to an investment presented in separate financial statements. The recognition of a dividend may indicate a return of capital where the investee’s underlying net asset base has deteriorated. |
| Investment ledgers; dividend resolutions; separate and consolidated financial statements; goodwill allocation schedules; and business combination files. | The parent carries an investment in a subsidiary at VND600 billion in its separate financial statements; the corresponding net assets in the consolidated financial statements, including goodwill, amount to only VND450 billion. |
| IAS 36.12(h)(ii) A dividend from a subsidiary, joint venture or associate exceeds the total comprehensive income of that entity in the period in which the dividend is declared. | A dividend exceeding total comprehensive income may indicate that the distribution is not supported by the current-period performance and that the carrying amount of the investment should be tested. |
| General Meeting of Shareholders/Members’ Council resolutions; dividend recognition documents; the investee’s financial statements; and statements of changes in equity. | A subsidiary declares a dividend of VND120 billion during the year, but its total comprehensive income for the year is only VND40 billion. |
These indicators are independent indicators, not cumulative conditions. A single indicator may be sufficient to require the entity to proceed with an impairment assessment. However, not every indicator must meet a “significant” threshold, and an entity should consider IAS 36.15–16 when determining the extent of the calculation required. In addition, the list in IAS 36.12 is not exhaustive-an entity must also consider other indicators, where relevant (IAS 36.13).
Mandatory exception: annual impairment testing irrespective of indicators
Goodwill arising from a business combination, intangible assets with indefinite useful lives and intangible assets not yet available for use must be tested for impairment at least annually, irrespective of whether any indication of impairment exists (IAS 36.10). This is the only exception in IAS 36 that applies a mandatory periodic testing mechanism instead of an indicator-based approach. The rationale is that goodwill and the intangible assets described above are not amortised periodically, while their values depend heavily on forecasts and impairment may be difficult to identify through ordinary indicators alone. If testing were performed only when an indicator arose, the carrying amount could remain overstated for too long or an impairment loss could be identified late. Accordingly, IAS 36 requires testing at least annually as a mandatory control, while also requiring immediate testing whenever an impairment indicator arises.
Comparison between VAS and IFRS
The VAS framework does not contain a general standard equivalent to IAS 36 that applies to all non-current non-financial assets. Write-downs or provisions under Vietnamese accounting regulations are addressed by asset type and do not replace impairment testing under IAS 36.
| Criterion | Vietnamese accounting requirements | IAS 36 | Practical implications of transition to IFRS |
| Impairment model | There is no overarching standard requiring all non-current non-financial assets to be assessed for and recognised as impaired. | IAS 36 applies a general impairment model to most non-financial assets within its scope. The carrying amount must not exceed the recoverable amount. | An entity must develop a dedicated IAS 36 policy, identify all assets within scope and not treat provisions recognised under Vietnamese regulations as evidence of compliance with IAS 36. |
| Review of indicators at the reporting date | There is no general requirement to review non-current non-financial assets for impairment indicators at each reporting date. | At the end of each reporting period, an entity must assess whether there is any indication that an asset may be impaired (IAS 36.9). | The entity should introduce a checklist, assign responsibility for providing data and retain documentation supporting the conclusion for each reporting period. |
| Accounting when an indicator is identified | There is no general mechanism equivalent to IAS 36 requiring an estimate of the recoverable amount of property, plant and equipment or intangible assets as soon as an indicator arises. | When an indicator exists, the entity must estimate the recoverable amount. The existence of an indicator only triggers the test; it does not necessarily mean that an impairment loss must be recognised. | The entity may need to prepare valuation models, forecast cash flows and obtain market data as part of the period-end close process. |
| Measurement basis | The basis for determining a provision depends on the specific requirements applicable to each asset type. | Recoverable amount is the higher of fair value less costs of disposal and value in use (IAS 36.6, 18). | Standardise cash flow forecasts, discount rates, growth assumptions and valuation evidence; this is often the most time-intensive transition task. |
| Level at which testing is performed | There is no general concept equivalent to a cash-generating unit (CGU) for impairment testing of assets that do not generate independent cash flows. | If the recoverable amount cannot be determined for an individual asset, testing is performed at the level of the smallest CGU that generates cash inflows that are largely independent (IAS 36.22). | The entity must map its CGUs, allocate corporate assets and maintain a consistent basis for identifying CGUs from period to period. |
| Goodwill | Goodwill is expensed if it is immaterial or systematically amortised if it is material; the maximum useful life is ten years. The amortisation period and method are reviewed annually. | Goodwill is not amortised. It must be allocated to a CGU or group of CGUs and tested for impairment at least annually and whenever there is an indication of impairment (IAS 36.10, 80–90). | The subsequent accounting model changes fundamentally: periodic amortisation is replaced by an annual test that relies extensively on estimates. An impairment loss recognised for goodwill is not reversed. |
| Intangible assets with indefinite useful lives or not yet available for use | There is no annual impairment testing mechanism equivalent to IAS 36 for these two groups; intangible assets are primarily accounted for using an amortisation model over a finite useful life. | They must be tested for impairment at least annually even when no indicator exists, and tested again whenever an impairment indicator arises (IAS 36.10). | These assets should be separately identified in the asset register, an annual testing date should be selected, and the test should be performed consistently. |
Illustrative example
Company A JSC is a listed packaging manufacturer that prepares IFRS financial statements for the year ended 31 December 20X5. Its principal cash-generating units (CGUs) are the Plastic Packaging CGU-Plant B, the Paper Packaging CGU-Plant C and the Subsidiary D CGU (to which goodwill of VND8.5 billion has been allocated). At the reporting date, the Finance Department, together with the operations, engineering, legal and strategy functions, reviews impairment indicators in accordance with IAS 36.12. The figures below are illustrative assumptions.
| Indicator to be reviewed | Does the review identify an impairment indicator? | Evidence | Relevant asset/CGU |
| The asset’s market value has declined significantly more than would be expected as a result of the passage of time or normal use (IAS 36.12(a)). | NO. Quotations for comparable printing and laminating equipment have declined by approximately 7% since the beginning of the year. The decline is consistent with the assets’ age, operating hours and expected wear and tear. | Three quotations for used machinery; auction data for similar assets; depreciation schedules; and machine-hour logs. | Printing and film-laminating machines within the Paper Packaging CGU—Plant C. |
| Significant adverse changes in the technological, market, economic or legal environment (IAS 36.12(b)). | YES – SIGNIFICANT. Two major customers have announced that they will switch approximately 30% of their orders to alternative materials; in addition, new environmental requirements may constrain demand for plastic packaging. The effect is expected to be persistent. | Customer notices; sales contracts/addenda; legal documents; demand forecasts; and Executive Management meeting minutes. | Plastic Packaging CGU—Plant B. |
| Market interest rates or other market rates of return have increased and are likely to reduce the recoverable amount materially (IAS 36.12(c)). | NO for the Plant C CGU. The estimated discount rate increased from 11.5% to 12.2%; sensitivity analysis indicates that the Plant C CGU still has headroom of approximately VND11 billion. | Bank interest-rate data; WACC calculation; prior-period valuation model; and discount-rate sensitivity analysis. | Paper Packaging CGU—Plant C. |
| The carrying amount of the entity’s net assets exceeds its market capitalisation (IAS 36.12(d)). | NO. The carrying amount of consolidated net assets is VND1,200 billion, below the market capitalisation of VND1,350 billion at 31 December 20X5. | Closing share price; number of shares outstanding; consolidated statement of financial position; and market capitalisation calculation. | The entity as a whole, with particular attention to CGUs containing goodwill and corporate assets. |
| Evidence is available of obsolescence or physical damage to an asset (IAS 36.12(e)). | YES – SIGNIFICANT. The extruder suffered a serious breakdown on 15 December 20X5, reducing capacity by approximately 25%. Estimated repair costs are VND6 billion and the useful life may need to be shortened. | Incident report; engineering inspection report; repair quotations; insurance file; and reassessment of useful life. | Extruder B-02; because the machine does not generate independent cash inflows, the test is performed at the level of the Plastic Packaging CGU—Plant B. |
| Significant adverse changes in the extent or manner in which an asset is used, including idling, restructuring, discontinuance, early disposal or a change in useful life from indefinite to finite (IAS 36.12(f)). | YES – SIGNIFICANT. The Board of Directors has approved the closure of Line B2 from the second quarter of 20X6 and expects to dispose of it three years earlier than originally planned. | Board of Directors resolution; restructuring plan; production schedule; disposal estimate; and correspondence with the equipment broker. | Line B2 and the Plastic Packaging CGU—Plant B. |
| Internal reporting indicates that the economic performance of the asset is, or will be, worse than expected (IAS 36.12(g), with guidance in IAS 36.14). | YES – SIGNIFICANT. The Plant B CGU operated at an average of only 58% capacity over four quarters; EBITDA was 35% below budget and forecast cash flows are expected to continue declining in 20X6. | Management reports; production volumes and capacity utilisation; budget-to-actual comparisons; cash flow forecasts; and margin analysis. | Plastic Packaging CGU—Plant B. |
| For an investment in a subsidiary, joint venture or associate in the separate financial statements: consider the carrying amount against the investor’s interest in net assets and compare dividends with the investee’s total comprehensive income (IAS 36.12(h)). | NO. The carrying amount of the investment in Company D is VND150 billion, below Company A’s interest in net assets of VND175 billion. Dividends received of VND8 billion are below Company D’s total comprehensive income of VND22 billion. | Company A’s separate financial statements; Company D’s financial statements; consolidation schedules; dividend resolution; and ownership-interest reconciliation. | Investment in Subsidiary D in the separate financial statements. |
Conclusion: Company A has identified significant impairment indicators for the Plastic Packaging CGU—Plant B under IAS 36.12(b), (e), (f) and (g). It must therefore estimate the recoverable amount of this CGU at 31 December 20X5. Identifying an indicator merely triggers the impairment test; it does not necessarily mean that an impairment loss will be recognised.
In addition to the review above, Company A has goodwill of VND8.5 billion allocated to the Subsidiary D CGU from a previous acquisition. This goodwill must still be tested for impairment annually under IAS 36.10, irrespective of whether the indicator review concludes “yes” or “no”. The same principle applies to intangible assets with indefinite useful lives and intangible assets not yet available for use.
Common errors and implementation challenges in Vietnam
Confusing provisions under Circular No. 48 with asset impairment under IAS 36. Many entities assume that recognising provisions under current Vietnamese regulations satisfies IAS 36, even though the scope, measurement mechanism and frequency of assessment under the two frameworks are fundamentally different.
Omitting goodwill, intangible assets with indefinite useful lives and intangible assets not yet available for use from the annual impairment-testing process. Because these are the only exceptions that do not depend on the existence of an indicator, entities may incorrectly apply the reasoning that “no indicator means no further action” to these assets.
Failure to document the indicator review. Auditors commonly require evidence that the entity has performed a systematic assessment of indicators at each reporting date, rather than merely recording an unsupported conclusion that no indicators exist.
Insufficient market data for assessing external indicators. For assets without a clearly observable reference market—for example, specialised machinery-identifying a decline in market value requires professional judgement and may require advice from an independent valuation specialist.
Assessing indicators at the level of an individual asset when the asset does not generate independent cash flows. In many cases, indicators should be assessed at the cash-generating unit (CGU) level rather than for each individual asset. Correctly identifying the relevant CGU is a separate technical challenge addressed in subsequent articles in this IAS 36 series.
Frequently asked questions
If no impairment indicator is identified at a reporting date, is any further action required?
If there is no indication of impairment, an entity is generally not required to perform a new recoverable amount calculation, except for goodwill, intangible assets with indefinite useful lives and intangible assets not yet available for use. These three groups must still be tested at least annually. The entity should retain documentation of the review process and the basis for its conclusion.
What is a cash-generating unit and when is this concept used?
A cash-generating unit is the smallest group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The concept is used when an individual asset does not generate cash inflows independently of other assets-a common situation for a production line or equipment used in an integrated production process. In such cases, recoverable amount is determined at the CGU level rather than for the individual asset. This topic is addressed in detail in the next article in the IAS 36 series.
Does recognition of an impairment loss under IAS 36 have corporate income tax consequences?
Yes. When the IFRS carrying amount decreases as a result of recognising an impairment loss but the asset’s tax base does not change correspondingly, a temporary difference arises and must be assessed under IAS 12. This article does not examine deferred tax in detail; that topic is addressed in subsequent articles in the IAS 36 series once specific impairment figures are available.
If my entity has no goodwill, intangible assets with indefinite useful lives or intangible assets not yet available for use, does the annual testing requirement still matter?
The entity is not required to perform a periodic annual impairment test if it does not hold any of these asset types. However, the indicator review required by IAS 36.9 continues to apply in full to other non-current non-financial assets within the scope of the Standard.
Establishing a systematic process for reviewing impairment indicators is a foundational step before an entity can correctly apply the subsequent requirements of IAS 36. Our IFRS conversion advisory team assists entities in designing this process to reflect their specific asset profile and business model.
This article has been prepared solely to provide general information and technical guidance and does not constitute accounting, audit, tax or legal advice for any specific transaction or entity. The figures and assumptions are illustrative and should be adapted to the entity’s actual circumstances, professional judgements and supporting documentation. We accept no responsibility for any loss arising from the use of the information in this article without appropriate professional advice. For assistance with a specific matter, please contact our IFRS conversion advisory team.
