Impairment (financial reporting)

An Impairment cost must be included under expenses when the book value of an asset exceeds the recoverable amount. Impairment of assets is the diminishing in quality, strength amount, or value of an asset. Fixed assets, commonly known as PPE (Property Plant & Equipment), refers to long-lived assets such as buildings, land, machinery, and equipment; these assets are the most likely to experience impairment, which may be caused by several factors.

Asset impairment was first addressed by the International Accounting Standards Board in IAS 16, which became effective in 1983. It was replaced by IAS 36, effective July 1999.

In United States GAAP, the Financial Accounting Standards Board introduced the concept in 1995 with the release of SFAS 121. SFAS 121 was subsequently replaced by SFAS 144 in August 2001.

The issue of impairment of financial instruments exposed deficiencies in the IAS 36 framework during the 2008 financial crisis, and the IASB issued an exposure draft in November 2009 that proposed an impairment model based on expected losses rather than incurred losses for all financial assets recorded at amortised cost. The IASB and FASB undertook joint efforts to devise a common impairment model, but the FASB eventually decided to propose an alternative scheme in January 2011. The IASB issued a new exposure draft in January 2013, which later led to the adoption of IFRS 9 in July 2014, effective for annual periods beginning on or after January 1, 2018. The FASB is still considering the matter.

Impairment is discussed in several international accounting standards:

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