We recognize that the key component of a company’s statement of financial position is assets, particularly non-current assets. The value of assets relative to non-current liabilities provides insight into a company’s financial health. With emerging technologies, those reviewing and approving financial statements must conduct a more comprehensive assessment of asset values in the financial position.
We are aware that in times of crisis, companies may dispose of assets to cover liabilities. Unrealistic carrying values of assets can create a misleading impression about the financial position of a company. You see, technologies have significantly rendered certain assets obsolete or reduced their resale value, necessitating write-downs to recoverable amounts.
International Accounting Standard IAS 36 is one standard commonly overlooked by most accountants and boards of directors. When examining financial statements, boards concentrate on asset listing and classification, confirming accurate depreciation and valuation ignoring impairment.
Ignoring the application of IAS 36 impairment testing, potentially causes assets to be overvalued and give wrong impressing about the health of the company. Accountants should always assess impairment when valuing assets, recording an impairment loss when the carrying amount surpasses the recoverable amount. This will give a realistic view of the financial position of the company.
Many organizations’ financial positions seem healthy, but this may be due to insufficient impairment testing. As technological progress renders assets obsolete, regular impairment evaluations are essential.
By; Winfred Mupakasi Silumbwe
