Statute No. 11638 - Impairment Test – 35723

Document: Statute No. 11638 - Impairment Test

Long-lived assets of a venture whose expected return has been substantially diminished due to various events should not have the same relevance within the Balance Sheet from the point of view of their amortized acquisition cost, because they do not present the same added value of benefit generation when they were purchased. Another point to be considered in the reduction of the recoverable value of assets is when there is data indicating, within the venture, that an asset or set of long-lived assets are with a value in the accounting far above their market value, or their expectation is below the forecast. Thus, it is necessary to perform tests to affirm that such speculations are correct, demonstrating the variation in the registered values and the deficit in the future cash flow of this asset, reiterating the value below that presented in the accounting process.

How to verify the possibility of a Reduction in the Recoverable Value of Assets?
In order to be able to perform a reduction in the recoverable value of the assets, it is necessary to verify that they meet several necessary requirements. This test or evaluation is called the Impairment Test.

How does the Impairment Test work?
A series of evaluations is performed on the asset in question, verifying various accounting data, as well as its market value and future expectations. If the recoverable value is lower than the book value, then its fair value is calculated. Thus, the effective loss due to impairment is the difference between the book value and the fair value of the asset in question when the latter is lower. In a practical way, when the entity finds that such an unrecoverability event has occurred, it must use its financial statements to notify an impairment loss.

With the pronouncement CPC01 and the change in Statute no.11.638, every venture must review its balance sheet and the status of its long-lived assets in order to verify the depreciation and the possibility of a Reduction in the Recoverable Value of Assets, an indispensable fact in a successful Asset Management.