Impairment Test according to HGB and IFRS

An impairment test determines whether the carrying amount of an asset is still supported by its economic value. Under IFRS, this test is often referred to as an impairment test and is performed in accordance with IAS 36 in particular. Under the German Commercial Code (HGB), the impairment test is conducted in connection with the assessment of whether an extraordinary write-down of an equity investment is necessary. The goal is to recognize impairment losses in a timely manner in the annual or consolidated financial statements.

An impairment test under IFRS is required if there are indications of impairment (“impairment trigger”). Such indications may include declining revenues, changes in market conditions, increased cost of capital, technological changes, or deteriorating business plans. Under IFRS, an annual impairment test is generally required for goodwill, intangible assets with indefinite useful lives, and intangible assets not yet ready for use.

In an impairment test under IAS 36, the carrying amount of an asset or a cash-generating unit is compared to its recoverable amount. The recoverable amount is the higher of the asset’s value in use and its fair value less costs to sell. If the carrying amount exceeds the recoverable amount, an impairment loss must be recognized. The impairment test under IFRS is therefore heavily based on financial projections, cash flows, discount rates, and assumptions regarding long-term trends.

The impairment test under the German Commercial Code (HGB) differs from the IFRS impairment test primarily in terms of its objective, methodology, and valuation criteria. Under the HGB, an investment is generally treated as a single asset when assessing whether there is an impairment expected to be of a lasting nature and whether an unplanned write-down is required. In contrast, in the goodwill impairment test under IAS 36, goodwill is allocated to a cash-generating unit (CGU). The carrying amount of the CGU, including goodwill, is then compared to its recoverable amount. As a result, the IFRS impairment test is generally more cash flow-, planning-, and model-based.

An impairment test is influenced by financial, operational, and market-related factors. Key factors include revenue and earnings forecasts, margin trends, capital expenditures, working capital, growth assumptions, the discount rate, market risks, and industry-specific developments. In a goodwill impairment test, the allocation to cash-generating units, synergy assumptions, and long-term planning parameters also play a central role.