01The short answer
Under IAS 36, goodwill is allocated to cash-generating units and tested at least annually. If a unit's carrying amount exceeds its recoverable amount, the higher of value in use and fair value less costs of disposal, an impairment loss is recognised.
02What auditors focus on
- Whether forecasts are consistent with past performance and approved budgets
- How the discount rate was derived and whether it reflects the unit's risk
- Terminal growth rates compared with long-term market growth
- Sensitivity of headroom to reasonably possible changes in assumptions
03Common UAE issues
Groups with operations in several GCC countries need discount rates that reflect each market's risk. Businesses acquired at high prices during strong markets often show limited headroom when conditions change.
This article explains general principles for UAE readers. Your own valuation will depend on your company, its documents and why the figure is needed, so speak to us before relying on it.