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HMRC internal manual

Corporate Finance Manual

Accounting for corporate finance: International Financial Reporting Standards: IAS 39: measurement of financial assets: impairment

Is a financial asset impaired?

A company is required to assess at each balance sheet date whether there is any objective evidence that a financial asset or group of assets may be impaired. IAS 39 sets out several indicators that the asset holder would need to consider, such as whether the issuer is experiencing significant financial difficulties, whether a default has already occurred, or whether an active market for that asset has disappeared because of financial difficulties. However, a downgrade in the issuer’s credit rating is not, by itself, evidence of impairment.

The company is not required to assess individually every debt or other financial asset that it holds.

  • It must identify those financial assets that are individually significant and, for each such asset, consider whether objective evidence of impairment exists.
  • Where an asset is not individually significant, it may still be still be assessed individually, or it may be put into a group of similar assets that are assessed collectively.
  • If a financial asset, whether significant or not, is assessed individually, but there is no objective evidence of impairment, the company will then include that asset in a group of financial assets with similar credit risk characteristics and collectively assess them for impairment.
  • But, on the other hand, if information emerges to show that a particular financial asset in a group is impaired, the company must make an impairment provision for that specific asset and remove it from the group.

There is an example at CFM21680.