John Lewis suffered a £470m impairment on the value of its brick-and-mortar stores, pushing the retailer to a pre-tax loss of £635m


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Adam Deller is a financial reporting specialist and lecturer

It will come as a surprise to no one that asset impairment is a significant discussion in the current climate. As one of the more significant judgments that will be made in the coming months, impairment reviews done by preparers and reviewed by auditors are likely to come under much closer scrutiny than in other years.

Holding an impairment review isn’t something that is required every year, except for intangible assets with an indefinite life. Instead, an entity must make an assessment at the end of its accounting period as to whether there are indications that an asset may be impaired.

Clearly the events of 2020 will lead to more companies performing these reviews. However, if an entity has no reason to judge that its assets may be impaired, there will still be no need to perform an impairment review.

Impairment rules

According to IAS 36, Impairment of Assets, an asset is impaired if its carrying amount exceeds its recoverable amount. The recoverable amount is then defined as the higher of its value in use and fair value less costs to sell.

The traditional approach of managers has typically been to start the process by looking at value in use, often based on the forecasted cashflows prepared by the entity. If this measure shows no impairment, then the review is complete. If this does indicate some potential impairment, then the managers will look at the asset’s fair value.

It would be a surprise to see any retailer producing results that state an impairment review of their properties has not been performed

The fair value of an item is an exit price, and volatility in many market prices has made fair value incredibly difficult to assess. The calculation of fair values is likely to be possible, but experts may use a slightly wider range of fair values rather than providing a set figure in many cases.

The following assets should be assessed.

Financial assets

Financial assets such as loan receivables held by financial institutions have already seen some significant impairments in the sector. It is important to note that any financial asset impairments will be examined under the principles of IFRS 9, Financial Instruments; the IAS 36 rules will not apply to them.


This column has discussed the ongoing issues surrounding goodwill impairment many times, so we won’t be revisiting them again here. The important thing to remember around goodwill impairment is that it cannot be reversed, which potentially factors into the criticism that it is often recognised too little, too late.

In addition to potentially higher goodwill impairments, goodwill allocated across cash-generating units may need to be reallocated following the reorganisation of entities.

Impairment disclosures can be either overly generic or so packed with discount rates and sensitivities that the average user simply moves on

Property assets

Many companies, particularly within the retail sector, are starting to record impairment charges on their properties. An interesting example is UK department store John Lewis. In recognition of the move to online shopping, John Lewis made a pre-Covid assessment that having physical stores contributed around £6 of every £10 spent in its online stores. Following the events of 2020, the business has reduced this figure to £3 of every £10, resulting in an impairment of £470m in relation to its properties.

This brings us back to the earlier point about an impairment review not being a necessity, even this year. Only if there are indications of impairment does a business have to perform a review. The retail sector is surely going to be one such sector. As many of the larger entities record impairments on their physical stores, it would be surprising to see any retailer with bricks-and-mortar outlets producing results that state an impairment review of their properties has not been performed.


Many retailers hold their properties under leases, and the introduction of IFRS 16, Leases, led to huge numbers of assets now being recognised on balance sheets, recorded as the present value of the lease payments to be made under the lease. Under the principles of IAS 36, these assets are included as part of the impairment review and must be looked at.


Entities have been required to produce disclosures around their impairment process. Often, these can be either overly generic or so packed with discount rates and sensitivities that the average user simply moves on. In an era where impairments will probably be expected by users, this gives management a chance to be specific about the circumstances they face.

The physical space occupied by many entities has encountered a significant and perhaps permanent shift. In facing this, many companies have shown great flexibility, carrying out many years of transformation within a few months.

Entities shouldn’t be afraid to explain this so that users see what has been done. For years, investors have asked for more transparency from companies. This may well be a moment for the brave to be open and paint the picture of how they will move forwards in a new way.