Impairment of Assets under COVID-19: Mind the GAAP

By Tanvi Gupta, Ashwani & Associates, Chartered Accountants

We are living through one of the most challenging times in recent history with the COVID-19 pandemic impacting businesses globally and causing turbulence of an unimaginable scale. The resultant effect, worldwide, has led to many entities experiencing significant shifts in demand and supply curves and decline in their market capitalisation. Given the forceful impact of the pandemic, entities need to address whether a triggering event necessitating testing for impairment of its assets has arisen for financial reporting.

Is the pandemic a triggering event for impairment?

The current economic environment may prompt the need for entities to conduct an impairment assessment of its assets. Although the standards focus on the recoverability amounts of assets, thereby taking a long-term view, the entities may be required to make a careful evaluation of macroeconomic factors and their impact.

Need to revisit cashflow projections

Entities would need to review and adjust their cashflow projections (CFPs) in the light of likely effects of the pandemic. While there is a negative impact in the near- and medium-term cashflows, cashflows in the long run might have a limited or negligible impact. Given the extreme uncertainty and volatility, developing a scenariobased approach for CFPs might be appropriate. A rigorous stress testing of all variables and assumptions may provide a better clarity of results in every scenario.

Impact of the pandemic on discount rates

Risk-free rates used in asset valuations may be very low, due to reduction in interest rates by regulators, resulting in very anomalous asset valuations. Therefore, adding a company/sector specific risk premium to capture the unsystematic risk becomes critical.

Challenges in estimating the fair value

Given the highly volatile public markets, the challenge arises as to whether the stock price truly reflects the fair value of a particular business/ asset. Entities cannot altogether ignore the prices prevailing orderly transactions in active markets.

However, factors like making volatility comparisons of different periods and adjusting them in the light of expected market conditions, and estimations using various moving averages, merit consideration.


The economic impact of the crisis globally is still unknown. The impairment assessment would need to be made taking a long-term view and considering all impacts. There are no definite answers. Every aspect would need a thorough evaluation supported by concrete analysis and documentation.

Tanvi Gupta

Tanvi Gupta

GGI member firm
Ashwani & Associates, Chartered Accountants
Advisory, Auditing & Accounting, Corporate Finance, Tax
Ludhiana, India
T: +91 98554 00428
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Ashwani & Associates is an audit, tax, and consulting firm with four offices in India. Their clients range from emerging entities to large corporations with billions of dollars as revenue. They include privately held businesses, notfor- profit organisations, and publicly traded companies. They support a local, national, and international client base.

Tanvi Gupta is a Chartered Accountant and specialises in audit and assurance, wherein she is engaged in serving large multinational clients by performing the attest function. Serving clients from national and international companies and having worked in every existing kind of GAAP, she offers pragmatic solutions to her clients.

Published: Auditing, Reporting & Compliance Newsletter, No. 04, Autumn 2020 l Photo: Natalia -

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