Impairment losses fuel 2012 write downs

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The GFC continues to make itself felt, with 16% of ASX 300 companies writing down $2.077 billion in the 2012 financial year, according to RSM Bird Cameron’s Business Acquisition and Impairment Review 2013.

This was an increase of 11% compared to the 2011 financial year, with total write downs of $1.083 billion.

Impairment losses were also recorded by 21 per cent of the non-ASX 300 companies reviewed. This meant a total write down of $73.4 million in the 2012 financial year – a 10% increase on 2011.

The report, which analyses the financial statements of a diverse cross-section of Australian listed companies, looks at the financial reporting impact of the companies’ acquisitions.

“Certain triggering events result in a requirement for assets to be tested for impairment, said Glyn Yates, director of corporate finance, RSM Bird Cameron. “In addition, assets such as goodwill are subject to mandatory impairment testing at least annually, irrespective of whether there is any indication of impairment.

“Impairment charges continue to be recognised in relation to acquired intangible assets. This is because listed entities have continued to struggle to justify asset values purchased at historically high price levels prior to the GFC.

“Companies are having to reassess future business plans and profitability forecasts in light of the continued economic uncertainty and recognise impairment charges accordingly. Impairment charges can have a significant impact on an entity’s reported results and net asset position.”

It all comes down to the risk management process undertaken before purchase, Yates says. “When assessing potential acquisitions, it is critical expert input is sought from financial and legal advisers who have the ability to work alongside a management team that undertakes detailed commercial due diligence.”

Yates added: “The key to a successful transaction is ensuring the price paid reflects the value of the underlying business, all material issues are addressed in the sale documentation and the risk of not achieving forecast results is mitigated through an appropriate deal structure such as an earn-out.”  

 

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