Impairment

A reduction in an asset's carrying amount when the amount expected to be recovered under the applicable accounting test falls below that carrying amount.

Why It Matters

Impairment can reveal deterioration in assets, acquisitions, or business units and can materially reduce reported earnings and equity. It also matters for managerial incentives because timing and valuation inputs may affect compensation, covenants, takeover accountability, and the appearance of later performance.

Reading the Measure

A working relation and an interpretive limit for corporate-finance use.

Interpretive caution

An impairment charge is often non-cash in the recognition period, but it may reflect a real earlier loss of economic value. Reversals, testing units, and measurement rules differ across standards and asset classes.

Accounting reference: IFRS Foundation: IAS 36 Impairment of Assets