When goodwill, intangible assets or an investment in a subsidiary may be worth less than its carrying amount, HKAS 36 Impairment of Assets requires a recoverable-amount assessment. Valtech Valuation provides independent impairment testing and CGU valuation in Hong Kong, prepared for financial reporting and structured around the questions auditors actually ask.
When Is an Impairment Test Required?
- Annual testing – goodwill from a business combination, indefinite-life intangibles and intangibles not yet available for use.
- Trigger-based testing – other assets when indicators suggest the carrying amount may not be recoverable.
- Common triggers – underperformance against budget, loss of a major customer, rising discount rates, weaker market multiples, restructuring, technological or regulatory change and climate-related effects.
- Investments in subsidiaries – declining performance or net assets in a subsidiary carried in separate financial statements.
What Valtech Delivers
- CGU and carrying-amount analysis – mapping cash-generating units, allocating goodwill and corporate assets, and reconciling the carrying amount to the accounting records.
- Recoverable-amount valuation – value in use, fair value less costs of disposal (FVLCD), or both.
- Discount rates and sensitivities – WACC or asset-specific rates, terminal growth and headroom sensitivities traceable to evidence.
- Report and audit support – a signed report, model support and direct responses to auditor questions.
Valuation Bases in an HKAS 36 Test
- Value in use – present value of entity-specific cash flows from continuing use and disposal, excluding cash flows the standard does not permit.
- Fair value less costs of disposal – a market-participant value less disposal costs, supported by DCF, multiples, transactions or an asset approach.
- Market capitalisation cross-check – for listed groups, comparing market-implied enterprise value with carrying amounts.
- Sensitivity and headroom – how changes in discount rate, growth, margins or revenue affect headroom.
Areas That Commonly Attract Audit Challenge
- Goodwill allocated at too high a level, masking an underperforming CGU
- Forecasts that do not reconcile to approved budgets, past results or capacity
- Inconsistent treatment of right-of-use assets, lease liabilities, corporate assets or working capital
- Mixing entity-specific and market-participant assumptions
- Discount rates mismatched to currency, geography, leverage or cash-flow basis
- Insufficient sensitivity disclosure where headroom is limited
Frequently Asked Questions
Can you use our management forecasts?
Yes, but not mechanically. We reconcile them to budgets, history, capacity and market evidence, and document any adjustments.
What is the difference between value in use and FVLCD?
Value in use is entity-specific; FVLCD is market-participant based. Recoverable amount is the higher of the two.
Will you respond to our auditor after the report is issued?
Yes. Auditor review is part of a financial reporting engagement, and we respond on methodology, discount rates, forecasts and sensitivities.
Why Hong Kong Companies Choose Valtech
Impairment conclusions directly affect reported profit, so they are examined closely by auditors, audit committees, regulators and – for listed or multinational groups – international investors and parent companies.
- A strong team with outstanding international credentials – CPA, CFA, FRM, MRICS, ABV (AICPA) and China Certified Public Valuer qualifications gained in Hong Kong, the United States, the United Kingdom and Mainland China. When your impairment test is reviewed by authorities, auditors and international stakeholders, recognised credentials strengthen its standing.
- Senior members closely monitor every valuation – a director is personally involved in each test, from CGU mapping to sign-off. Your concerns are addressed by an experienced professional, not a junior analyst.
- Built for audit challenge – reports structured around the review points auditors focus on.
- ISO 9001 certified quality management – defined review steps before any report is released.
- Proven track record – more than 1,000 valuations and 18 years serving Hong Kong companies.
Request an Impairment Testing Quotation
Send us the asset or CGU, the reporting date, the carrying amount and your latest forecast. A director-level valuer will reply with scope, fee and turnaround. Call +852 2388 9262 or email admin@valtech-valuation.com.
More detail: Impairment testing & CGU valuation – Valtech Hong Kong
Valtech Valuation Advisory Ltd, Unit 2106, 21/F, Futura Plaza, 111-113 How Ming Street, Kwun Tong, Kowloon, Hong Kong. This article is general information, not valuation, accounting, tax or legal advice for any specific entity.