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Question: Discuss About The Compliance Assessment Large Year Adopters? Answer: Introducation Hello, World follows a policy of impairing goodwill and other intangibles and noncurrent assets by considering their indefinite useful life. These assets are tested for impairment on an annual basis, and recoverable amount or the fair value is calculated on the basis of Cash Generating Units. Trade receivables of the Company are also subjected to impairment. The assets to be treated for impairment according to the annual report of Jetset travel world Ltd are goodwill, franchisee Systems, Agent Networks, Supplier Agreements, Brand names and trademarks and Software Website (Annual report of Jetset travel world Ltd, 2017). With the change in the Groups reporting structure, the CGUs of franchise Systems, agent and supplier networks have been replaced by some new units like Australia retail franchise operations, Australia wholesale inbound, Australia travel management, New Zealand. Impairment Testing Procedure applied by Jetset travel world Ltd Assets to be impaired are recorded at a value that is the difference between the cost of acquisition and the fair value of the assets. For the purpose of impairment, the Company allocates Goodwill and other intangibles to the cash generating units which are regularly assessed after any business combination and mergers. The test of impairment on Goodwill was performed on previous CGUs which identified no impairment for the year 2017; however after allocation to the new unit had reflected a significant amount of impairment (Annual report of Jetset travel world Ltd, 2017). In addition to the qualitative assessment, the Group also conducts sensitivity analysis which determined that with a change in the CGUs, there was no significant impact on the assumptions and estimations in the impairment test. The Unrealized gains assets of the Group or any of its associates are reduced to the extent of the interest of the Group in the associates. The unrealized losses are also avoided unless there i s objective evidence provided by the transaction of the impairment of the asset. Recognition of Impairment expenditures by Jetset travel world Ltd The Company has made provisions for any loss that arises on account of impairment with respect to account receivables. The provision of the same reduced to $510m in 2017 from $701 in 2016. This is because there was reduction in account receivables. The total expenditure of impairment of Goodwill in the year 2017 was 323423m. Assets like Franchisee systems and agent networks were not impaired in the FY2017. The other assets impairment expenses were as follows- Supplier Agreements $545m Brand names and Trademarks $7,247m Websites software $29,549m The loss arising out of impairment is reflected in the PL account only if there is objective evidence of impairment of the asset (Annual report of Jetset travel world Ltd, 2017). This makes the very basis for the preparation of financial statements. Key Estimates and Assumptions of Impairment Testing There have been key estimations and assumption made with respect to the recoverable amount. For the purpose of calculating goodwill, the major assumptions have been made regarding the cash flow forecasts for 2018 comprising of the projections regarding revenue and cost associated with goodwill (Annual report of Jetset travel world Ltd, 2017). The EBITDA growth has also been estimated with a growth of 5%. The long terms growth has been assumed to be 2.5%. The impairment procedure also estimated the discount rates of various franchise systems. Subjectivity in Impairment Test Procedure The Accounting Standard for impairment testing has provided norms regarding substantial subjectivity involved in the process of impairment testing of goodwill. The management of the Company has exploited their discretion regarding testing the goodwill for impairment (Bepari, Rahman and Mollik, 2014). The company has employed a high degree of subjectivity while testing for impairment while allocating the intangible to the cash generating units and the estimation of recoverable amount and fair value of the asset. This subjectivity impacts the testing procedure to a great extent since the same asset is valued differently by different managers because the recoverable value is subjected to market forces (Carlin and Finch, 2010). This may mislead the investors and other stakeholders. Understanding the Process of Impairment Testing One interesting fact about the process of impairment testing is that the measurement of the recoverable amount to calculate fair value is based on the market factors which may be different in different countries and geographical areas. This needs a lot of discretion on the part of management. One thing confusing regarding the procedure are the indicators of impairment which are some events or happenings. These are very confusing to evaluate. It is surprising to know that the Company waits for some specific events that indicate impairment; however, the process should be well planned in advance. The intangibles acquired from beyond borders are very difficult to be measured for fair value. This is the most difficult part of impairment testing. New Insights Regarding the Impairment Procedure Some new insights gained by me while evaluating the procedure of impairment testing of Hello World is that the Company performs qualitative testing regarding the fair value of intangibles that have an indefinite life. This qualitative testing is although optional as per the provisions of AASB; The Company conducts the procedure at regular intervals to recognize the impairment loss after measuring the fair value with the carrying amount (Carlin and Finch, 2011). Thus, the adjusted carrying amount becomes the new accounting basis of the intangible asset. If the fair value is less than the carrying amount, there is no action required. However, the Company has made a positive assertion regarding the events that are considered as indications for impairment. Fair Value Measurement Fair value can be defined as a price of the asset which the buyer is ready to pay if the asset is sold on a particular day. However, the terms of sellers are also considered while deciding the fair value. The fair value also reflects the value of firms assets and liability when the financial statements of a subsidiary Company are consolidated with the Parent Company (Carlin, Finch and Laili, 2009). Fair Value is highly based on the forces of the market and the free will of both the parties to enter into a transaction. In case of fair value related to liability, it represents the amount which is to be paid to settle the liability based upon the rate prevailing in the market. Thus, fair value can also be referred to a market value of the Companys asset and liability. References Annual report of Jetset travel world Ltd. (2017) Retrieved from https://www.helloworldlimited.com.au/~/media/Helloworld%20Limited/Files/Annual%20Reports/HLO_FY17_Annual%20Report_Final.ashx . [Accessed on 29th January 2018]. Bepari, K. M. Rahman, F. S. and Mollik, T. A. (2014) "Firms' compliance with the disclosure requirements of IFRS for goodwill impairment testing: Effect of the global financial crisis and other firm characteristics", Journal of Accounting Organizational Change, Vol. 10 Issue: 1, Pp.116- 149, https://doi.org/10.1108/JAOC-02-2011-0008 Carlin, T.M. and Finch, N. (2010), Resisting compliance with IFRS goodwill accounting and reporting disclosures evidence from Australia, Journal of Accounting Organizational Change, Vol. 6 No. 2, Pp. 260-280. Carlin, T.M. and Finch, N. (2011), Goodwill impairment testing under IFRS: a false impossible shore?, Pacific Accounting Review, Vol. 23 No. 3, Pp. 368-392. Carlin, T.M., Finch, N. and Laili, N.H. (2009), Goodwill accounting in Malaysia and the transition to IFRS a compliance assessment of large first-year adopters, Journal of Financial Reporting Accounting. Vol. 7 No. 1, Pp. 75-104.