Impairment Test and Valuation Allowance
What
Impairment Test: Economic financial study to determine whether the cash generation forecast of an asset is sufficient to support the its invested capital and accounting value registered in the balance sheet. This study has to be performed for auditing purposes, according to the Brazilian (defined by Comitê de Pronunciamentos Contábeis - CPC) and international (defined by Financial Accounting Standards Board - FASB, for USA, and International Accounting Standards Board - IASB for other countries) accounting standards.
Valuation Allowance: Economic financial study to determine whether the forecasted income of the company is sufficient to support the accounting deferred taxes registered in the balance sheet. This service is in compliance with the requirements of the instruction N° 371 of CVM.
When
Impairment Test: When there is fixed and/or intangible assets in the balance sheet which are subject to be periodically tested for impairment, according to the requirements defined by the accounting standards CPC-01, IAS 36 (do IFRS) and ASC 350/SFAS 141 (of US GAAP).
Valuation Allowance: When there is an deferred income tax balance registered in the balance sheet that must be supported for auditing purposes.
How
Impairment Test: Asset’s cash flow generation is projected to verify whether the value is higher or lower than the respective invested capital registered in the balance sheet.
Valuation Allowance: Company’s net profit to verify if it is sufficient to allow the realization of the respective accounting balances.
Format
Spreadsheet, presentation, memorandum or extensive report, according to the company’s and/or auditor’s needs.
CPC: Comite de Pronuciamentos Contábeis, Brazilian body that regulates the accounting practices in Brazil.
IFRS: International Financial Reporting Standards. Accounting standards defined by International Accounting Standards Board - IASB.
US GAAP: United States Generally Accepted Accounting Principles. Accounting standards defined by Financial Accounting Standards Board - FASB, applicable to USA.