Testing intangible asset impairment indicators means working through a defined set of internal and external triggers — obsolescence, a drop in actual or forecast performance against the business case that justified the asset, adverse market or regulatory change, and an increase in the discount rate used for similar assets — and documenting a conclusion on each one. Where none of the indicators are present, that absence is itself the audit evidence; a full recoverable-amount calculation is only required when an indicator is actually triggered, or for assets with an indefinite life or not yet available for use, which require an annual test regardless of indicators.
Why the indicator step is not optional paperwork
Skipping straight to asking whether an asset is impaired, without first working through the indicators, tends to produce one of two failures: a full impairment model built every year for an asset that never needed one, or a genuinely impaired asset missed because nobody looked for the trigger that should have prompted the test.
The testing sequence
- 01Identify which intangibles require an annual test regardless of indicatorsIndefinite-life intangibles and intangibles not yet available for use are tested every year whether or not an indicator exists. Separate these from the rest of the register before doing anything else.
- 02Work through the external indicators for every remaining assetA significant decline in market value beyond normal use, adverse changes in the technological, market, legal or economic environment, and an increase in market interest rates affecting the discount rate used in value-in-use calculations.
- 03Work through the internal indicatorsEvidence of obsolescence or physical damage (for assets with a physical component), a significant change in how the asset is used or expected to be used, and evidence from internal reporting that the asset's economic performance is or will be worse than expected.
- 04Compare actual performance to the original business case for acquired or internally generated intangiblesWhere the asset was acquired or capitalised on the strength of a specific projection — a customer list, a software product, a licence — compare actual revenue or cost outcomes to that projection for a direct, evidence-based indicator.
- 05Where an indicator is triggered, obtain the recoverable amount calculationHigher of fair value less costs of disposal and value in use, tested with the same rigour applied to any discounted cash flow estimate: cash flow assumptions, growth rate, discount rate and terminal value.
- 06Where no indicator is triggered, document the basis for that conclusion asset by assetA blanket statement that 'no impairment indicators were identified' for the whole register, without evidence the indicators were actually worked through for each material asset, does not support the conclusion.
| Indicator category | Conclusion | Evidence |
|---|---|---|
| External — market, technology, legal, economic | Triggered / not triggered | Industry data, regulatory change tracker, discount rate movement |
| Internal — obsolescence, usage change | Triggered / not triggered | Usage reports, management discussion |
| Internal — performance vs. business case | Triggered / not triggered | Actual vs. budgeted revenue or cost for the asset |
| Mandatory annual test (indefinite life / not yet in use) | Full test performed | Recoverable amount calculation, independent of indicator status |
Regulatory requirement
Ind AS 36 sets out the minimum list of indicators and the requirement for an annual test for indefinite-life intangibles and for intangibles not yet available for use, irrespective of whether an indicator exists. Verify the current text before concluding.
How we think about this
Comparing actual performance to a stated business case, or checking a discount rate against market data, is a mechanical comparison that should be done for every asset on the register, not a sample. Deciding whether a performance shortfall is significant enough to count as a trigger, and what cash flow assumptions a recoverable-amount model should use, stays a judgement for the auditor to make and justify in the file.
This is practical guidance written for audit teams, not an authoritative statement of any standard or statute. Standards, forms and timelines change. Check the current text issued by the ICAI and the relevant authority before relying on anything here in an audit file.
Related resources
- Fixed assets & capexInd AS 38: intangible assets, and why most internally generated ones never make the balance sheetResearch is always expensed. Development can be capitalised, but only once six specific conditions are all met — a much stricter bar than it sounds.
- Fixed assets & capexImpairment testing for fixed assets: a practical approachThe impairment indicators that actually matter for a mid-market client, when a formal test is genuinely warranted, and how to test management's recoverable amount workings.
- Audit workflow & automationSA 540: auditing accounting estimates, where judgment replaces a verifiable numberAn estimate can't be vouched to a source document the way an invoice can. SA 540 is about what replaces vouching when there's no single right answer to check against.
- Fixed assets & capexFixed asset register audit: completeness and accuracy checksWhat a fixed asset register must contain, how to tie it to the general ledger, and the gaps that quietly survive year after year if nobody checks for them.
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