---
title: Goodwill Impairment Testing UAE | IAS 36 | Assetica
description: Independent goodwill impairment testing in the UAE under IAS 36: CGU models, pre-tax discount rates, headroom and draft disclosures. Book a scoping call.
url: https://assetica.net/services/goodwill-impairment-testing/
source: Assetica, independent business valuation firm, Dubai and the UK
---

# Goodwill Impairment Testing Services in Dubai & UAE

By [Bill Anderson](https://assetica.net/team/bill-anderson/), FCCA, Chief Executive Officer — Assetica, Dubai, UAE

**Definition:** Goodwill impairment testing is the IAS 36 check that UAE businesses reporting under full IFRS must run on acquired goodwill annually and whenever an impairment indicator arises. Goodwill is allocated to cash-generating units, and each unit's carrying amount is compared with its recoverable amount: the higher of fair value less costs of disposal and value in use. If the carrying amount is higher, the excess is an impairment loss.

## Key Takeaways
- IAS 36 requires goodwill to be tested annually, at the same time each year, and whenever an impairment indicator appears.
- Each unit holding goodwill is tested against the higher of fair value less costs of disposal and value in use.
- If a reasonably possible change in a key assumption would wipe out the headroom, IAS 36 requires disclosure of that sensitivity.
- Since UAE corporate tax took effect, pre-tax discount rates for taxable units must be re-derived, not rolled forward from older tests.
- Independent and prepared to RICS, IVS and IFRS standards, by a firm that does not broker deals or take success fees.

Assetica provides independent goodwill impairment testing for UAE groups that report under IFRS, from our office in Barsha Heights, Dubai. A write-down cuts reported profit and equity in a single charge, and auditors, lenders and buyers all read the test behind it. We map the cash-generating units, build each carrying amount on a consistent basis and set a discount rate for each unit, not the group. Every test shows the headroom and the break-even point of each key assumption, ready for the IAS 36 disclosures. We do not audit, broker deals or take success fees. We have completed over 500 valuations across 15+ countries, and every test is prepared to RICS, IVS and IFRS standards.

## When Is a Goodwill Impairment Test Required?

IAS 36 requires an annual test for goodwill acquired in a business combination, and for intangible assets with indefinite useful lives or not yet available for use. The test can run at any time in the year, provided it is at the same time every year. If goodwill arose from an acquisition in the current year, that unit must be tested before the year ends. If the goodwill allocation is not complete by then, IAS 36 allows until the end of the following year, with the unallocated amount disclosed. Between annual tests, any indicator at the reporting date calls for a fresh test, such as results well below budget, higher market interest rates or adverse market changes. In a parent's separate financial statements, investments in subsidiaries held at cost fall under IAS 36 too. UAE corporate tax rules let businesses with revenue up to AED 50 million use IFRS for SMEs. Under that standard, goodwill is amortised and tested only when an indicator exists.

## How Does an IAS 36 Goodwill Impairment Test Work?

Goodwill cannot generate cash on its own, so it is allocated to the cash-generating units expected to benefit from the synergies of the acquisition. A cash-generating unit is the smallest identifiable group of assets producing cash inflows largely independent of other assets. Goodwill sits at the lowest level at which management monitors it, and never in a unit larger than an operating segment before aggregation. The unit's carrying amount, including goodwill, is compared with its recoverable amount. IAS 36 requires the carrying amount to be built on the same basis as the recoverable amount, so working capital, leases and head office assets need consistent treatment. If the carrying amount is higher, the loss reduces goodwill first, then the unit's other assets pro rata to their carrying amounts. No asset is reduced below the highest of its own fair value less costs of disposal, value in use and zero, where these can be determined. A goodwill impairment can never be reversed later.

## Value in Use or Fair Value Less Costs of Disposal: Which Applies?

Recoverable amount is the higher of two measures, and only one is needed if it already exceeds the carrying amount. Value in use discounts the cash flows the unit should generate in its current condition, based on approved budgets. It excludes cash flows from a restructuring the entity is not yet committed to, and from improving or enhancing performance. Budget-based projections cover at most five years unless a longer period is justified. Beyond that, growth should not exceed the long-term average for the industry or country, unless a higher rate is justified. Fair value less costs of disposal takes a market participant's view instead, measured under IFRS 13. It can rest on transaction multiples, listed peer data or a market participant DCF, and can reflect a restructuring that market participants would undertake. That makes it useful for turnarounds, planned disposals and units with strong market evidence.

## How Is the Discount Rate Set for an Impairment Test?

The discount rate must reflect the time value of money and the risks specific to the unit that the cash flows do not already capture. We build a market participant weighted average cost of capital for the unit's own business, independent of how the group is financed. Cash flows are estimated in the currency they will be earned in, and discounted at a rate for that currency. With the dirham pegged to the US dollar, dollar market inputs adjusted for UAE country risk are a common starting point for AED cash flows. IAS 36 requires a pre-tax rate for value in use. The usual route is to build a post-tax rate from market data, then solve for the pre-tax rate that gives the same value. Dividing the post-tax rate by one minus the tax rate is a shortcut that is rarely exact. A 2024 IASB exposure draft proposed dropping the pre-tax requirement and the value in use exclusions, but the current rules apply until an amendment takes effect.

## How Does UAE Corporate Tax Affect Impairment Testing?

Under Federal Decree-Law No. 47 of 2022, UAE corporate tax applies at 9% on taxable income above AED 375,000, for financial years starting on or after 1 June 2023. Value in use excludes income tax cash flows, so the tax enters through the pre-tax discount rate, which now exceeds the post-tax rate. For units of large multinational groups, the 15% domestic minimum top-up tax from 2025 also feeds into that rate. A rate rolled forward from before the tax, when pre-tax and post-tax rates were the same, will tend to overstate value in use. Qualifying Free Zone Persons pay 0% on qualifying income, but assuming that status holds into the terminal value is a judgement that needs support. Where income depends on intra-group pricing, IAS 36 requires management's best estimate of arm's length prices, the principle UAE transfer pricing rules also apply. For acquisitions since the tax was enacted, deferred tax on acquired intangibles usually adds to goodwill. The carrying amount and recoverable amount must then treat tax consistently.

## What Do Auditors Challenge in an Impairment Test?

Auditors test the inputs, not just the arithmetic. Under ISA 540 (Revised), they examine the method, the significant assumptions and the data, often with their own valuation specialists. They compare past forecasts with actual results, because IAS 36 expects management to examine the causes of those differences. They check that cash flows tie to approved budgets, that terminal growth is defensible and that units match how management monitors the business. They rebuild the discount rate from its components and ask why each premium was chosen. For listed groups, they compare the total of recoverable amounts with market capitalisation. Our report answers each of those questions directly. It sets out the unit map and goodwill allocation, the carrying amount build, the bridge from history to forecast and the discount rate build-up with sources. It shows the headroom and the break-even value of each key assumption, with draft disclosure wording for each unit with significant goodwill.

## Common Goodwill Impairment Testing Mistakes

Impairment tests tend to fail on consistency rather than arithmetic. One group discount rate is applied to units with very different risks. Pre-tax cash flows are discounted at a post-tax rate, which overstates value in use. Forecasts include benefits from expansion spending not yet incurred, or from a restructuring the entity is not yet committed to. Leases are counted twice, or not at all, between the cash flows and the carrying amount. Head office costs are left out, so every unit looks healthier than the group. Goodwill is not grossed up for non-controlling interests measured at their share of net assets, although IAS 36 requires it. Deferred tax is treated one way in the carrying amount and another in the recoverable amount. Units are redrawn from one year to the next, although IAS 36 expects them to stay consistent unless a change is justified. Each of these is visible to a reviewer, and each is avoidable.

## What's Included
- Cash-generating unit mapping and goodwill allocation review
- Impairment indicator assessment at the reporting date
- Carrying amount build on the same basis as recoverable amount
- Value in use model from approved budgets
- Fair value less costs of disposal estimate where needed
- Unit-specific post-tax and pre-tax discount rates
- Headroom and break-even sensitivity analysis
- Draft IAS 36 disclosure notes and auditor query support

## Our Process

**Scoping Call:** We confirm the units, testing date and audit timetable, agree timing based on data availability, and fix the fee in writing.

**Data and Unit Review:** We review approved budgets, past forecasts against actual results, carrying amounts and the goodwill allocation, and flag unit issues before modelling begins.

**Modelling and Sensitivities:** We build the recoverable amount model and a discount rate for each unit, then test headroom against the assumptions that move the answer most.

**Report and Audit Support:** You receive the report, supporting schedules and draft disclosure notes. We then answer your auditor's questions on method and inputs.

## Further Reading
- [Valuation for Financial Reporting in the UAE: PPA, Impairment, IFRS 13](https://assetica.net/blog/valuation-financial-reporting-uae/)
- [Purchase Price Allocation Explained: How Acquisitions Are Valued Under IFRS 3](https://assetica.net/blog/purchase-price-allocation-ifrs-uae/)
- [How the 9 Per Cent Corporate Tax Changes a UAE DCF and WACC](https://assetica.net/blog/uae-corporate-tax-dcf-wacc-valuation-impact/)
- [How Do Interest Rates Affect Business Valuation in the UAE?](https://assetica.net/blog/interest-rates-business-valuation-uae/)
- [How Intangible Assets and Brands Are Valued in the UAE](https://assetica.net/blog/intangible-asset-brand-valuation-uae/)

## Frequently Asked Questions

How is goodwill tested for impairment?

Goodwill is tested by comparing the carrying amount of each cash-generating unit, including its allocated goodwill, with that unit's recoverable amount. Recoverable amount is the higher of fair value less costs of disposal and value in use. If the carrying amount is higher, the difference is an impairment loss, charged first against goodwill. IAS 36 requires the test at least once a year, at the same time each year, and whenever there is an indication of impairment.

What are the indicators of impairment under IAS 36?

IAS 36 lists external and internal indicators that require a recoverable amount estimate. External indicators include a significant fall in an asset's value, adverse changes in the market, economy, technology or law, higher market interest rates, and net assets exceeding market capitalisation. Internal indicators include obsolescence or damage, plans to restructure or discontinue an operation, assets becoming idle, and internal reporting showing performance worse than expected. The list is a minimum, so other evidence can also trigger a test.

How do you calculate an impairment loss?

An impairment loss is the carrying amount minus the recoverable amount, where the carrying amount is higher. For a cash-generating unit, the loss first reduces any goodwill allocated to it. Any remainder is spread across the unit's other assets in proportion to their carrying amounts. No asset is reduced below the highest of its own fair value less costs of disposal, value in use and zero, where these can be determined. The loss is charged to profit or loss, unless an asset is carried at a revalued amount.

Is goodwill impairment an expense?

Yes. A goodwill impairment loss is recognised as an expense in profit or loss, which lowers reported profit and equity in the period. It is a non-cash charge, but lenders may take note where covenants refer to equity or net worth. IAS 36 bars any later reversal, and IFRIC 10 applies the same rule to a loss booked in interim accounts. Whether the loss affects taxable income under UAE corporate tax is a question for your tax adviser.

How does UAE corporate tax affect a goodwill impairment test?

Corporate tax affects a value in use test through the discount rate, not the cash flows. IAS 36 excludes income tax cash flows and requires a pre-tax rate. With 9% tax on taxable income above AED 375,000, a taxable unit's pre-tax rate now sits above its post-tax rate. Rates rolled forward from before the tax will tend to overstate value in use. Free zone status, the 15% top-up tax for large multinational groups and deferred tax from acquisitions also need consistent treatment.

Does a UAE company need an independent valuer for impairment testing?

IAS 36 itself does not require an external valuer, and management remains responsible for the estimate. In practice, auditors examine material goodwill closely, and a test built by a firm with no stake in the outcome is easier to review. Assetica does not audit, broker deals or take success fees. No valuer can guarantee an auditor's conclusion, so we document every input.

How much does goodwill impairment testing cost in the UAE?

The fee depends on the scope, so Assetica does not publish a price list. The main drivers are the number of cash-generating units and whether fair value less costs of disposal is needed alongside value in use. The quality of budgets and the audit timetable also matter. We discuss these on a scoping call, then fix the fee in writing before any work starts, with no hourly billing.

When should the annual goodwill impairment test be done?

IAS 36 lets you run the annual test at any time in the year, provided it is at the same time every year. Testing before the year end, then checking for new indicators at the reporting date, eases audit pressure. Units holding goodwill from an acquisition in the current year must be tested before that year ends. Last year's detailed calculation can be carried forward only if the unit is largely unchanged, the margin was substantial and an impairment now is remote. We confirm timing on the scoping call.

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