I Am Not Feeling It. Two Takeaways From Big Impairments. Why A Retrospective Restatement of Management-defined Performance Measures Makes Sense From Business Perspective. These Are The Primary Statements According to IFRS 18.
Dear reader,
there was a guy back at my old job. He would pop up almost daily at my desk to discuss the accounting treatment of a business case that had just landed on his controller desk. He was single and handsome. Me? Single and a little confused.
We would gossip a little during our meetings, but the main part was still dedicated to accounting and fair numbers in financials.
A year into those meetings, my confusion grew. The guy started to live rent-free in my head. Shy as I am, I asked him for a date.
"Uhm, you seem to be interested in more than work talks, right?"
"What do you mean?"
"Like, you and me...?"
He laughed. "Noooo, I'm not feeling it. With you, it's just work and good talks."
I'm not gonna lie—it hit my ego hard. Yet, after a while, I felt a weight lifting off my shoulders. There was nothing to spin tales about. We had a clear table. Priceless.
I'm sharing this story of mine for two reasons—and they apply to accounting, too.
Firstly, ask the question. Save yourself time and energy and ask about the thing you're unsure about and which doesn't let you sleep peacefully.
Secondly, reassess the story. Do you have a solid ground or a fact supporting your thinking, or is it just a story you let yourself believe in?
The story of management-defined performance measures (MPMs) tends to be told for years. However, when current MPMs no longer fit the narrative, a company may want to change them.
IFRS 18 Presentation and Disclosure in Financial Statements—paragraphs 124 and 125—sets up the principles concerning the change of a management-defined performance measure (MPM), such as addition or cessation of use.
A retrospective approach, i.e., a restatement of MPMs in case of change, makes sense business-wise, even though this change does not constitute an error or a change of accounting policy (par. 124(c) of IFRS 18).
Some perceive a change of an MPM as a lack of consistency and possibly a warning sign.
Detailed disclosure, including the explanation of a reason in accordance with paragraph 124 of IFRS 18, ensures transparency in public communication of an entity. Entities may apply IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (paragraphs 50-53) to determine if the restatement is impracticable, for example, due to lack of past data.
Tip: Any change of an MPM shall be planned and prepared well ahead. Comprehensive disclosure of the restated comparatives will enable entities to retain the confidence and trust of the public.
The scale - aka Cash Generating Unit - matters. Selecting a cash generating unit is one of the key decisions for impairment testing. A Cash Generating Unit (CGU) is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Have a CGU too large, and hard-working divisions will cover up for low performers, making it hard to detect a drop in value. Make it too small, and you're not seeing the forest for the trees—picking up fish way too small and possibly overlooking a large, structural issue.
If you have a problem, you have a problem (and time will not heal it). A serious accounting error at the British software company Autonomy was discovered by their acquirer, HP, only after the acquisition in 2011. The acquisition price of $11.1bn was promptly shaved-off by $8.8bn just one year later. British American Tobacco recorded a record impairment of £23.7 bn in 2024 resulting from the combination of regulatory issues and legal claims concerning harm caused by their products, adding up over decades. Credit Suisse communicated an "expected" impairment of at least CHF 2.9 billion related to efficiency measures such as restructuring, impairment of real estate, and software for the period of 2022-2024. Credit Suisse was taken over by UBS in a state-orchestrated acquisition ("Too Big to Fail") in 2023.
The lesson? Spot it, admit it, and try to turn it around before it's too late. If done properly, impairment testing is an important thermometer for any entity.
Cons of the impairment model: lengthy, complex, requires a lot of predictive information, and becomes obsolete fast.
The February 2026 agenda contains 6 topics. I've selected 3 showing interesting progress:
Financial Instruments with Characteristics of Equity: These are financial instruments having characteristics of both debt and equity. Their classification is increasingly difficult, impacting their presentation in both the statement of financial position and statement of financial performance. The Exposure Draft was aimed at clarification of the classification for these instruments. The current stage concerning classification of derivatives on own equity (when entities apply the fixed-for-fixed condition) is in line with the proposals in the Exposure Draft published in 2023 and contains only minor improvements and refinements.
Amortised Cost Measurement: Targets clarification of what constitutes a 'modification' of financial instruments and determining when a modification of financial assets results in derecognition.
Equity Method: Impairment indicators of an investment as defined in IAS 28 Investments in Associates and Joint Ventures shall be retained.
The link for an overview of the current status concerning the February Meeting of the IASB:
[IFRS - IASB Update February 2026]
This is the set of primary financial statements in accordance with IFRS 18 (the Statement of Other Comprehensive Income is included):
What is the one question you might have dreaded asking for a long time and are going to ask anyway (in accounting or another area of your life)?
Have a great accounting week.
Best,
Barbora