Impairment Calculator
Canada

IAS 36 impairment testing in Canada: IAS 36 as adopted in IFRS as issued by the IASB (for publicly accountable enterprises); ASPE Section 3063 Impairment of Long-Lived Assets (for private enterprises)

Canada adopted IFRS for publicly accountable enterprises in 2011. Canadian public companies, securities issuers, and certain financial institutions apply IFRS as issued by the IASB (not an EU-adopted version), which means IAS 36 applies without modification. Private enterprises can choose between IFRS and Accounting Standards for Private Enterprises (ASPE), published by the Canadian Accounting Standards Board (AcSB). Under ASPE, impairment of long-lived assets follows Section 3063, which takes a fundamentally different approach from IAS 36. Section 3063 uses a two-step model: first, test recoverability by comparing carrying amount to undiscounted future cash flows (if carrying amount exceeds undiscounted cash flows, impairment exists); second, measure the impairment loss as the excess of carrying amount over fair value. This undiscounted cash flow screening test is less conservative than IAS 36's discounted approach, meaning some assets that would be impaired under IAS 36 pass the ASPE test. Canada's economy is heavily resource-dependent. Mining, oil and gas, and forestry companies generate a large proportion of Canadian impairment testing work. These sectors face commodity price volatility, long asset lives, environmental remediation obligations, and complex regulatory environments across federal and provincial jurisdictions. The TSX and TSX Venture Exchange list more mining companies than any other exchange globally, which means Canadian auditors have deep experience with resource-sector impairment but also face recurring quality issues that CPAB has flagged year after year.

Regulatory context: Canadian Public Accountability Board (CPAB); Canadian Securities Administrators (CSA); Office of the Superintendent of Financial Institutions (OSFI) for financial institutions

CPAB has identified impairment of goodwill and long-lived assets as one of its most frequent significant inspection findings. CPAB's 2023 public report noted that impairment-related findings appeared in a material percentage of inspected files, with the most common deficiencies being insufficient challenge of management's cash flow assumptions, failure to evaluate the reasonableness of discount rates, and inadequate assessment of impairment indicators. CPAB has been particularly pointed about mining and oil and gas engagements, where it found that auditors accepted management's commodity price assumptions without comparing them to independent forecasts or forward curves. The CSA (comprising the provincial and territorial securities regulators) has addressed impairment disclosures through its continuous disclosure review programme. CSA Staff Notice 51-355 and subsequent updates have noted that issuers frequently provide insufficient IAS 36.134 disclosures, particularly around the key assumptions for CGUs with significant goodwill and the sensitivity of those assumptions. The Ontario Securities Commission (OSC), as the largest provincial regulator, has issued specific comment letters to issuers questioning their impairment assumptions and disclosure.

Practical guidance for Canada

Canadian entities derive discount rates using Canadian market inputs. The risk-free rate is based on Government of Canada bond yields, which typically sit between US Treasury and Australian ACGB yields. The equity risk premium for the Canadian market is estimated at 5.5% to 6.5%. For resource-sector CGUs, significant adjustments are needed: mining assets in remote northern locations face infrastructure, permitting, and Indigenous consultation risks that push the WACC to 10% to 15%. Oil sands projects carry different risk profiles from conventional oil extraction. Auditors should ensure the discount rate reflects the specific CGU's risk, not a generic resource-sector average. Canadian corporate planning processes vary by sector. Resource companies prepare life-of-mine or life-of-field plans that extend well beyond five years, and IAS 36.33 permits these longer forecast periods where the entity can demonstrate forecast reliability. Non-resource companies typically use three-to-five-year strategic plans. The terminal growth rate for Canadian-dollar CGUs should reflect long-term Canadian GDP growth, which the Bank of Canada projects at approximately 2.0% nominal. For resource CGUs, a terminal value based on perpetuity growth may not be appropriate: instead, model the full life of the resource and include closure costs, with no terminal value beyond the resource life.

Audit expectations

CPAB inspectors look for evidence that the audit team independently evaluated each key impairment assumption. For resource-sector engagements, CPAB expects auditors to obtain and consider independent commodity price forecasts, assess the geological basis for reserve estimates (which drive production volumes in VIU models), and evaluate closure cost provisions included in VIU cash flows. For non-resource engagements, CPAB expects the same ISA 540 rigour applied to revenue growth, margin, and discount rate assumptions that other regulators require. CPAB has noted that some firms' impairment testing procedures are overly reliant on checklists rather than substantive analytical engagement with the assumptions.

Canada-specific considerations

Canadian tax law provides several features affecting impairment testing. Capital Cost Allowance (CCA) is Canada's tax depreciation system, and the rates and classes differ from accounting depreciation. When IAS 36 requires impairment, the tax base (undepreciated CCA pool) may differ from the accounting carrying amount, creating a deferred tax adjustment under IAS 12. For mining companies, Canadian Development Expenses (CDE) and Canadian Exploration Expenses (CEE) are tax-deductible at specified rates, and these tax pools don't necessarily align with the accounting classification of E&E, development, and production assets. Canada's federal-provincial structure means that corporate tax rates vary by province (combined federal-provincial rates range from approximately 23% in Alberta to 31% in Nova Scotia). For entities with CGUs in multiple provinces, the pre-tax to post-tax discount rate conversion should reflect the specific province's tax rate, not a blended national rate. Canada also has specific environmental regulations at both federal (Impact Assessment Act) and provincial levels that can affect the timing and cost of mine closure, pipeline decommissioning, and facility remediation. These costs directly affect VIU cash flows and should be based on current regulatory requirements, not historical estimates.

Common inspection findings

Auditors accepted management's commodity price assumptions without comparing them to independent forecasts or observable forward curves (CPAB inspection 2023)

Impairment indicators in the resource sector were not adequately assessed, with auditors relying on management's assertion that no indicators existed despite commodity price declines (CPAB inspection 2022)

Discount rates were derived from prior-year models without updating for current risk-free rates and market conditions (CPAB inspection 2023)

Management's experts who prepared impairment models were not evaluated for competence and objectivity under CAS 620 (CPAB inspection 2022)

IAS 36.134 disclosures by Canadian issuers lacked quantified sensitivity analysis for CGUs with material goodwill (CSA continuous disclosure review 2023)