Impairment Calculator
South Africa

IAS 36 impairment testing in South Africa: IAS 36 as issued by the IASB (adopted without modification for entities applying IFRS); IFRS for SMEs Section 27 (for qualifying smaller entities)

South Africa applies IFRS as issued by the IASB for all entities that are required to prepare financial statements in accordance with a reporting framework. JSE-listed entities must use full IFRS. Qualifying smaller entities may apply the IFRS for SMEs standard, where Section 27 covers impairment using a simplified version of IAS 36's framework. South Africa was an early adopter of IFRS, and the Financial Reporting Standards Council (FRSC) endorses IFRS standards for local use without modification. This means IAS 36 applies exactly as the IASB published it, with no local carve-outs or additional paragraphs. South Africa's economy creates specific impairment testing challenges. The mining sector (gold, platinum, coal, manganese) generates a large volume of impairment testing work, similar to Australia and Canada. The currency environment adds complexity: the South African rand (ZAR) is a volatile emerging market currency, and many South African entities have CGUs generating revenue in USD (mining exports) or operating in other African countries with even more volatile currencies. IAS 36's requirement to match the currency of cash flows to the currency of the discount rate (per IAS 36.54) becomes operationally challenging when forward currency markets are illiquid or non-existent for certain African currencies. Load-shedding (rolling electricity blackouts by Eskom) has been a persistent impairment indicator for South African manufacturing and retail entities since 2019, reducing production capacity and increasing operating costs through generator fuel expenses.

Regulatory context: Independent Regulatory Board for Auditors (IRBA); Johannesburg Stock Exchange (JSE) Listings Requirements; Financial Sector Conduct Authority (FSCA)

The IRBA conducts inspections of registered auditors and has identified impairment testing as a recurring area of findings. The IRBA's 2023 inspection cycle report noted that impairment of goodwill and other assets featured in a significant proportion of inspection findings, with the most common deficiencies being insufficient challenge of management's cash flow projections, failure to independently assess discount rates, and inadequate consideration of South Africa-specific economic factors (load-shedding, rand depreciation, political uncertainty) in VIU models. The IRBA has also noted that some auditors apply ISA 540 procedures to impairment estimates in a formulaic way without exercising professional scepticism about whether management's model produces a reasonable outcome. The JSE's proactive monitoring of financial statements has addressed impairment disclosures. The JSE has queried listed entities about their IAS 36.134 disclosures, particularly where goodwill is material and the entity has provided limited sensitivity information. The JSE's approach involves writing to entities with specific questions about their financial reporting, and impairment testing has been one of the most frequently raised topics.

Practical guidance for South Africa

South African entities derive discount rates from local and international inputs. The risk-free rate is based on South African government bond yields (RSA bonds), which carry a significant emerging market premium over developed market bonds (typically 400 to 700 basis points above US Treasuries). The South African equity risk premium is estimated at 6.0% to 8.0%, reflecting the country's political, economic, and infrastructure risks. For mining CGUs generating USD-denominated revenue, practitioners face a choice: project cash flows in USD and discount at a USD rate, or project in ZAR (translating USD revenue at projected exchange rates) and discount at a ZAR rate. IAS 36.54 requires consistency between the currency of cash flows and the discount rate. Using ZAR cash flows with a USD discount rate (or vice versa) is a common error. South African companies prepare budgets and strategic plans that form the IAS 36.33(a) basis for VIU projections. The terminal growth rate should reflect South African economic conditions: the South African Reserve Bank (SARB) targets inflation at 3% to 6%, and real GDP growth has averaged approximately 1.0% to 1.5% over the past decade. A terminal growth rate of 4% to 6% nominal (reflecting ZAR inflation) is typical for ZAR-denominated VIU models. For USD-denominated models, the terminal growth should reflect USD inflation and global market conditions, typically 2.0% to 2.5%.

Audit expectations

IRBA inspectors expect auditors to demonstrate that they considered South Africa-specific economic factors in their impairment assessment. This includes the impact of load-shedding on production-dependent CGUs, the effect of rand volatility on entities with foreign-currency revenue or costs, and the political and regulatory environment (BEE compliance requirements, mining charter obligations, land reform discussions). For mining engagements, the IRBA expects auditors to engage with mining engineers and geologists when evaluating reserve estimates that drive production volumes in VIU models. The IRBA has noted that some firms' quality management systems do not adequately ensure that specialists are involved in complex impairment testing procedures.

South Africa-specific considerations

South African tax law provides capital allowances under the Income Tax Act (Section 12C for manufacturing assets, Section 36 for mining capital expenditure) that often differ from accounting depreciation. When IAS 36 requires impairment, the tax base (reflecting accelerated capital allowances) may already be below the accounting carrying amount, reducing the deferred tax impact. For mining entities, Section 36 allows deduction of capital expenditure on mines, which creates specific tax base calculations for mining assets. Broad-Based Black Economic Empowerment (B-BBEE) compliance affects impairment testing indirectly. Entities that fail to maintain their B-BBEE rating may lose government contracts or face procurement restrictions, which reduces expected cash flows. For CGUs dependent on government contracts or public sector clients, the VIU model should reflect the entity's current and projected B-BBEE compliance status. Mining charter requirements (minimum ownership thresholds, procurement targets, community development obligations) similarly affect mining CGU cash flows through compliance costs and potential revenue restrictions. South Africa's exchange control regulations (administered by the SARB) restrict the movement of capital out of the country. For foreign-owned South African subsidiaries, this can affect FVLCOD calculations if the disposal proceeds cannot be freely repatriated. The FVLCOD should reflect the net amount realisable by the parent, which may be reduced by exchange control constraints.

Common inspection findings

Auditors did not consider the impact of load-shedding on VIU cash flow projections for manufacturing and mining CGUs (IRBA inspection 2023)

Discount rates were derived using developed-market risk-free rates without adding an appropriate South African country risk premium (IRBA inspection 2022)

Currency mismatch between cash flow projections (in USD) and discount rates (in ZAR) in mining impairment models (IRBA inspection 2023)

Mining reserve estimates used in VIU models were not corroborated by the auditor through engagement with geological specialists (IRBA inspection 2022)

IAS 36.134 sensitivity disclosures by JSE-listed entities failed to quantify the headroom or the specific assumption change that would trigger impairment (JSE proactive monitoring 2023)