Impairment Calculator
for Technology

IAS 36 impairment testing for Technology

Technology companies carry a distinctive asset mix for impairment purposes. Capitalised development costs under IAS 38, acquired software platforms, customer relationship intangibles, and goodwill from frequent M&A activity dominate the balance sheet. Unlike manufacturers, where assets have observable market values and predictable cash flows, technology assets derive value from projected future revenue that can shift rapidly. A platform generating EUR 10M in annual recurring revenue today could face disruption from a competitor launch or a regulatory change within 18 months. IAS 36.12(b) lists technological obsolescence as an external indicator of impairment, and in this industry, that indicator is permanently on the radar.

The technical challenge for technology companies sits in two areas: discount rates and forecast reliability. Technology-sector WACC figures typically run between 10% and 15% for mid-market companies, reflecting higher equity risk premiums than traditional industries. IAS 36.55 requires the rate to reflect risks specific to the asset, not risks already adjusted in the cash flows. This means if management has already probability-weighted their revenue scenarios (optimistic, base, pessimistic), the discount rate shouldn't double-count that revenue risk. In practice, separating "risk in the cash flows" from "risk in the rate" is one of the hardest judgments in technology impairment testing. For capitalised development costs, IAS 36.97 requires immediate impairment of any development project that no longer meets the IAS 38.57 recognition criteria. If the entity can no longer demonstrate probable future economic benefits (say, because a product launch was abandoned or a key contract fell through), the asset goes to zero without running a full VIU model.

Audit inspections reveal recurring issues with technology impairment files. The PCAOB in the US and the FRC in the UK have both noted that auditors frequently accept management's "hockey stick" revenue projections without sufficient challenge. IAS 36.33(b) requires that projections beyond the approved budget period use a steady or declining growth rate unless an increasing rate can be justified. A SaaS company projecting 30% year-on-year growth in year four of a five-year model needs strong evidence: signed pipeline, market sizing data, historical conversion rates. Without it, the auditor should build an independent expectation using lower growth assumptions and test whether impairment arises under that scenario. Another common finding involves the allocation of goodwill to CGUs. Technology companies restructure frequently, spinning out divisions or merging product lines. IAS 36.87 requires goodwill reallocation when a CGU is reorganised, and failing to do so means the annual goodwill test is performed on a stale CGU structure.

For technology CGUs, input the carrying amount including capitalised development, acquired intangibles, and allocated goodwill. Set the discount rate between 10% and 14% for European mid-market tech, adjusting upward for early-stage products and downward for mature recurring-revenue platforms. Terminal growth rates above 2.5% need strong justification given IAS 36.33(c). Run sensitivity on both the discount rate (plus 150 basis points) and the revenue growth assumption (minus 20% of projected revenue) to test headroom. If headroom disappears with modest changes, the disclosure requirements under IAS 36.134(f) become especially important.