Impairment Calculator
UAE

IAS 36 impairment testing in UAE: IFRS as issued by the IASB (mandatory for all entities since 2015 under UAE Federal Law)

The UAE mandated IFRS for all commercial entities through Federal Decree-Law No. 32 of 2021 on Commercial Companies (and earlier requirements for listed entities). All entities listed on the Abu Dhabi Securities Exchange (ADX) and the Dubai Financial Market (DFM) must apply IFRS as issued by the IASB, including IAS 36 without modification. Entities in the Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM) free zones also apply full IFRS. This universal adoption means IAS 36 applies across the UAE economy, from large oil and gas entities to mid-market trading companies and real estate developers. The UAE economy creates distinctive impairment testing conditions. Oil and gas assets (Abu Dhabi in particular) face the same commodity-price-driven impairment considerations as other resource economies. Real estate development (especially in Dubai and, increasingly, Abu Dhabi and Ras Al Khaimah) follows boom-and-bust cycles that create frequent impairment indicators for development projects and completed property assets. The UAE's zero-tax environment (with the introduction of corporate tax at 9% from June 2023 for qualifying income above AED 375,000) has a direct effect on impairment testing: historically, the pre-tax and post-tax discount rates were identical because there was no corporate tax. The introduction of the 9% rate changes this calculation from 2023 onwards, and entities and auditors must update their models accordingly.

Regulatory context: Securities and Commodities Authority (SCA); Ministry of Economy; Dubai Financial Services Authority (DFSA) for DIFC entities; Abu Dhabi Global Market (ADGM) Financial Services Regulatory Authority

The SCA has issued regulations requiring listed entities to comply with IFRS and has conducted reviews of financial statements. The SCA's focus has included the quality of impairment disclosures, particularly for real estate and investment companies that hold significant goodwill and intangible assets. The SCA has been building its enforcement capacity and has issued queries to listed entities about their impairment testing assumptions and disclosures. The DFSA and ADGM regulators apply international standards to entities within their free zones and have referenced IOSCO guidance on impairment testing expectations. The UAE's audit profession is overseen through licensing by the Ministry of Economy, with the International Federation of Accountants (IFAC) and regional bodies (the UAE Accountants and Auditors Association, UAAA) playing supportive roles. Audit quality varies more widely in the UAE than in mature markets, with a mix of Big Four firms, mid-tier international networks, and local practices. The SCA has expressed concern about audit quality for listed entities and has taken steps to strengthen oversight. For impairment testing specifically, the challenge is ensuring that all firms (not just the large networks) apply ISA 540 with sufficient rigour when evaluating management's VIU models.

Practical guidance for UAE

UAE entities derive discount rates using inputs that reflect the UAE's specific economic position. The risk-free rate is typically based on UAE government bond yields (or US Treasury yields, given the AED's peg to the USD at a fixed rate of 3.6725 AED per USD since 1997). The USD peg means UAE interest rates closely track US rates. The equity risk premium for the UAE is estimated at 5.5% to 7.5%, reflecting emerging market factors offset by the country's strong sovereign wealth position. For real estate CGUs, property-sector yields provide observable discount rate inputs. Dubai real estate yields have historically ranged from 5% to 8% depending on property type and location. The introduction of corporate tax changes the discount rate calculation. Before June 2023, there was no corporate tax, so pre-tax and post-tax rates were identical. From June 2023, the 9% corporate tax rate applies to taxable income above AED 375,000. Entities must now convert post-tax WACC to pre-tax under IAS 36.55 using the iterative approach in IAS 36.BCZ85. The relatively low 9% rate means the adjustment is modest (typically 30 to 80 basis points), but it must be made correctly. Free zone entities that qualify for 0% tax treatment under the corporate tax regime should use a 0% tax rate in their conversion.

Audit expectations

The SCA expects auditors of listed entities to apply ISA 540 to impairment testing estimates with full rigour. For real estate companies (which constitute a large portion of UAE listed entities), the SCA looks for evidence that auditors challenged development cost projections, sales assumptions, and completion timelines. For entities with goodwill from acquisitions in the GCC region, the SCA expects auditors to assess whether CGU structures have been updated to reflect post-acquisition restructuring. The DFSA and ADGM regulators apply international audit inspection standards and expect the same quality as mature European markets.

UAE-specific considerations

The UAE's corporate tax regime, introduced by Federal Decree-Law No. 47 of 2022, fundamentally changed the impairment testing environment. Before June 2023, there was no deferred tax consideration because there was no income tax. From June 2023, entities must recognise deferred tax under IAS 12 on temporary differences between accounting and tax bases. For goodwill, the corporate tax law and implementing decisions determine whether goodwill is amortisable for tax purposes and whether impairment is deductible. Auditors should verify the entity's tax treatment of goodwill with reference to the specific implementing regulations. The UAE's real estate market has specific features affecting impairment. Off-plan sales (selling units before construction completion) create revenue recognition and asset measurement issues. For development projects under construction, the carrying amount includes capitalised development costs, and VIU should reflect the expected sales proceeds net of remaining construction costs. The Dubai Land Department's registration data and the Abu Dhabi Department of Municipalities and Transport's valuation data provide observable market inputs for FVLCOD calculations. The prevalence of master-developer and sub-developer structures means that some development CGUs' cash flows depend on infrastructure delivery by the master developer, adding a risk factor that the discount rate or cash flow projections should reflect. UAE labour law and the sponsorship (visa) system affect operational costs in VIU models. Changes to labour regulations (such as the 2022 reforms introducing fixed-term contracts and expanded worker protections) can affect cost projections. For entities heavily reliant on expatriate labour (which describes most UAE businesses), any change to visa policy or labour costs directly affects VIU cash flows.

Common inspection findings

Discount rates were not updated to reflect the introduction of UAE corporate tax, with entities continuing to use rates that assumed a zero-tax environment (SCA review 2024)

Real estate VIU models used sales rate assumptions that exceeded observable market transaction volumes without documented justification (SCA review 2023)

CGU structures for conglomerate groups had not been updated to reflect post-acquisition restructuring of operating divisions (SCA review 2023)

Auditors accepted management's impairment models without independently assessing discount rate inputs or challenging growth rate assumptions (DFSA inspection 2023)

IAS 36.134 disclosures by UAE listed entities lacked quantified sensitivity analysis, with many entities disclosing only the discount rate and growth rate without headroom information (SCA review 2024)