1.02 [business unit] goodwill: the note gives the headroom and the margin fall that would remove it, but not the margin assumed
UK Company A · a UK-listed medical technology group · Compliance or disclosure gap
In brief
The 2024 report says the [business unit] cash-generating unit (CGU), carrying [amount] of goodwill, [wording masked] its trading profit margin. Note 8 gives the headroom ([amount]) and says the year 5 and terminal margin would have to fall by more than [n] basis points before an impairment arises. It never states the margin that was assumed, which IAS 36 requires as a separate item.
The evidence, as filed
Screenshot withheld to protect the company’s identity: Annual Report 2024, page 214; Annual Report 2025, page 231; Annual Report 2024, page 213; Annual Report 2024, page 212; Annual Report 2024, page 197. Their wording or layout could lead back to the company even with names and figures masked; the evidence list below records what each page shows.
What the report shows, and what the rule requires
| What the annual report shows | What the rule requires |
|---|---|
| What the annual report shows Note 8.1 gives headroom of [amount] and Note 8.5 a break-even fall of more than [n] basis points in the year 5 and terminal trading profit margin; the margin assumed is described only as '[wording masked]'. | What the rule requires Note 8.5 states the value assigned to the year 5 and terminal-period trading profit margin for the [business unit] CGU (with the 2023 figure), beside the headroom and the [n] basis point break-even change. |
The rule
IAS 36 Impairment of Assets, paragraph 134(f)(ii)
Version relied on: UK-adopted international accounting standards (UK Endorsement Board), as in force for financial years beginning in or after January 2025
Where a reasonably possible change in a key assumption would wipe out a unit's headroom, the value given to that assumption must be disclosed (with the headroom and the change needed).
Why it applies here: a user cannot tell whether a [n] basis point fall is a small or a large share of the assumed margin, so cannot judge how likely the impairment is; the disclosure the standard requires for exactly this case is incomplete.
Why it matters
- Readers cannot judge how close the [business unit] goodwill is to impairment against the margin the directors assumed, on the estimate the 2024 report itself calls critical.
- In the 2025 report every unit has enough headroom, so the point applies to any future year in which a unit is again sensitive.
Readers cannot measure how close the [business unit] goodwill is to impairment against the margin the directors assumed, on the estimate the report itself calls critical.
Exposure
No fine. The realistic consequence is an FRC Corporate Reporting Review question and an undertaking to give the value in future reports; no restatement of amounts.
Our workings
the report treats the [business unit] CGU impairment as the group's only critical accounting estimate and says the [wording masked] the projected trading profit margin (Note 1.2). Note 8 discloses the headroom ([amount], down from [amount]) and the change that would erase it (more than [n] basis points on the year 5 and terminal margin). It gives the growth rate (2%) and discount rate ([n]%) but not the margin percentage used.
No amount in the accounts is affected.
| IAS 36.134(f) item | Where in the 2024 report | Status |
|---|---|---|
| (i) amount by which recoverable amount exceeds carrying amount | Note 8.1: headroom [amount] (2023: [amount]) | Given |
| (ii) value assigned to the key assumption (trading profit margin) | Not stated in Note 8, Note 1.2, the auditor's report or the Audit Committee report | Absent |
| (iii) change in the assumption that makes recoverable amount equal carrying amount | Note 8.5: more than [n] basis points on year 5 and terminal margin | Given |
Management’s best defence, and our reply
The company would say the headroom, the [n] basis point break-even change, the key audit matter and the segment margin reported in the strategic report together give users what they need, and that a forecast five-year segment margin is commercially sensitive. It would add that the auditor said it was satisfied with the sensitivity disclosures.
The fix
- Add to Note 8.5: 'The year 5 and terminal-period trading profit margin assumed for the [business unit] CGU is [x]% (2023: [y]%); it would have to fall by more than [n] basis points before the recoverable amount equalled the carrying amount.'
Evidence relied on
| # | What it shows | Type | Where |
|---|---|---|---|
| 1 | The trading profit margin is the key assumption whose reasonably possible change could cause an impairment, so paragraph 134(f) applies | Document | Annual Report 2024, page 214 |
| 2 | Item (iii), the break-even change, is given | Document | Annual Report 2024, page 214 |
| 3 | Item (i), the headroom, is given | Document | Annual Report 2024, page 213 |
| 4 | The only description of the margin assumed: a direction, not a value | Document | Annual Report 2024, page 213 |
| 5 | The growth and discount rate values are given; the margin value is not | Document | Annual Report 2024, page 213 |
| 6 | Goodwill allocated to the [business unit] CGU at [date] and 2023 ($ million) | Document | Annual Report 2024, page 212 |
| 7 | Note 1.2 names this as the critical accounting estimate and the margin as the sensitive assumption | Document | Annual Report 2024, page 197 |
Absence check
- Document
- Annual Report 2024
- Where it would appear
- [n] [wording masked]
- What is missing
- the trading profit margin (per cent) assumed for year 5 and the terminal period of the [business unit] CGU value-in-use calculation
- Pages looked at
- p.197 (Note 1.2), 214-216 (Note 8), 134 (Audit Committee report), 183-185 (auditor's report)
- Result
- 'trading profit margin' hits the strategic report (p.2, 6, 9, [n]: actual group and segment margins for 2022-2024 and 2025 guidance, e.g. the [business unit] 2024 actual on p.40), the Audit Committee report and the auditor's key audit matter, which describe the margin as the key assumption without a value; Note 1.2 and Note 8 give no value. 'year 5' hits only p.129 (number of listening sessions) and p.214 (the break-even sentence). 'terminal period' hits only p.214. 'value assigned' has no hit. 'basis points' hits only p.214 within the notes on goodwill.
Prepared by Pramanex from the company’s published annual reports, without the company’s involvement, to show how an annual report review reads. The company is not named, and nothing on this page is a statement about any identifiable company. Observations are not an audit, review or other assurance engagement, and not legal advice. A regulator-style question is a question, not a conclusion.
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