1.03 [subsidiary] carries 61% of goodwill, but the note gives no basis, discount rate or fair-value inputs for it, and says it relies on value in use while the parent note relies on fair value
UK Company C · an AIM-quoted scientific instruments group · Compliance or disclosure gap
In brief
[subsidiary]'s [amount] of goodwill is 61% of the group total, so IAS 36 paragraph 134 requires its own disclosures: the basis of the recoverable amount, the key assumptions and the discount rate (value in use), or the technique, key assumptions and fair-value level (fair value less costs of disposal). Both years give only group-wide ranges. In 2025 note [n] still says goodwill is tested by reference to value in use, yet the parent company note explains the reversal of its [subsidiary] impairment by a higher fair value less costs to sell, and the auditor says fair value was used for some units. Note 2 also refers to 'sensitivity analyses' in notes [n] and [n], but note [n] gives only a one-paragraph conclusion with no sensitivity figures.
The evidence, as filed
Further pages withheld to protect the company’s identity (six): Annual Report 2025, page 82; Annual Report 2024, page 80; Annual Report 2024, page 81; Annual Report 2025, page 104; Annual Report 2025, page 61; Annual Report 2025, page 71. 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.
Names, figures, dates, logos and any wording that could be searched back to the company are boxed out in grey; the point is highlighted in yellow.
What the report shows, and what the rule requires
| What the annual report shows | What the rule requires |
|---|---|
| What the annual report shows Note 13: [subsidiary] goodwill [n] of [n] (2024: [n] of [n]); basis stated as value in use for all units; one pre-tax discount-rate range ([n]%-[n]%; 2024: [n]%-[n]%) and, for unnamed units on fair value, an EBIT multiple of 11-13 times; a one-sentence 'no reasonably possible change' statement; no sensitivity figures. | What the rule requires For [subsidiary]: the basis actually used (value in use or fair value less costs of disposal); if value in use, its own discount rate and key assumptions; if fair value, the technique, the maintainable earnings and multiple, and the fair-value level; and, if a reasonably possible change would remove the headroom, the headroom and break-even values. Note 2 should not refer to sensitivity analyses that are not given. |
What we checked: Notes 2, 13 and 14 of both reports, the parent company investment note, the key audit matter and the Chief Financial Officer's reports, against the IAS 36 paragraph 134 list.
The rule
IAS 36 paragraph 134 (opening words, applying items (a)-(f))
Version relied on: UK-adopted international accounting standards (UK Endorsement Board), as in force for financial years beginning in or after January 2025
For each unit with significant goodwill or indefinite-life intangibles, the accounts must give the listed impairment-test information (carrying amounts, basis of recoverable amount, key assumptions and sensitivities).
IAS 36 paragraph 134(e)(iiA)
Version relied on: UK-adopted international accounting standards (UK Endorsement Board), as in force for financial years beginning in or after January 2025
Where recoverable amount is based on fair value less costs of disposal, the accounts must state the level of the fair value hierarchy in which that measurement falls.
Why it applies here: the group-wide range does not tell the reader which rate was applied to [subsidiary]; and in 2025 the reader cannot tell whether [subsidiary]'s recoverable amount was value in use (as note [n] says) or fair value (as the parent note implies for the same business), and if fair value, none of the paragraph 134(e) items is given.
Why it matters
- The largest goodwill balance is tested on a basis the notes do not identify, so readers cannot assess how close [subsidiary] is to impairment.
The largest goodwill balance, on which the parent company has already booked and reversed an [amount] impairment, is tested on a basis the notes do not identify, with no unit rate, inputs or headroom; readers cannot assess how close [subsidiary] is to impairment.
Exposure
A Financial Reporting Council enquiry on IAS 36 disclosures; the regulator has already asked about the [subsidiary] investment impairment.
Our workings
in both years note [n] says [amount] of goodwill relates to [subsidiary] and that goodwill 'is [wording masked] unit, aggregated for disclosure into the two segments. It gives one range of pre-tax discount rates for all nineteen units and, from 2025, adds '[wording masked]', with a range of 11-13 times, without naming the units. The parent company note says the 2024 [subsidiary] investment impairment was reversed because the recoverable amount '[wording masked]'; the auditor's key audit matter describes [wording masked] built on 'maintainable EBITDA' and an EBITDA multiple. Note 2 says [wording masked] in notes [n] and [n]; the 2024 report said only 'Further [wording masked] [n]'.
[n] / [n] = 61% of 2025 goodwill and [n] / [n] = 58% of 2024 goodwill, so [subsidiary] is significant on any reading of paragraph 134. Law: paragraph 134 requires items (a)-(f) for each unit whose goodwill is significant: (c) the basis, (d)(i)-(v) for value in use including the discount rate applied, (e)(i)-(iiB) for fair value less costs of disposal including the level in the fair-value hierarchy, and (f) the headroom figures where a reasonably possible change would cause impairment. Paragraph [n] allows aggregation only for units whose goodwill is not significant.
The 'EBIT' multiple in note [n] and the 'EBITDA' multiple in the auditor's report also differ. The matrix is in the workings.
| IAS 36 paragraph 134 item ([subsidiary]) | 2025 report | 2024 report | Status |
|---|---|---|---|
| (a) goodwill allocated | [n] | [n] | Given |
| Share of total goodwill | [n] / [n] = 61% | [n] / [n] = 58% | Significant |
| (c) basis of recoverable amount | value in use stated; parent note relies on fair value for [subsidiary] | value in use | Partial / contradictory (2025) |
| (d)(v) discount rate applied to the unit | range [n]%-[n]% for all units | range [n]%-[n]% | Partial (both years) |
| (e) fair value: technique, key assumptions, level | 11-13 times EBIT for unnamed units; no maintainable earnings; no level | not given | Absent if fair value was used |
| (f) headroom and break-even values | statement only; note 2 promises sensitivity analyses | statement only | Conclusion only (figures required only if a reasonably possible change would cause impairment) |
Management’s best defence, and our reply
The finance team will argue that the narrow discount-rate range and a single terminal growth rate are adequate because all units operate in similar markets, that paragraph 134(f) applies only where a reasonably possible change would cause impairment and the Directors have concluded none would, and that the parent company's fair-value reasoning concerns the investment, not group goodwill. The auditor may say the group-level basis for [subsidiary] was value in use and so no fair-value disclosure is needed. However, paragraph 134 requires the discount rate 'applied' to the significant unit, not a population range; if [subsidiary]'s group test used value in use, the parent note's fair-value explanation for the same unit needs reconciling, and if it used fair value, items [n](e) are wholly missing; and the company's own note 2 says sensitivity analyses are given when they are not.
The fix
- Add a [subsidiary] paragraph to note [n]: '[subsidiary] (goodwill [amount]): recoverable amount determined on a [value in use / fair value less costs of disposal] basis; [pre-tax discount rate x% (2024: y%), medium-term growth x%, terminal growth [n]%] or [maintainable EBIT £xm at x times, Level 3]; headroom £xm; recoverable amount equals carrying amount if [assumption] moves by x'. Delete 'including sensitivity analyses' from note 2 or give them.
Evidence relied on
| # | What it shows | Type | Where |
|---|---|---|---|
| 1 | [subsidiary] goodwill [n] in 2025 | Document | Annual Report 2025, page 82 |
| 2 | Total goodwill [n] (2024: [n]) | Document | Annual Report 2025, page 81 |
| 3 | Note 13 states value in use as the basis | Document | Annual Report 2025, page 82 |
| 4 | Fair-value multiple given as a range for unnamed units | Document | Annual Report 2025, page 82 |
| 5 | One discount-rate range for all nineteen units, none for [subsidiary] alone | Document | Annual Report 2025, page 82 |
| 6 | Parent note relies on a fair-value basis for the [subsidiary] unit | Document | Annual Report 2025, page 104 |
| 7 | Auditor confirms fair value was used for some units, on an EBITDA multiple | Document | Annual Report 2025, page 61 |
| 8 | Key-estimates note promises sensitivity analyses | Document | Annual Report 2025, page 71 |
| 9 | [subsidiary] goodwill [n] in 2024, out of [n] | Document | Annual Report 2024, page 80 |
| 10 | 2024 report also gives only a group-wide range | Document | Annual Report 2024, page 81 |
Absence check
- Document
- Annual Report 2025
- Where it would appear
- [n]. Goodwill continued
- What is missing
- [subsidiary]'s own basis of recoverable amount, discount rate, fair-value technique, maintainable earnings, multiple and fair-value level, and any quantified sensitivity
- Pages looked at
- p.20, [n], 71-72, 81-82, [n]
- Result
- '[subsidiary]' hits the business review, sustainability and governance pages, p.70-71 (merger relief), [n] (goodwill amount only), [n] ([place] minority purchase), [n] and 106-107 (parent restatement and subsidiaries list): none gives a rate, basis inputs or headroom for the unit. 'discount rate' hits p.61 (auditor), 73-74 (policy), [n] (group range), [n] (leases), [n] (pension) and [n] (parent sensitivity of +1%, no base rate). 'hierarchy' hits p.30 (risk governance) and [n] (derivatives Level 2). 'headroom' hits p.20 and [n] (described, not quantified), [n] (covenants) and [n] (generic). 'multiple' hits acquisition-price wording (p.12, [n]), climate and emissions text (p.36, [n]), p.20 ('[wording masked]'), [n] and [n] (ranges, no unit named).
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.
Want this on your own annual report, before it is published?
Start with three free findings on your latest published annual report, or talk to us about a fixed-fee pre-publication review.
Your annual report will be in draft before the year-end audit.
Have it read before it is published.
Under NDA, with our reviewer on your insider list under UK MAR.