1.13 The parent's 2025 impairments of [subsidiary] and [subsidiary]: a 'risk' basis just rejected for [subsidiary], and a sensitivity statement that cannot hold for an investment written down to recoverable amount
UK Company C · an AIM-quoted scientific instruments group · Regulator-style question
In brief
In 2025 the parent company impaired its investments in [subsidiary] ([amount], to nil) and [subsidiary] ([amount] of [amount]). The Chief Financial Officer says the [subsidiary] charge '[wording masked]', while the same report reverses the 2024 [subsidiary] impairment because stress testing was 'too prudent'. Note 5 then says a 1% rise in discount rates or a 1% cut in growth would need no further impairment, which cannot be so for [subsidiary] if the sentence covers it and its recoverable amount is value in use, since it now equals the carrying amount. The note gives neither the recoverable amount nor the basis.
The evidence, as filed
Screenshot withheld to protect the company’s identity: Annual Report 2025, page 104; Annual Report 2024, page 103; Annual Report 2025, page 20; Annual Report 2025, page 100. 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 5: impairments [n] ([subsidiary]) and [n] ([subsidiary]), total [n]; '[wording masked]'; no recoverable amount or basis. Chief Financial Officer: [subsidiary] charge '[wording masked]'; 2024 [subsidiary] charge reversed because '[wording masked]'. | What the rule requires Each 2025 charge measured on the best-estimate recoverable amount, with the basis (value in use or fair value less costs of disposal) and the recoverable amount stated, and a sensitivity statement consistent with an investment already written down to that amount. |
What we checked: Parent company note 5 and balance sheet, the Chief Financial Officer's report (both years) and the key audit matter on parent investments.
The rule
IAS 36 paragraph 33(a)
Version relied on: UK-adopted international accounting standards (UK Endorsement Board), as in force for financial years beginning in or after January 2025
Cash flow projections for value in use must rest on reasonable and supportable assumptions reflecting management's best estimate of conditions over the asset's remaining life.
IAS 36 paragraph 130(e)
Version relied on: UK-adopted international accounting standards (UK Endorsement Board), as in force for financial years beginning in or after January 2025
For an impaired asset or unit, the accounts must give its recoverable amount and say whether that is fair value less costs of disposal or value in use.
Why it applies here: (1) IAS 36 paragraph 33(a) requires value in use to rest on management's best estimate; a charge that 'reflects the risk' of a slower recovery reads as a risk-weighted or stress outcome, the approach the company has just treated as an error for 2024, so the two years may not be on the same basis.
Why it matters
If the 2025 charges were measured on a downside scenario, the parent's profit, net assets and realised reserves for 2025 are understated on the same reasoning that led the company to restate 2024; if the basis is a multiple, the sensitivity sentence describes tests that do not affect it.
What the regulator has said on this point
The FRC's Annual Review of Corporate Reporting 2024/25 has a section on the recoverability of investments in subsidiaries in parent company accounts, alongside its expectation of key assumptions and sensitivities for impairment.
Source: Annual Review of Corporate Reporting 2024/25, annual review, 2025
Exposure
A question for the company; the regulator has already enquired into the parent's investment impairment, so a clear answer in the next report is in the company's interest.
Our workings
note 5 records an impairment of [n] in 2025 ('[subsidiary] and [subsidiary] for which impairments of [amounts] were recorded') and says the company considered a 1% rise in discount rates and 1% falls in short-term and long-term growth, none of which '[wording masked] Chief Financial Officer's report says [subsidiary] was written down fully and [subsidiary] by [n] of a [n] investment, a 'small impairment' that '[wording masked]'. The same report reverses the 2024 [subsidiary] impairment of [n] on the ground that '[wording masked] the 2024 report shows that charge came from stress scenarios after the base case showed headroom. Parent profit for 2025 is [n] after these charges.
[n] + [n] = [n]; [n] - [n] = [n]; [n] / [n] = [n]% of the [subsidiary] investment; [n] + [n] = [n] parent profit before the charges.
(2) After an impairment the carrying amount equals the recoverable amount; if [subsidiary]'s recoverable amount is value in use, a 1% rise in the discount rate must lower it below the new carrying amount, so the sentence that no further impairment would arise cannot be right unless the recoverable amount is fair value on an earnings multiple (which a discount-rate change would not move). The note does not say which basis was used or what the recoverable amount is (IAS 36 paragraph 130(e)). These are put as questions because the basis is not disclosed.
| Item | Computation | Result |
|---|---|---|
| 2025 parent impairments | [n] + [n] = [n] | [n] |
| [subsidiary] investment after the charge | [n] - [n] = [n] | [n] |
| [subsidiary] charge as share of the investment | [n] / [n] = [n]% | [n]% |
| Parent profit before the charges | [n] + [n] = [n] | [n] |
| Logic test of the sensitivity sentence | carrying amount after charge = recoverable amount; value in use falls if the discount rate rises 1% | further impairment unless the basis is a multiple |
Management’s best defence, and our reply
The finance team will say the 2025 charges rest on the best-estimate value in use (or on a fair value from an earnings multiple) and that 'reflects the risk' [wording masked] is plain-English commentary, not a description of the measurement. If the recoverable amount was a multiple-based fair value, a change in discount or growth rates would indeed not move it, and the sensitivity sentence would be accurate for the method used. That reading is tenable, which is why the point is a question: the note does not disclose the basis or the recoverable amount, and the language used for 2025 echoes the stress-test language the company has just disowned for 2024.
The fix
- State in note 5 for each impaired investment the recoverable amount and its basis, confirm that it rests on the best-estimate forecast, and give a sensitivity statement that fits that basis (for example 'a 1% rise in the discount rate would increase the [subsidiary] impairment by £xm').
Question for the company
On what basis (value in use or fair value less costs of disposal) were the 2025 recoverable amounts of the [subsidiary] and [subsidiary] investments determined, and what were they? Was the [amount] [subsidiary] charge measured on the best-estimate forecast or on a downside scenario, given that the 2024 [subsidiary] charge was reversed for having been measured on stress tests? How can a 1% rise in the discount rate require no further impairment of an investment just written down to its recoverable amount?
Evidence relied on
| # | What it shows | Type | Where |
|---|---|---|---|
| 1 | 2025 parent impairments [n] and [n] | Document | Annual Report 2025, page 104 |
| 2 | Total 2025 charge [n] | Document | Annual Report 2025, page 104 |
| 3 | Sensitivity statement for 1% changes in discount and growth rates | Document | Annual Report 2025, page 104 |
| 4 | [subsidiary] investment [n] before the charge | Document | Annual Report 2025, page 20 |
| 5 | The [subsidiary] charge is described as reflecting a risk | Document | Annual Report 2025, page 20 |
| 6 | Same report rejects the stress-test basis for the 2024 [subsidiary] charge | Document | Annual Report 2025, page 20 |
| 7 | Parent profit [n] after the charges | Document | Annual Report 2025, page 100 |
| 8 | The 2024 parent note gave the carrying amount after impairment (the recoverable amount), which the 2025 note no longer gives for [subsidiary] and [subsidiary] | Document | Annual Report 2024, page 103 |
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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