Following its review of the responses to the consultation on the Exposure Draft of the SORP, the SORP Working Party has revised the impairment section of the proposed SORP and has issued this revised section for further consultation. The consultation closes on 4 June 2014 and necessarily delays the publication of the final SORP until September 2014 at the earliest.
Further consultation is necessary because the Working Party has radically altered its guidance in relation to the assessment of impairment of new developments and has had a change of heart to now view assets held for social benefit as being held for their “service potential” when it comes to impairment reviews (the initial draft SORP suggesting that measuring recoverable amount based on service potential would be a rare event).
Impairment of new developments
The notion of a “planned internal subsidy”, which currently does not give rise to an impairment write down, was removed from the draft SORP and many in the sector feared that impairment write downs would be the norm going forward when social rented developments moved from the construction phase to “held for letting”. The revised guidance now makes clear that where a social landlord has completed a development programme in line with appraisal plans approved by its Board there is no need to perform an impairment review on the initial recognition of the completed housing developments. These developments will be subject to impairment reviews only if there are subsequent indicators of such.
Assets held for their service potential
The revised impairment guidance makes clear that it is focussed on impairment considerations in respect of properties held for social benefit. It argues that housing properties held for social benefit are held for their service potential and not solely for the cash inflows that they generate. Thus “value in use” when considering “recoverable amount” in an impairment review, requires an alternate estimate of value. While initially rejecting “depreciated replacement cost” as that alternate in the original consultation, the revised guidance now considers it will provide an estimate of the service potential. The revised guidance also takes a practical approach so that if an impairment review is required and, as is likely, the expected cash flows of the asset are readily ascertained then if these demonstrate that there is no impairment, there would be no requirement to calculate the more complex depreciated replacement cost.
If you wish to discuss any aspect of the revised guidance please speak to your usual contact or get in touch with our housing specialists at firstname.lastname@example.org