How is goodwill tested for impairment under IFRS?

Goodwill impairment testing under IFRS is conducted at the cash-generating unit (CGU) level using a one-step test. This approach is designed to ensure that the carrying amount of the CGU, which includes goodwill, does not exceed its recoverable amount. The recoverable amount is defined as the higher of the CGU's fair value less costs of disposal and its value in use.

The one-step testing process involves comparing the carrying amount of the CGU, including goodwill, directly to its recoverable amount. If the carrying amount exceeds the recoverable amount, an impairment loss is recognized, which reduces the carrying amount of goodwill allocated to that CGU.

Working at the CGU level simplifies the impairment process and focuses on the smallest identifiable group of assets that generates cash inflows independently. This specificity allows for a more accurate valuation of goodwill, as each CGU can be assessed based on its own cash-generating capacity.

Other approaches, such as testing at a consolidated group level or assessing performance at a subsidiary level, do not align with the IFRS requirements for goodwill impairment testing, which distinctly emphasizes using the cash-generating units for a more granular and effective assessment.