Current asset impairment

Current asset impairment refers to write-downs of short-term assets to their net realisable value when their carrying amount exceeds what the company expects to recover through their use or sale — primarily inventory obsolescence write-downs and bad debt provisions on trade receivables. Under both IFRS and Swiss GAAP, current assets must be stated at the lower of cost and net realisable value. In financial due diligence, the adequacy of existing impairment provisions is critically reviewed: under-provisioning inflates the balance sheet and overstates working capital, while over-provisioning creates hidden reserves that may be reversed to inflate future earnings.

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Example: a Swiss manufacturing company carries CHF 2.4 million of raw materials inventory, of which CHF 680,000 is identified in due diligence as slow-moving (>24 months). Industry practice suggests a 70% write-down on such stock, implying a required provision of CHF 476,000 against an existing provision of CHF 120,000. The under-provision of CHF 356,000 is restated as a working capital deduction in the completion accounts.

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Hectelion reviews current asset impairment adequacy using granular ageing and category-by-category analysis in every financial due diligence engagement.