SABMiller was formed in 2002 when South African Breweries acquired Miller Brewing Company, thereby creating one of
Question:
SABMiller was formed in 2002 when South African Breweries acquired Miller Brewing Company, thereby creating one of the world’s largest brewers. The company’s shares are listed in London and Johannesburg, and it prepares its accounts using IFRS.
SABMiller’s accounting policy on fixed asset impairment states, When the [historical cost] carrying values of fixed assets are written down by any impairment amount, the loss is recognized in the profit and loss account in the period in which incurred. Should circumstances or events change and give rise to a reversal of the previous impairment loss, the reversal is recognized in the profit and loss account in the period in which it occurs and the carrying value of the asset is increased. The increase in the carrying value of the asset will only be up to the amount that it would have been had the original impairment not occurred.
In conformity with this policy, SABMiller’s 2002 income statement contained the following items (in millions of U.S. dollars):
Required:
1. How does SABMiller’s accounting for fixed asset impairment differ from that prescribed by U.S. GAAP?
2. Should investors be concerned that a company’s management might time the reversal of impairment provisions to smooth income or achieve other financial reporting goals?
What factors would a company’s auditors consider when scrutinizing such reversals?
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