Impairment in 2025: Key Insights for Australian Investors

Impairment isn’t just an accounting buzzword—it’s a financial reality that shapes the bottom line for businesses and investors alike. As Australian regulations continue to evolve in 2025, understanding impairment is more critical than ever for anyone invested in shares, property, or business assets. Let’s unpack what impairment means, how it’s measured, and why it matters for your financial future.

What Is Impairment? Why Does It Matter?

Impairment occurs when an asset’s carrying value on the balance sheet exceeds its recoverable amount—essentially, when something is worth less than what the books say. This can happen due to market downturns, regulatory changes, obsolescence, or shifts in consumer demand.

• For investors: Impairment charges can signal trouble ahead, often foreshadowing lower profits or shrinking asset values.

• For companies: Reporting an impairment can affect share prices, credit ratings, and even executive bonuses.

In 2025, the Australian Accounting Standards Board (AASB) continues to align with International Financial Reporting Standards (IFRS), particularly AASB 136, which governs impairment of assets. This means companies must regularly assess and report the fair value of their assets—think property, goodwill, and equipment—and take action when values drop.

How Impairment Is Tested and Reported in 2025

Under current regulations, businesses must perform impairment tests at least annually, or whenever there’s an indicator that an asset might be impaired. These triggers might include:

• Significant declines in market value

• Changes in technology making equipment obsolete

• New government policies or environmental regulations

• Unexpected losses or restructuring

The two key steps are:

• Calculate the asset’s recoverable amount—the higher of its fair value less costs to sell, or its value in use (the present value of future cash flows).

• Recognise an impairment loss if the recoverable amount is less than the asset’s carrying value. This loss hits the profit and loss statement and directly reduces reported profits.

For example, in 2024, several major Australian mining companies reported impairment losses due to falling commodity prices and stricter environmental regulations. In 2025, this trend has continued in sectors affected by the energy transition and property market corrections.

Real-World Impact: Impairment in the Australian Market

Impairment isn’t just an accounting formality—it can have real consequences for Australian investors:

• Share price volatility: When a company announces a large impairment, it often triggers a sell-off as investors reassess the company’s true value.

• Dividend reductions: Lower profits due to impairment can result in reduced dividends or even dividend suspensions.

• Sector hot spots: In 2025, the construction and commercial property sectors are under scrutiny, with rising interest rates and shifts in remote work driving down asset values and triggering impairments.

Consider the example of an Australian real estate investment trust (REIT) that owns office towers in Melbourne. If market demand for commercial office space drops, the REIT may need to write down the value of its properties—impacting its earnings and the distributions it pays to investors.

Staying Ahead: What Should Investors Watch?

With ongoing economic uncertainty and regulatory changes in 2025, impairment is a key risk factor for portfolios heavy in property, infrastructure, or cyclical industries. Investors should:

• Monitor company announcements for impairment charges, especially during reporting season

• Review notes to financial statements for details on asset valuations and impairment methodologies

• Be alert to sectors facing regulatory or technological disruption, as these are more prone to impairment write-downs

Ultimately, understanding impairment helps investors make more informed decisions and spot red flags before they hit the headlines.