KPMG reviewed data from the financial statements of the largest companies in Russia in 2009 in order to identify the main asset impairment trends, with a breakdown by type of asset and key economic sector, and compared the amounts of asset impairment with changes in the companies' market capitalization.

This is the first such investigation by KPMG in Russia. We plan to perform similar investigations in the future, to supplement and possibly clarify our findings with new data and trends.

Sixty-six of the 93 companies we looked at, or 71% of the total sample, recognized asset impairment as at 31 December 2008. The financial sector had the largest share of companies that recognized impairment (22 of the 23 companies we studied in this sector). This is explained by the significant write-offs of loans issued from 2006 to 2008.

Obviously, for a number of objective reasons the majority of impairment recognized as at 31 December 2008 relates to 2008. In previous years companies very rarely recognized impairment, often without performing an impairment test due to the absence of indicators. The analysis of the aggregate impairment of various types of assets recognized as at 31 December 2008, with a breakdown by sector of the economy, showed that:

• loans issued by companies of the financial sector suffered the highest impairment of any assets;
  
• companies of the consumer sector and the metals and mining industry recognized the highest impairment of goodwill;
  
• companies of the metals and mining industry, oil and gas sector and electrical power industry recognized a significant amount of impairment of property, plant and equipment.
  

According to IFRS, one indicator of asset impairment is a change in the macroeconomic situation and market conditions relating to a company's operations, which could lead to a fall in the price of the company's securities.

The 2008 financial and economic crisis has led to a considerable fall in the market capitalization of companies and the impairment of various groups of assets, including property, plant and equipment, goodwill and other intangible assets, investment property, loans granted and investments in development projects.

Ludmila Sokolova, Partner, Valuation, KPMG in Russia and the CIS said: "The need to perform research into the impairment of assets was attributable to global macroeconomic developments, which inevitably impacted on the financial results of certain companies. A decline in business activity was one manifestation of the global financial crisis, which unfolded in the second half of 2008. This led in turn to a contraction in the growth rates of all key economic indicators and a fall in the stock market. In these circumstances, the risk crystallized that future incomes from assets (in particular assets acquired at the stage of explosive economic growth) would be inadequate to replace the cost of their acquisition or other costs determined in accordance with the requirements of accounting standards and preparation of financial statements.

Many foreign companies preparing IFRS or US GAAP financial statements had to recognize the impairment of different types of assets, including fixed assets, goodwill and other intangible assets, investment property, issued loans and also funds invested in property development projects. In connection with this fact, it would be interesting to analyze comparable indicators of large Russian companies and compare the results of the analysis with global trends."

Survey methodology

For the purposes of our survey we have made a sample of 300 largest Russian companies. As at the time of the survey (September 2009) 93 companies published consolidated financial statements, including 82 statements prepared in accordance with the International Financial Reporting Standards (IFRS) and 11 statements prepared in accordance with the Generally Accepted Accounting Principles in the Unites States (US GAAP).

We have not considered the financials of companies that published their financial statements in accordance with the Russian Accounting Principles (RAP) since RAP requirements differ significantly from international standards, which makes it difficult or impracticable to perform a comparative analysis.

Please find here a full version of the survey.