Pre-tax and post-tax discount rate for the impairment test

The impairment test is one of the most relevant topic introduced by IFRSs. An impairment loss can change radically the financial statement results and can decrease the stock price of a company. IAS 36 disciplines how to run an impairment test and proposes two criteria to measure the recoverable amount of an asset: fair value less cost to sell, and value in use. Value in use is based on the DCF logic. When we apply this logic, IAS 36 requires to use operating cash flows before taxes. As a consequence, the discount rate too has to be deemed before taxes. This differs from the approaches that are usually applied in the financial market and runs the risk of creating theoretical and practical misinterpretations.