An interesting passage from the IFRS accounting standards
The core principle in IAS 36 is that an asset must not be carried in the financial statements at more than the highest amount to be recovered through its use or sale. If the carrying amount exceeds the recoverable amount, the asset is described as impaired. The entity must reduce the carrying amount of the asset to its recoverable amount, and recognise an impairment loss. IAS 36 also applies to groups of assets that do not generate cash flows individually (known as cash-generating units). [My emphasis]
IAS 36 applies to all assets except those for which other standards address impairment. The exceptions include inventories, deferred tax assets, assets arising from employee benefits, financial assets within the scope of IFRS 9, investment property measured at fair value, biological assets within the scope of IAS 41, some assets arising from insurance contracts, and non-current assets held for sale.
So we have an asset, let’s call it X. If its “carrying amount” (=book value) exceeds its “recoverable amount” (=market value), then the asset is impaired and the reporting entity “must” reduce the former (BV) to the latter (MV). And IAS 36 applies to all assets except those covered by other Standards.
So tell me what is wrong with the following syllogism:
For any Asset X, if BV > MV, the asset is impaired and must be marked down unless it falls under one of the exceptions.
Asset X does not fall under any of the exceptions.
Asset X has BV > MV.
Therefore, Asset X is impaired.
Let X be the UK banking system, defined for present purposes as the Big Five banks.
For the big 5 banks, BV > MV.
Therefore, the UK banking system is one big impaired asset and its book value must be marked down to its market value.
Just a thought, but it’s probably nothing.