ASIC issued a media release in January 2019 (19-014MR) in which it noted that numerous large Australian organisations are not properly accounting for the possible impairment of their intangible assets. Specifically, ASIC noted some entities as not having sufficient regard to impairment indicators, such as significant adverse changes in market conditions, and reported net assets exceeding market capitalisation.

REQUIRED

Explain why it is that impairment losses are potentially required to be recognised when the market capitalisation of an organisation exceeds the net assets reported in its balance sheet.