What is the first step in the asset impairment process?

The first step in the asset impairment process involves determining how to group assets for the purpose of assessing impairment. This grouping is essential because assets are often assessed for impairment at the level of cash-generating units (CGUs) rather than as individual assets. By grouping assets that generate cash inflows together, it provides a clearer picture of the performance and recoverability of those assets as a whole. This step is crucial because it sets the stage for the subsequent actions in the impairment process, such as the impairment test requirements and the determination of recovery amounts. Properly identifying and grouping the assets ensures that the impairment is assessed accurately based on the collective cash flows that these assets produce, which ultimately leads to more precise financial reporting and compliance with accounting standards.