Abstract
The purpose of this study is two fold: (a) to bring on issues of asset impairment manipulation in the IFRS context (b) to examine, any statistical inference v alidating impairment discretionary charges and firm s’ earning experience. The Impairment Accounting Standard (IAS 36), enters new requirements for asset impairment provided to satisfying accrued loss amounts. Earning Management through the use of asset impairments within constrains of taking accounting process results to income manipulation representing (a) an external demand to meet earnings forecasts (b) i nternal demand for communicating board’ level performance. We expect to present a critical view o f the earnings discretion and provide an answer on the prevailing content of asset impairment. The sample constituted of 236 firms, listed in the Greek Stock Exchange Market on the basis of impairment observations. We analyze the earnings levels for impairer companies, for 2004-2012 years. Findings suggest (a ) firms recording impairment charges possess lower earnings than do their counterparts not recording w rite downs and (b) the impairment losses are likely reported as timely opportunity to taking “big bath” and increasing future earnings. However we estimat e that Greek firms’ operating performance is engaged to earning adjustments on (a) taxable environment a nd (b) new accounting rules liable to income strategie s.
Highlights
IntroductionMany studies classified as “income smoothing implying that a write-down is used to neutralize abnormal net income in order to create hidden reserves for later periods
Through inspecting the annual reports we find a large variation in presentation of impairment account that requires individual judgment which is likely to narrow the credibility of used accounts
The high level impairment amounts from 2005 to 2006 at 351% suggest that Greek companies faced the new IAS 36.126 disclosure requirements with large impairment losses
Summary
Many studies classified as “income smoothing implying that a write-down is used to neutralize abnormal net income in order to create hidden reserves for later periods. The “big bath” is viewed to be a signal to investors that the balance sheet has been made “clean” of negative features that implies depressing future accounting returns. 1983 and found that most of them could be classified as a “big bath”, being the culmination of a period with low or negative net income. Francis et al (1996) do not provide evidences for the aspect that writedown companies are either “bathers” or “smoothers”. On the contrary, they find that indicators of asset impairment (e.g., book-to-market ratios) are important to explain write-downs. They find that indicators of asset impairment (e.g., book-to-market ratios) are important to explain write-downs. Rees et al (1996) find that write-downs generally take place in years with low earnings (and accentuate these), but find no statistically
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