Impairment Of Assets Research Articles

Формирование оценочных значений, связанных с обесценением внеоборотных активов

The purpose of the study is to analyze the theoretical and practical aspects of the formation of accounting estimates related to the impairment of non-current assets. The author considers the features of impairment test for fixed assets and intangible assets, considering the requirements of federal and international standards. Based on the systematization of discounted cash flow calculation practices, a formula for determining the value in use as one of the possible values of the recoverable amount and a formula for the present value of cash flows, considering improvements in the accounting regulation system, are proposed. The practical significance of the research is the development of specific methodological recommendations for the calculation of individual articles and components of the value in use.

Asset impairments surrounding chief financial officer turnover

We examine the effect of chief financial officer (CFO) turnover on the likelihood and size of asset impairments. Using Australian data, we find evidence consistent with incoming CFOs recording larger asset impairments, particularly when they are external hires with prior listed experience, or receive equity-based compensation. Our results also indicate that outgoing CFOs report higher profits in the year prior to their departure by reporting fewer and smaller asset impairments. This effect is larger when outgoing CFOs move to another listed firm or receive equity-based compensation, consistent with reputational and compensation incentives to maximise earnings. Overall, our results provide evidence of the independent influence CFOs have on financial reporting. JEL Classification: M41, G34, M40

Depreciation and impairment of non-financial assets in higher education institutions: Analysis and evaluation

Subject. The article investigates the state of presentation of information on depreciation and impairment of non-financial assets by Russian universities, and prospects for its improvement. Objectives. The aim is to summarize and systematize the provisions of the current federal accounting standards for public finance, governing the depreciation and impairment of non-financial assets, study the practice of accounting policy formation by higher education institutions in relation to non-financial assets based on the specifics of these organizations’ activities. Methods. The study employs observation, comparison, generalization, and interpretation, the analysis of the content of federal accounting standards for public finance, accounting policies for depreciation and impairment of non-financial assets of 26 higher education institutions in Russia. Results. Most higher education institutions do not consider the procedure for calculating depreciation of the structural part of fixed assets. Some universities apply the procedure for calculating amortization of intangibles that does not comply with the provisions of the federal accounting standards for public finance in relation to intangible assets with indefinite useful life. No university identifies signs of impairment or reflects non-financial assets less impairment losses in accounting statements, thus preventing their objective evaluation. Conclusions. I offered a unified approach to identifying external and internal signs of possible impairment of assets by higher education institutions, given the specifics of their activities. The paper established a sequence of actions when testing a cash-generating asset for impairment.

PECULIARITIES OF CREDIT BEHAVIOUR OF THE POPULATION DURING THE WAR

This article focuses on the peculiarities of the credit behaviour of the population during the war. In times of instability, financial issues are particularly acute among the population, which in turn attracts the attention of researchers and the public to address this issue. In the article, the author focuses on the consequences of the impact of the military conflict on the life of the population, the level of optimism and stability of the economic situation, which generally affects the credit behaviour of the population. The features of the credit behaviour of the population in wartime are determined. In particular, credit behaviour is considered as one of the types of financial behaviour of the population aimed at temporary borrowing of external funds to meet personal needs. Credit behaviour in wartime depends on the financial stability of the population. The article shows the relationship between labour employment and credit behaviour of the population, as the number of jobs decreases and the number of job seekers increases. The author notes that declining incomes, unemployment and inflation lead to problems with loan repayment. Late repayment of loans has negative consequences for both credit service providers and borrowers. Indeed, in times of instability, the issue of compliance with previously assumed obligations becomes particularly acute. Economic instability, changes in exchange rates, socio-economic conditions, government policies and personal capabilities of each citizen, and asset impairment can pose a risk to borrowers and lenders. The article presents an analysis of credit behaviour during the war, which allows us to outline the prospects for economic modernisation of Ukraine and improve our understanding of this topic, since the development of practical approaches to understanding credit behaviour will contribute to the development of an effective policy of modernisation of Ukraine, generating new insights into the directions and pace of the dynamics of modernity in general.

Asset impairment: the quality of disclosures in financial reporting amidst the pandemic

Relevance. The deterioration of economic conditions both in individual countries and worldwide, due to the spread of coronavirus infection and the imposition of strict quarantine restrictions resulted in notable changes in the financial and business sectors. This makes it relevant to investigate this issue. Purpose. The main purposes of the study are to examine the issue of changes in the quality of information to be disclosed in connection with financial reporting, specifically the impact of the global pandemic on this procedure. Additionally, the study aims to determine the extent to which such dynamics have a positive or negative effect on the implementation of financial reporting. Methodology. Various methodological approaches, which have both theoretical and more practical aspects, such as the theoretical and methodological approach, analysis, synthesis, comparative analysis, and the analysis of scientific literature were used in the study, which helped to investigate the above-mentioned issue and achieve the research objectives. Results. In the process of examining the aspect, the following results were identified, the theoretical background to the issue was reviewed, in particular the concepts, the main components of the asset impairment phenomenon, and the financial reporting and disclosure procedures were highlighted, the main features and changes in the industry caused by pandemic were identified. Conclusions. Alternative approaches to financial disclosure have been formulated which may help to prevent the occurrence of negative consequences for legal persons due to neglecting such information, or even withholding such information. Keywords: asset carrying amount; asset recoverable amount; asset sensitivity analysis; operational continuity; coronavirus infection; reduction in asset value

Improving Financial Analyst Predictions through Intangible Asset Impairment Accounting

Improving Financial Analyst Predictions through Intangible Asset Impairment Accounting

Innovations in fixed asset accounting

Subject. Fixed assets provide for various types of activities and make up a significant part of the assets of corporations. The growth and improvement of fixed assets characterise the quantitative and qualitative development of a corporation's technical equipment capacity and ensure its sustainable operation. Objectives. The requirements for the presentation and disclosure of accounting information are changing due to the challenges of the global and market economy. Therefore, it is important to consider issues related to the recognition, classification, evaluation, and presentation of economic activities related to the flow of fixed assets. Methodology. The problems related to fixed asset accounting have been studied by many economists from Russia and abroad. A significant number of theoretical works that provoke discussions indicate the need for new approaches to the development of accounting policies and methods of fixed asset accounting in particular. Since corporations use the provisions of the Federal Accounting Standard No. 6/2020 “Fixed Assets”, FSBU 26/2026 “Capital Investments”, and international accounting standards and develop independently their own accounting methods, the accounting policy should be developed with the participation of specialists and people responsible for the presentation and disclosure of information. Results and discussion. Recognition of a fixed asset item in accounting requires the expertise of specialists who can confirm that this item can be used in the ordinary activities of the company for a period exceeding 12 months and that it can deliver economic benefits. Groups of specialists and documents developed by a corporation to outline the conditions for the recognition of fixed asset items are established by bylaws. When recognising a fixed asset item, it is particularly important to determine inventory items and to group them. This is performed by the units of the organisation that ensure the ability of this item to bring economic benefits. If the items meet the conditions for the recognition of fixed asset items, the accountant determines the historical cost of the item. The application of the revalued cost of fixed asset items in accounting, based on the International Financial Reporting Standards (IFRS) 13 “Fair Value Measurement” and (IAS) 36 “Impairment of Assets”, ensures the reliability of financial statements. In case of assets that meet the recognition requirements, but whose value is below the limit established by a corporation, the control of the asset's availability and flow is also regulated by a bylaw. Conclusions. The results of the study can be used by corporations to develop accounting policies related to the systematisation and disclosure of information on fixed assets.

Relevant Problems of Intangible Asset Impairment in The Russian IT Industry

Relevant Problems of Intangible Asset Impairment in The Russian IT Industry

Evaluation of fixed assets of electric power enterprises-operators of the distribution system under the conditions of the post-war reconstruction of Ukraine

The article is devoted to the assessment of the fixed assets of electric power companies-operators of the distribution system under the conditions of the post-war reconstruction of Ukraine. Attention is focused on areas of criticism of the concept of historical costs. Considerable attention has been paid to the advantages and disadvantages of the approaches of researchers to fair value asset valuations and cost asset valuations. The advantages and disadvantages of using fair value when making management decisions are highlighted. The sectoral features of the assessment were considered for the purpose of forming investment projects in the renewal of fixed assets of electric power enterprises-operators of the distribution system and the development of the distribution system. The majority of electric power enterprises-operators of the distribution system choose a revaluation model for classes of fixed assets and carry out revaluations of fixed assets. The algorithm for determining the asset valuation base with the aim of transitioning to stimulating regulation (RAB-regulation) was studied. It was found that the basis of asset valuation can be the market value or the residual value of replacement (reproduction). The expediency of applying the concept of asset impairment assessment in electric power enterprises-operators of the distribution system has been established. A method of testing for the reduction of utility of fixed assets of electric power companies-operators of the distribution system is proposed, with the help of which internal users will make decisions regarding their further safe operation and the need to find sources of investment in the restoration of distribution networks.

The Multiple-Scenario Valuation Method: When Robust Strategy Meets Valuation Needs

In the presence of great uncertainty and volatility, the valuation of single assets or enterprises can be extremely complicated. Over the last few years, the European Securities and Market Authority (ESMA) has analyzed the potential impacts of these uncertainties on the application of the Impairment of Assets (IAS 36) accounting standards and exhorted firms adopting the IAS/IFRS accounting standards to consider multiple scenarios in forecasting information. This study, adopting a theoretical and conceptual perspective, aimed to analyze the theoretical and practical implications of the shift from single-path to multiple-scenario analysis. This paper contributes to the literature in the following ways: first, it suggests a new perspective of analysis that combines valuation needs with a strategic approach (a robust strategy). Second, it contributes to clarifying the antecedents and consequences of the ESMA recommendations. Furthermore, the paper also has practical implications as it highlights some critical issues associated with every valuation process, including the need to cope with growing uncertainty, the necessity of clarifying the great misunderstanding related to the confusion between the multiple-scenario valuation method and sensitivity analysis, and, last but not least, the importance of the relationship between strategy and the valuation process.

Assets Impairment Disclosure (IAS 36) and Real Earnings Management Practices of Listed Consumer Goods Companies in Nigeria

Assets Impairment Disclosure (IAS 36) and Real Earnings Management Practices of Listed Consumer Goods Companies in Nigeria

Corporate governance, financial indicators and asset impairments during the COVID-19 pandemic period

This study examines the effect of corporate governance and financial indicators on long-lived asset and goodwill impairments during pre-COVID-19 and COVID-19 periods for a sample of United States (U.S.), France, Germany and the United Kingdom (U.K.). We find that goodwill impairment is greater during the COVID-19 than the pre-COVID-19 periods for all four countries, and long-lived asset impairment is greater during the COVID-19 period for the U.S. and the U.K. The effects of corporate governance on asset impairments and the effects of short-term financial indicators (cash flow and/or sales) and long-term financial indicators (stock returns) vary by country.

Should asset impairments be included in earnings when evaluating stewardship by management?

PurposeThis paper aims to consider the relevance of asset impairments when evaluating stewardship by management.Design/methodology/approachThis paper considers association of earnings (including and excluding asset impairments) with contemporaneous stock returns which are used as a measure of management performance and demonstration of stewardship.FindingsEvidence is provided of earnings including asset impairments (an accounting measure of current measure firm performance) having a higher explanatory power for contemporaneous stock returns (an objective evaluation of current period firm performance) than earnings exclusive of asset impairments. Consistent with this, recognized asset impairments are significantly associated with contemporaneous stock returns. These results occur across firm years generally, as well as for firm years exhibiting indicators of impairment and firm years recognizing asset impairments.Research limitations/implicationsThis paper adds to the literature providing evidence of asset impairments not being recognised on a timely basis. Additionally, challenges are identified in evaluating the relevance of accounting information for so-called growth firms.Practical implicationsThese findings support continued recognition of asset impairments in the Statement of Profit or Loss if stewardship is accepted as an objective for financial reporting. It also suggests issues with the recognition of asset impairments that might be addressed by enhanced disclosure.Originality/valueThis paper is distinctive in that it considers the relevance of accounting information for evaluating stewardship, as distinct from decision-making. It also considers alternate measure of performance (earnings including and excluding asset impairments) for all firms rather than only those disclosing an alternate measure (i.e. a fair horse race)

What drives shareholder returns in mining companies?

The mining industry has a long history of generating low shareholder returns. Over the past two decades, the average Canadian mining company has returned −8% per year, while the TSX composite index returned +7% per year. Prior studies indicate these low returns are driven primarily by volatile commodity prices and thus largely out of managers’ control. However, this research relies on small samples over short periods of time. To assess more robustly the distribution of shareholder returns across mining firms and to identify the relative impact of price versus other firm-specific factors on firm-level returns, we analyzed the performance of over 100 Canadian mining companies from 2003 to 2016. We find that commodity prices explained the majority of firm performance annually, but that over the long-run, mineral asset impairments had a much more significant influence on performance. Firms that significantly overperformed the industry experienced minimal impairments while firms that significantly underperformed experienced very large impairments. To deliver superior returns, it seems that mining firm managers and investors need to understand how to minimize impairments.

Costs associated with exit or disposal activities: A topic modeling investigation of disclosure and market reaction

SummaryThe Securities and Exchange Commission (SEC) mandates disclosure of exit or disposal activity events in 8‐K filings. We use Latent Dirichlet Allocation (LDA), a topic modeling method from computational linguistics, to investigate the possibility that substantively different event types may be subsumed under Item 2.05, the SEC category for costs associated with exit or disposal activities. Our analysis reveals that four distinct topics are reported under the Item 2.05 umbrella category: (1) restructuring, (2) disposal of a line of business, (3) plant closings, and (4) layoffs/workforce reductions. We then investigate various aspects of these 8‐K filings. We find that the market reacts most negatively to workforce reductions that are reported in the absence of a broader strategic initiative. Subsequent amendments to the Item 2.05 8‐K filings are significantly more likely for restructuring initiatives, and significantly less likely for layoffs. Asset impairment charges most frequently accompany line‐of‐business disposals and plant closings. Our results demonstrate that there are meaningful differences between the event types reported within Item 2.05 filings and that LDA provides a useful means of differentiating among these event types.

Determinants of Corporate Fossil Energy Assets Impairment and Measurement of Stranded Assets Risk

Climate change and transition risks have become major issues concerning the sustainable development of human society today. And the stranded fossil energy assets generated in this context are gradually becoming an important factor affecting corporate development and the stability of financial markets. Based on the data of China’s A-share listed companies in the high-carbon industry from 1998 to 2021, a two-way fixed-effects model is used to study the determinants of corporate fossil energy asset impairment. Furthermore, a “two-stage estimation approach” is used to measure the risk of stranding corporate fossil energy assets The results show that: (1) climate transition risks are a significant cause of stranded corporate fossil energy assets; (2) the stranded risk of Chinese companies’ fossil energy assets has been oscillating upward over the past two decades; (3) the stranded risk has increased significantly after the “double carbon” target. Based on the above conclusions, this paper puts forward relevant suggestions from both government and enterprise perspectives.

Do firms manage earnings after a downgrade in their credit rating?

PurposeThis paper aims to examine whether firms engage in earnings management immediately after experiencing a downgrade in their credit rating.Design/methodology/approachThis paper uses fixed-effects regression models to examine real- and accrual-based earnings management after firms experience a downgrade in their credit rating.FindingsInconsistent with prior studies where firms are reported to opportunistically increase their earnings prior to a credit rating event, this paper finds that firms use income-decreasing earnings management after their ratings are downgraded. This paper also finds that firms downgraded to below the investment grade rating not only significantly reduce both abnormal cash flows and discretionary accruals but also report larger asset impairments, suggesting that these firms exploit the rating downgrade to employ a big bath accounting.Practical implicationsThe results of this paper have practical implications for investors fixating on firm earnings after a credit rating downgrade, for shareholders of downgraded firms and regulators such as credit rating agencies.Originality/valueThe findings of this study contribute to the thin literature on earnings management after changes in credit rating by shedding lights on earnings management after a rating downgrade and complement the literature on the accounting choice of financially distressed firms. The empirical evidence documented in this study suggests that the occurrence of income-decreasing earnings management is not limited to only after a sovereign country rating downgrade as documented in a prior study but also occurs after a rating downgrade not associated with this event.

IAS 36 Impairment of Assets

受到近期全球疫情影響，對於各家公司的經營績效及資產之現金流量均有極大的影響，在經營績效較差，資產之現金流量減少的情況下，企業經營績效及各資產現金流量逐期下降，資產是否有發生減損之問題，為此次疫情爆發後，相當重要之議題。然而為何需要資產減損？資產減損之會計處理為何？本文將完整介紹有關企業針對資產減損評估情況及其會計處理，並就近幾年國考資產減損之考題做全面介紹。

VALUATION OF INTANGIBLE ASSETS IN THE CONTEXT OF ECONOMIC INSTABILITY IN UKRAINE

The article is devoted to the issues of intangible assets valuation caused by globalization processes, deep digital transformation of economic relations, and, as a result, implementation of the results of innovation and intellectual activity in all spheres of economic activity. Ukraine's current realities include the development and use of innovative software in military operations (artificial intelligence, autonomous systems (unmanned aerial vehicles), software (automated battle management systems, situational awareness systems, digital maps, etc.), in the field of security and defence, ecology, healthcare and rehabilitation of the military and civilians, restoration of energy and transport infrastructure, etc. All of these processes are associated with the generation of intellectual products and intellectual property rights, which are intangible assets by their economic nature and cannot be commercialized without their valuation.The purpose of the article is to analyze the international experience and national practice of valuation of intangible assets and intellectual property rights in the process of their commercialization, as well as in the accounting and reporting system in the context of economic instability. The author highlights the problems of valuation and disclosure of intangible assets in financial statements, in particular, the need to test them for changes in potential usefulness, given the effects of the global COVID-19 pandemic and the russian military invasion of Ukraine, which have led to impairment of assets, increased risks and their impact on accounting estimates and disclosures.The main results of this research are the improvement of methodological approaches to the valuation and testing for changes in the potential usefulness of intangible assets, taking into account the risks associated with the consequences of the COVID-19 pandemic, russia's military aggression against Ukraine, and global economic uncertainty.

Multipliers based on net income as an indicator of the investment attractiveness of domestic vertically integrated oil and gas companies

Subject. This article focuses on the market-capitalization-to-net-income ratios of the twenty five leading publicly traded oil and gas companies within 2008 through 2018. Objectives. The article aims to identify key trends in the changes in the values of market-capitalization-to-corporations'-net-income ratios of the oil and gas companies, as well as identify key trends in their change within the studied period, and identify the factors that caused those changes. Methods. For the study, I used the methods of comparative, financial and economic analyses, summarizing financial reporting data. Results. The article finds that the studied multipliers based on net income of shareholders are of little use for assessing the value of oil and gas companies due to the volatility of oil prices. Integrated corporations are not as dependent on oil prices as independent companies. Net income can be affected not only by a decrease in revenue, but also by the cost of impairment, revaluation or write-off of assets in the event of a fall in oil prices, and therefore, the use of the multipliers is advisable in case of high profitability in the industry. Net income may also be affected by income and expenses that are not related to operating activities. This factor should be taken into account when choosing an analogue company. It was revealed that the characteristic features of the market capitalization of companies in the industry are reflected in the indicators, which include the provision with proved reserves and level of debt. It is better to use an enterprise value indicator instead of market capitalization in a multiplier if there is a noticeable difference in debt burden. Conclusions and Relevance. To apply the multipliers based on net income is very difficult in the face of declining profitability and increasing debt burden in the stock market sector of the global oil and gas industry. The findings can help appraise the value of oil and gas assets as part of a comparative approach and decide on actions for raising the market capitalization of publicly traded oil and gas corporations.