Impairment Of Assets Research Articles

Planetary boundaries: implications for asset impairment

AbstractScientific findings support the existence of nine planetary boundaries which define a safe operating space for humanity and the conditions necessary to sustain human life. The declining state of the environment (4 of the 9 boundaries have been breached) creates significant risk factors for asset impairment. Risks result not only from environmental challenges and resulting resource constraints (e.g. limits to fossil fuel extraction and carbon constraints) but also changing technology landscapes and social expectations. This article is one of the first to discuss the implications of changes in planetary boundary conditions for asset impairment and recognising an impairment event and sets out an agenda for future research.

The Impairment of Long-Lived Assets and Reversing Revaluation Review under US GAAP VS. IFRS Models in the United States

The impairment valuation of assets plays a central role in the accounting and operating decisions of the multinational companies. Although these techniques based on a similar theory, they may generate different results in application. This study incorporates an empirical approach to compare the outcomes of the two valuations: under US GAAP and IFRS (International Financial Reporting Standards). The aim of this study it to make the observation whether these valuation methods result in different values and to contribute to the understanding of why these two valuations, although similar in theory, may generate different results when applied to real life companies. In addition, this study will respond to readers this article, what kind of the management decision should make CEO before the first-time adoption IFRS in the U.S.A from management accounting perspective. This article will help the audience develop and internalize a model for making business judgments.

The Impairment of Long-Lived Assets and Reversing Revaluation Review under US GAAP VS. IFRS Models in the United States

The Impairment of Long-Lived Assets and Reversing Revaluation Review under US GAAP VS. IFRS Models in the United States

On-Line Gaming, Financial Reporting, and Audit: Chester Games Corp.

ABSTRACTThis case examines selected financial reporting and audit issues in the context of the on-line gaming industry. Key issues are revenue recognition and asset impairment under IFRS. Revenue trends are critical for the company as it considers a public offering. The estimates inherent in recognizing revenue for virtual goods, both consumable goods and durable goods, make revenue recognition and audit of revenue especially judgmental. IAS 18 or IFRS 15 may be used as a framework to discuss revenue recognition. Judgment is also required to support impairment testing of an intangible asset and goodwill.

Market Reaction to Goodwill Impairments

This paper examines the information content of goodwill write-downs under International Accounting Standard (IAS) 36 (Impairment of Assets) and Statement of Financial Accounting Standards (SFAS) No. 142. We investigate whether the informational value depends on the reliability of the news. Using a sample of 564 goodwill write-down announcements issued from 2005 to 2009, we find a negative capital market reaction to announcements of unexpected goodwill write-offs. Our results indicate that investors react more negatively when a country's level of legal protection is low and allows more management discretion. We further report that market reaction is associated with managers explaining the write-down decision and depends on the verifiability of these explanations. Investors react more negatively when an unverifiable internal explanation is given and less negatively when a verifiable external explanation is provided. We do not find significant differences between write-down announcements under SFAS 142 and IAS 36.

Organizational reputation risk management as a component of the dynamic capabilities management process1

Intangible assets, such as reputation, brand value, strategic position, alliances, knowledge, human capital, play an increasingly important role in shaping the market value of an organization. At the same time, in the literature it is emphasized that the attribute of intangibility translates into an increased risk of destruction or impairment of assets. Thus, the research problem associated with the analysis of organizational reputation risk management as a component of the dynamic capabilities management process should be considered important from the point of view of management science. The study attempts to outline the concept of dynamic capabilities, define the concept of risk and subsequently discuss the relationship between dynamic capabilities and organizational reputation risk management.

Real Asset Liquidity and Asset Impairments

I examine how the presence of a more active (liquid) resale market for real assets influences the likelihood, timeliness, and magnitude of long-lived asset impairments. I find that firms with more liquid real assets are more likely to record an impairment both unconditionally and conditional on a signal of poor performance, consistent with an available resale market providing information useful in estimating fair value for long-lived operating assets. Impairments are more likely in tests using both industry-level measures of real asset liquidity and firm-specific measures of aircraft fleet liquidity for firms in the airline industry. Consistent with asset liquidity constraining managerial opportunism in delaying write-offs, I also find that impairments are timelier (more conditionally conservative) for firms with more liquid real assets and that impairment magnitudes vary more strongly with firm value. Finally, impairments for firms with more liquid real assets are associated with greater decreases in uncertainty around earnings announcements as measured by changes in option implied volatility.

Are Special Items Relevant? A Case of Different Perspectives of GAAP vs. IFRS

GAAP allows unusual or infrequent items to be reported as special items in order to distinguish transitory earnings from permanent earnings. However, special items have been shown to hide permanent losses. IFRS prohibits special items reporting to promote inter-company comparability. This study examines if special losses contain relevant information by using intra-industry information transfer methodology with a sample of 563 material asset impairment losses reported as special items over the period from 2001 to 2007, we find that such information is relevant but garbled due to the laxative reporting rules of GAAP. The major policy implication of this study is that IFRS and GAAP should be more conciliatory by allowing special item reporting, but at the same time requiring strict reporting and disclosure rules to enhance the relevance and reliability of earnings information.

The Effect of Mandatory IFRS Adoption on Conditional Conservatism in Europe

AbstractWe study the effect of mandatory adoption of International Financial Reporting Standards (IFRS) in Europe in 2005 on conditional conservatism. We capture conditional conservatism with a modified version of the Khan and Watts measure (C_Score) that also controls for potential shifts in unconditional conservatism and cost of capital. From a sample of 13,711 firm‐year observations drawn from 16 European countries spanning the 2000–2010 period, we document an overall decline in the degree of conditional conservatism after the adoption of IFRS. We show that the decline in conditional conservatism is less pronounced for countries with high quality audit environments and strong enforcement of compliance with accounting standards using the Brown et al. audit and enforcement index. As asset impairment tests are a key mechanism ensuring conditional conservatism in the IFRS framework, we further examine these. We show that firms booking an asset impairment present a smaller decline in the degree of conditional conservatism relative to firms that do not. We also demonstrate that firms that do not book an asset impairment when evidence suggests the probable need to do so experience a more pronounced reduction in conditional conservatism. We argue that IFRS are conceptually conditionally conservative but that inappropriate application of conditional conservatism principles is likely to prevent financial reporting from reaching the level of conservatism targeted by the International Accounting Standards Board (IASB).

Application of the Principle of Prudence in the Accounting of Slovak Businesses through the Creation of Adjusting Entries for Receivables

Abstract The primary principle of accounting is true and fair view of all the facts subject to the accounting. The fair presentation is ensured through the compliance with the principle of prudence. This principle means that, at the balance sheet day the entity takes into account the expected risks and losses related to assets and liabilities; and that are known at the balance sheet date. The expected risks and losses are reflected in the accounting through provisions and adjusting entries. The adjusting entries are created when the transitional impairment of assets takes place. The paper deals with the issue of creation of adjusting entries for receivables in the Slovak enterprises in terms of taxation and accounting. The adjusting entries for receivables must be created if it is reasonable to assume that the debtor is unable to pay the full amount or part of it. We will analyse and examine the importance of adjusting entries, difficulties in creating adjusting entries for receivables and their impact on economic performance of selected companies. In the research part of the paper will be used appropriate mathematical and statistical methods and based on the results of the research evaluation conclusions and suggestions will be drawn.

Development and current criticism of asset impairment in German tax accounting

In German tax accounting, the going concern value (“Teilwert”) is the central measurement of asset impairment since 1934. The conceptual weaknesses of the concept have set the future of the 80-year old fiscal measurement tradition up for discussion. First, I shed light on the development of the accounting measurement concepts from Prussian Civil Code 1794 (ALR) to the German Income Tax Act 1934. Then, I analyse the main results of the current tax jurisdiction and draw a comparison to the German commercial law and the IFRS. I state that the creation of a common basis for measurement under commercial and tax law would be desirable, since the going concern value was understood as neither an exception, nor as being subject to the whims of targeted tax accounting policies. The provision of a purely indicator-based impairment test by the IASB is also recommended.

COMPARISON OF UKRAINIAN GAAP WITH IFRS AND US GAAP: ARE THERE MORE DIFFERENCES OR SIMILARITIES?

The paper is dedicated to the comparison of IFRS, US GAAP and Ukrainian GAAP in order to determine similarities and differences in assets and liabilities recognition, derecognition and presentation in financial statements. The author compares three accounting frameworks considering the following criteria: fixed assets impairment and depreciation, financial assets classification and measurement, financial liabilities classification and measurement. The scope of accounting standards and the types of companies that apply each set of statements are determined. Special attention is paid to financial instruments classification, subsequent measurement and impairment. The author indicates correlation between Ukrainian GAAP and IFRS on the one hand and between Ukrainian GAAP and US GAAP on the other hand. The performed research enables to make the assumption about combination of IFRS and GAAP principles in the process of Ukrainian AS development.

Why Are Banks Paying So Little UK Corporation Tax?

AbstractThis paper explores the dramatic fall in receipts of UK corporation tax (UKCT) from banks, and the widening gap between the global corporation tax recorded as payable in banks' financial statements and the UKCT receipts recorded by the tax authorities. It reviews possible explanations, including changes in tax rates, in operating profits, in deductions which reduce taxable profits, and in the share of profit originating in, or recorded in, overseas jurisdictions. It assigns significant roles to tax‐deductible asset impairments and to the allocation of profits among different jurisdictions. It suggests reasons why the recovery in banks' global operating profits may not be accompanied by an early sharp recovery in UKCT receipts.

Bleak Weather for Sun-Shine AG: A Case Study of Impairment of Assets

ABSTRACT This case originates from a real-life business situation and illustrates the application of impairment tests in accordance with IFRS and U.S. GAAP. In the first part of the case study, students examine conceptual questions of impairment tests under IFRS and U.S. GAAP with respect to applicable accounting standards, definitions, value concepts, and frequency of application. In addition, the case encourages students to discuss the impairment regime from an economic point of view. The second part of the instructional resource continues to provide instructors with the flexibility of applying U.S. GAAP and/or IFRS when students are asked to test a long-lived asset for impairment and, if necessary, allocate any potential impairment. This latter part demonstrates that impairment tests require professional judgment that students are to exercise in the case.

""""" ": (An Attempt to Apply the Impairment Test: The Case of AMC Company)

Arabic Abstract: تعتبر طريقة تدني من أكثر الطرق استخداما في الممارسات المحاسبية الحالية لمعالجة الفجوات التي تحصل بين القيم الاقتصادية للأصول وقيمها المحاسبية، مما جعل منها الطريقة المرجعية لتقييم التثبيتات وفق المعيار الدولي رقم (36)، وأهم بدائل تقييم التثبيتات في النظام المحاسبي المالي الجزائري. في هذا المقال، سوف نحاول توضيح متطلبات اختبار تدني قيم التثبيتات، وفقا لتعليمات النظام المحاسبي المالي، وتوصيات المعيار الدولي رقم (36)، وتقديم دليل لتطبيق هذه الطريقة في البيئة الجزائرية، من خلال اختبار تدني قيم تثبيتات المؤسسة الوطنية لأجهزة القياس والمراقبة، وحصر الصعوبات التي تواجه تطبيق هذه الطريقة Arabic Keywords: النظام المحاسبي المالي، المعيار الدولي (36)، اختبار تدني القيمة، التثبيتات المادية، الوحدات المولدة للنقدية English Abstract: The impairment of assets is the most used method in current accounting practice, in order to process the variations that affect the values of assets. It consider the preferential treatment according to IAS 36, and one of accounting choices for the valuation of non-current assets according to the SCF. In this paper we attempted to clarify the deferent procedures for assets impairment test according to IAS 36’s recommendations and SCF’s instructions. We attempted also to provide a guide for the application of this method in the Algerian context, through testing the impairment of non-current assets of AMC company.

The impacts of asset impairments on performance in the Taiwan listed electronics industry

This paper explores whether the recognition of asset impairments provides an opportunity for earnings management by examining changes in the performance. First, we apply a dynamic data envelopment analysis model to evaluate the operating performance of Taiwanese electronics firms for the period from 2004 to 2013. Statistical tests are next applied to assess the average efficiency variation between the periods before and after firms recognise asset impairments. Several empirical findings are as follows: managers recognise asset impairments when their firms have poor performance as compared to other firms that do not record any asset impairments recognition, and that their performance keeps on improving in both the year of recognising asset impairments and the year after asset impairments recognition. That is, managers tend to recognise asset impairments to improve operating performance, while the firms are performing poorly, supporting the opportunistic behaviour theory.

FATORES DETERMINANTES NA EVIDENCIAÇÃO DA RE DUÇÃO AO VALOR RECUPERÁVEL DE ATIVOS (IMPAIRMENT TEST) EM EMPRESAS LISTADAS NA BM&FBOVESPA

This study aims mainly to examine the determinants of the level of compliance in disclosing information relating to the impairment of assets (impairment test) of the companies listed on the BM&FBovespa, required by CPC 01. To achieve the goal, the notes of the companies listed on the BM&FBovespa in 2010 and 2011 were initially checked, totaling 456 companies. The companies belonging to the Financial Sector and Others were not considered. From a documentary analysis, we identified a sample of 31 companies in 2010 and 27 in 2011 of recognition or reversal of impairment loss on fixed or intangibles assets. Aiming to measure the level of compliance with the requirements of CPC 01, we calculated the index of disclosure anchored on seven metrics elaborated based on the provisions contained in that statement. To explain the dependent variable level of disclosure, 12 independent variables were tested. The results showed that the variable independent auditing company was significant at 1%, and the variable internationalization at 5%, indicating that c ompanies audited by Big Four and issuance of ADRs met more adequately the requirements of CPC 01. Keywords: assets, impairment test, disclosure accounting.

Impaired Judgment: The Effects of Asset Impairment Reversibility and Cognitive Dissonance on Future Investment

ABSTRACTThis paper examines how the reversibility of the accounting effect of asset impairments affects managers' investment decisions. We conduct two experiments in which participants act as CEO of a multi-division electronics company that suffers a large asset impairment at one of the divisions. Drawing on prior psychology research involving cognitive dissonance and decision reversibility, we predict and find that managers who are responsible for the decision to record the asset impairment invest more in the impaired division when the accounting effect of the impairment is reversible than when it is irreversible. This is consistent with the idea that reversible accounting effects encourage behavioral attempts to alter the cash flow outcome, while irreversible accounting effects encourage belief revision to rationalize the cash flow outcome. Also in line with cognitive dissonance theory, we show that managers who are not responsible for the decision to impair the asset, or managers who are given the opportunity to deny responsibility for the asset impairment, do not differ in their investment in the impaired division, regardless of impairment reversibility.

DETECTING ASSET IMPAIRMENT EARNINGS MANAGEMENT ON IFRS CONTEXT: SOME EVIDENCE FROM GREEK LISTED COMPANIES

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.

Effects of the asymmetric accounting treatment of tangible and intangible impairments in IAS36: International evidence

Using an international sample of 21 countries that follow International Financial Reporting Standards (IFRS), we investigate the association of tangible and intangible asset impairments with future cash flows. International Accounting Standard 36 (IAS36) requires that an asset shall be impaired when its recoverable amount is lower than its carrying amount in financial statements. Future cash flows constitute a core determinant of the estimated recoverable amounts. However, IAS36 treats tangible and specific kinds of intangible assets, such as goodwill, in an asymmetric fashion; while impairment tests for tangible assets shall be performed when relevant indicators exist (such as predictions of decreased future cash flows), specific kinds of intangible assets, such as goodwill, shall be tested on an annual basis. Consistent with our expectations, we find that this asymmetric treatment enhances timeliness of goodwill impairments but decreases their reliability in forecasting future cash flows compared to tangible impairments.