Behavioral Representation And Legal Coping Of False Statement Of Asset Impairment

The information on the asset impairment of listed companies is material. It is the information on the management and business operation of the listed companies and is directly related to the net profit in the financial statement. Therefore, such information has great impact on the investors’investment decisions. False statement on asset impairment means the listed companies improperly manipulate the profit by using the elasticity of the asset impairment policy and disclosing false information on asset impairment. False statement on asset impairment falls under the broad scope of security fraud. It not only infringes the investors’ interests but also disturbs the good faith mechanism in the stock market. Therefore, such conducts are prohibited by security laws and accounting laws and standards. To reach the target profit, the listed companies tend to manipulate the asset impairment so that the profit reaches the target. Under different financial status, the false statements on asset impairment show different characteristics. These characteristics are more easily observed in the ST listed companies. The listed companies tend to:increase the profit before the first year of loss; decrease the profit in the first and the consecutive second year of loss; increase the profit in the profiting year when undergoing delisting risk warning; increasing the profit in the year in which loss should have occurred. By distributing the profit among the financial years, the listed companies can avoid the loss as they desire, thus avoiding administrative and market restraint. False statement on asset impairment can be done by many accounting measures. The most popular ones include: denying signs of asset impairment; changing accounting policies without reasonable basis; intentional using of short-term asset impairment; forge data used to calculate recoverable amount, etc. To inhibit false statement on asset impairment, effort shall be spent on the improvement of legislation and supervision. In terms of legislation, first, a general anti-fraud provision shall be adopted. Second, the materiality test shall be one that is both subjective and objective. Third, the information disclosure requirements shall be more detailed. In terms of supervision, the market’s self-discipline shall be given more weight. Particularly, the supervision by certified public accountants and commercial banks shall play a larger role.