An Empirical Research On The Asset Impairment Of Companies In China

To make suitable to the high-speed economic development and Market process,china accounting system and policy are developing and updating continuously. Under this circumstance, Ministry of Finance promulgated Accounting Criteria for Business Enterprises (2006) that began to be implemented in Jan 1, 2007. The Accounting Criteria for Business Enterprises (2006) that was promulgated by ministry of finance in February 15, 2006 accommodated the demands for development of china market economic and realized the consistency between china accounting criteria and International Financial Reporting Standards (IFRS). It is of great significance for maintaining the market economic order, improving the market economy system, protecting the public interest and promoting social harmony.In the Accounting Criteria for Business Enterprises (2006), an asset is a resource that is owned or controlled by an enterprise as a result of past transactions or events and is expected to generate economic benefits to the enterprise. The term "impairment of assets" refers to that the recoverable amount of assets is lower than its carrying value. If the recoverable amount of an asset is lower than its carrying value, the asset is generating impairment. Therefore, enterprises should not affirm it an asset.Accounting Criteria for Business Enterprises (2006) systematically prescribed the Recognition standards of impairment of assets, methods of impairment of assets and disclosure of impairment of assets. Those Stipulations are Different from Preceding accounting criteria and comprehensive and systematical. In a word, Ministry of Finance attached importance to the impairment of assets. Accounting Criteria for Business Enterprises (2006) is for stopping profit adJustment through the impairment of Assets. However, an important question is raised: did the accounting practice realize the initial goals set by the Ministry of Finance? If not, we would like to find the reasonable explanation.The present study adopts positive approach to evaluate the effect of implementation of the related new assets impairment rules among public companies. Limited by the availability of the data, this paper restricted its research to the study on assets impairment in year 2005, 2006 and 2007 only.In this study, firstly, there is No evidence supporting the"big-bath"expectation, there is No evidence that the companies suffering great amount of loss in year 2007 recognized impairment loss remarkably; Secondly, the companies that were close to"0 bottom-line"in year 2007, tended to recognize less amount of asset impairment loss compared with the control group companies, indicating the possibility that those firms with small gain may exploit the ambiguity in the new impairment accounting standards to expand their earnings; Thirdly, the companies that suffered consecutive periods of losses and the companies that had"stockholder equity per share"Just over 1 RMB, tended to inflate their earnings or stockholder equity by exploiting the assets impairment accounting standards.In addition, public companies in china have opportunism behavior—during 2005 to 2007, public companies in china intently switched back loss of asset impairment that are recognized in the past accounting periods. The purpose of public companies is to avoid Accounting Criteria for Business Enterprises (2006).The results would be helpful to the financial market regulator. Being aware of the characteristics of the companies who tend to manipulate their earnings by using assets impairment, the regulators would locate the potential problem companies more easily. I hope this study could shed some light on the standard setting.