Research On Long-lived Asset Impairment Withdrawing And Impairment Reversal

On February 15th 2006, The Ministry of finance of China announced the New Accounting Standards which would be put into effect on January 1st 2007. The New Accounting Standards assimilated many useful things from the IAS, but it has special regulation on asset impairment. Compared with the IAS, it demands that company can't reverse long-lived asset impairment once the impairment is recognized. This obligatory regulation is propitious to restrain corporation using impairment reversal to do earning management. This special regulation aroused many people's attention and many people forecast the phenomenon of"sudden Reversal"before January 1st 2007.The object of this paper is long-lived asset impairment and the research range is from 2002 to 2006. This paper analyses what items affect the firms'behavior of long-lived asset impairment. This paper also wants to know if corporation's behavior on impairment changed after the new Accounting Standards promulgated. From the research we found several results: Firstly, long-lived asset impairment withdrawing is significantly influenced by the changes of corporation's profitability. Concretely speaking, when the corporation's profitability enhances, there would be less impairment withdrawing, when its profitability recedes, there would be more impairment withdrawing. Secondly, these corporations, such as ST, Stop-Loss, Loss-making before impairment and so on, are apt to reverse Long-lived assets impairment in order to increase profit to achieve some economic purpose. The loss-making corporations after impairment want to withdraw more impairment to do big-bath, but this act didn't exist on corporations CEO changed. Thirdly, before the New Accounting Standards carried out, the phenomenon of"Sudden Reversal"which many people forecast didn't occur.