A Study On Accounting For Assets Impairment

Accounting standards setting and changes are expected to match economic development. In the No.8 of new Enterprises Accounting Standards of China(CAS 8) issued on 15 February 2006, the impairment provisions of long-term assets such as fixed asset are prohibited to reverse after the end of year 2006. This is a revision considering practical condition of China. However, whether listed companies would react to the change of macro accounting policy with special motivation, resulting in a abrupt reversion of a plenty of impairment provision reflected by annual reports. Regulators, academia and practioners all pay attention to this issue. How listed companies respond to this change, whether the quality of financial information would be affected, what would happen in Chinese stock market and so on, all of these deserve to investigate. Therefore, this paper examines the accounting behavior on assets impairment provision in 2001-2007 annual reports.Firstly, beginning with the discussion of assets value in this paper, the author believes that decision-making and prudence principle cause the need for assets impairment accounting. Then, the following chapters compared the assets impairment standards in IAS and some other countries, and discuss the influences of the assets impairment accounting in policy making perspective. At last, this research analyses the behavior of listed companies on dealing with assets impairment provision based on Chinese stock market.This paper analyses the reversions behavior by descriptive statistics, case analyses and empirical analysis using the data from Chinese stock market. The evidences show that there is no seriously universal or obvious impairment reversions, just only a few listed companies behaved unreasonably, which is probably because those listed companies had responded since 2005 on the Exposure Draft of the CAS.The results of descriptive statistics show that the reversing rates are at a high level. However, the impairment reversions is certainly as a result of changing accounting standards because the listed companies reversed little impairment provisions in year 2001 and 2007.By reading more than 400 annual reports of year 2006 in Shenzhen stock market, the disclosure of assets impairment reversions resulted in a awful situation, particularly, the annual reports rarely disclosed the details of impairment reversions. And it can be found that some listed companies hardly left any impairment provisions balance of five long-term assets at the end of 2006.In regression analysis, the author takes long-term assets impairment reversions as dependent variable and the enterprises scale as explanatory variables as well as ratio of assets to liabilities (ROL), then it concludes that the listed companies with bigger scale or higher ROL are more likely to reverse assets impairment provisions. The influence in whole performance of listed companies on dealing with assets impairment reversions is not apparent by year varies. The empirical analysis not only has demonstrated that there is earnings management behavior via impairment reversions accounting policy, but also verified the ability of hypothesis of political costs and debt-contract assumption in Chinese stock market.