Research On The Impact Of The Assets Impairment Under The New Accounting Standards For Earnings Management

Assets impairment has been the main means of earnings management in the listed companies of our country. The accounting policy for assets impairment is a double-edged sword. The provision for assets impairment is conducive to a true response to the status of corporate assets. However, the reversal of assets impairment is used to be a strong subjective nature of accounting information which can easily lead to a true reflection of the actual situation of enterprises. The existences of the both promote the behavior that the assets impairment has been used to earnings management by the listed company. On February 15, 2006, the Ministry of Finance issued the "Enterprise Accounting Standards No.8-Impairment of Assets", the article 17 provides that an asset impairments loss was confirmed and shall not be back in subsequent accounting period, which is intended to restrict the use of asset by listed companies to carry out the management of surplus value. At the time of the new accounting standard carrying into effect, it has academic interest to study the extent of specific item depreciation to earning management, and to demonstrate whether the new accounting policies constraint listed company of earnings management behavior.Firstly, we analyzed the reasons why the listed companies prepared to use the assets impairment to the motivation of earnings management from the perspective of the classical theory. Secondly, we analyzed the inhibition and the new space which they may provide for earnings management of the listed companies. On the basis of the theoretical analysis, this paper selected the listed companies of manufacturing sector from Shanghai and Shenzhen Stock Exchange in 2005-2007 years for the research sample. Then we had drawn two conclusions: On the one hand. The implementation of the new Assets Impairment standard had constrained the behavior which the listed companies used long-term asset impairment as a tool to carry out earnings management to a certain extent. On the other hand, listed companies have the tendency to use short-term asset impairment to carry out earnings management. Lastly, we had put forward the relevant recommendations based on the conclusions, and we expect that we can provide some advice for the norm-makers and regulators.