Research On Implementation Effects Of The Current Standard On Assets Impairment

The Accounting Standards for Business Enterprises No.8: Assets ImpairmentAccounting (ASBE No.8) issued in2006in China. In the newly implemented Standards onassets impairment, the following new issues are addressed: the identification of impairmentindications, the criteria on recognizing impairment amounts and the reversal of impairmentloss on long-term assets is forbidden. The main purpose of these new regulations is to reducethe possibilities of the listed companies to utilize assets impairment to manage their earnings.Based on the predecessor’s research, this paper is intended to study the change ofaccounting standards and to explore whether ASBE No.8which helps reducing the level ofearnings management through asset impairment. The results of this research may provide bothnew evidences for evaluating the effect of new ASBE No.8implementation and helpfulreference for subsequent revision of related accounting standards, which is of significance forimproving the quality of accounting information.In this paper, the data of the companies listed on China’s A-stock main-board market inyear2003-2010are used for the first time to examine the behaviors of asset impairmentempirically. We find that, after the change of assets impairment accounting standards, thebehavior of the assets impairment reversal in small loss companies, continuous losscompanies and small profit companies has been obviously reduced after the implementationof the new Assets Impairment Standards. But the “big bath” behavior in big loss companies isnot obviously reduced. The behavior of decreasing the impairment provision in continuousloss companies and small profit companies still exists. The detail research found that there’sno significant evidence to proof the listed companies use more short-term assets impairmentto manage earnings than long-term assets impairment, but the long-term assets impairment istruly used less than short-term assets impairment. So the new asset impairment accountingstandards are useful for restraining the reversal behavior of listed companies. Although theaccounting conservatism is not enhanced, the earnings management activities of using assetsimpairment polices are generally reduced.The main innovations of this paper are as follow: First, use the summation of assetsimpairment reverse and resell to replace the traditional method to examine the samplecompanies’ assets impairment reversal behavior, which can examine the new assetsimpairment standards more conservatively and appropriately under the background of theprohibition with long-term assets impairment reversal; Second, after the implementation ofthe new assets impairment accounting standards, we studied both the impairment and reversal behaviors of total assets, short-term assets and long-term assets in detail, to make a morein-depth analysis of the implementation effect of the new accounting standards.