A Comparative Study On The Influencing Factors Of Long - Term Asset Impairment Under The New And Old Accounting Standards

Since1998, Chinese listed companies are required to recognize asset impairments for accounts receivable, inventories, and short-and long-term investments. By2001, the recognition of asset impairments has extended to cover four new categories of assets, including fixed assets, construction in progress, intangible assets and commission loans. However, prior research reveals that listed companies take advantage of write-off and reversal of long-lived assets to manipulate earnings. For the purpose of reducing earnings management and improving the truthfulness of accounting numbers, Year2006witnessed the issuance of New Accounting Standards. Compared with the old accounting standards, new impairment standards experienced great changes. However, critics question the standard’s guidance mainly concerning the prohibition of reversals and the introduction of fair value. Motivated by this debate, this paper contrasts the associations. between write-offs with economic factors and earnings management incentives across old and new long-lived asset impairment regimes. Empirical results reveal that under new asset impairment policies, both firm-specific economic factors and "big bath" reporting behavior have a weaker mapping into write-offs. The results suggest that to some extent new asset impairment practice can reduce earnings management, but it is less reflective of economic reality. For accounting theory, since almost no research has contrasted the reporting of write-offs across the old and new impairment standards, this paper can fill this gap, thus enriching China’s extant impairment literature. For accounting practice, this paper can provide enlightenments for improving new impairment standards by revealing its drawbacks and potential problems.