Research On The Value Relevance And Reliability Of Assets Impairment Information

The theory base of assets impairment is that accounting information should be useful for decision. Its purpose is to remove the water of assets value, making it more true and fair. Ideally, asset impairment must be able to consolidate asset quality, enhance reliability and relevance of accounting information, so as to achieve the requirements of decision usefulness to investors. But in reality, some listed companies manipulate accounting profits through assets impairment. In this case, whether the impairment of assets is still beneficial to enhance the relevance and reliability of accounting information is questionable; At the same time, China’s new accounting standards was implemented from 2007, the criteria for impairment of assets were modified in certain range. How is the effect of new asset impairment standards? Whether it can effectively improve the relevance and reliability of asset impairment information? To answer these questions, this paper does an empirical study on relevance and reliability of asset impairment information, examining the system effects of criteria.This paper reviews the concepts of relevance and reliability of accounting information, reviews the development in assets impairment accounting of China, focuses on the differences between new guidelines and the old standards for asset impairment, reviews related literatures. Based on all of this, we provide our research content.The empirical research consists of two parts:the value relevance of impairment information and the reliability of the information:In the study of value relevance, first of all, this paper does the research on incremental value relevance of total amount of asset impairment and different kinds of asset impairment, based on the whole samples. The finding is that assets impairment increases value relevance of accounting information. Among them, the value relevance of short-term asset impairment is better than that of long-term assets impairment. It may be because that the short-term asset market is more active and the market value is easy to get, leaving less earnings management space to companies. Value relevance of receivables impairment is higher than that of inventory impairment, fixed assets impairment and intangible assets impairment. Information of intangible assets impairment does not have the value relevance. Possible reason is that the criteria for receivables impairment is more detailed, its maneuverability is strong, and its disclosure is more detailed and standardized. And because of the special nature of intangible assets, its recoverable amount is difficult to be determined, so it is more likely to be used for profit manipulation.Secondly, the sample is divided into the part under old accounting standard and the part under the new one, and an empirical analysis on change of value relevance is conducted. The results shows:Under the new standard, value relevance of total assets impairment and different kinds of assets impairment has been enhanced, indicating that the new guidelines received good results in improving the value relevance of impairment information.In the study on reliability of impairment information, firstly, the paper does an empirical analysis on full samples to study the impact on accounting information reliability of total assets impairment and different kinds of asset impairment. The study found: Impairment of assets reduces the reliability of accounting information, showing that there may be earnings management incentive in the behavior of asset impairment of companies, which results in the reduction of reliability in accounting information. Meanwhile, the reliability of short-term assets impairment information is better than that of long-lived asset. Among the four kinds of assets impairment, the information of fixed assets impairment is the most reliable, and impairment of intangible assets has the weakest reliability of information.Secondly, this paper does a comparative study on impairment information reliability under old and new standards for assets impairment. The study found:under the new standard, impairment information reliability of total assets and long-lived assets has been improved, but the reliability of short-term asset impairment information decreases. From the point of view of each asset class, impairment information reliabilities of four kinds of assets are all improved. The new accounting standard further regulates the behavior of assets impairment, and regulates that the long-term asset impairment provision shall not be reversed. This regulation reduces the use of impairment to manipulate earnings of listed companies, improving the reliability of impairment information. However, due to the reversal prohibition is only for long-term assets, it may lead that more listed companies turn to use short-term assets impairment to manipulate profits, reducing the reliability of short-term assets impairment information.Finally, based on the foregoing findings, the paper puts forward some policy suggestions:Reduce accounting policies selection space appropriately, and use internal audit of companies and external oversight to control the use of assets impairment to manipulate earnings of listed companies; Promote market-oriented reform of the capital market. Establish an evaluation system for companies including financial indicators and non-financial indicators, to avoid the blind pursuit of profits of listed companies; Further standardize the accounting principle for impairment of intangible assets, developing more detailed and workable standards to enhance the value relevance and reliability of information of intangible assets impairment.