8 research outputs found

    Lax Compliance of Goodwill Impairment Accounting in the Early Year after IFRS Implementation

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    After some decades of discussing in recognizing, measuring and reporting goodwill in the financial reports, Hong Kong finally has promulgated HKAS 36 - Impairment of Assets, for the convergence of IFRS including IAS 36. This is absolutely applicable to all transactions of business combinations beginning on or after 1st January, 2005. The adoption of HKAS 36 has resulted in significant changes and more complexity in terms of techniques and in the nature of disclosures relating to goodwill and its impairment to the reporting first-time adopters. The traditional method by adopting “capitalize and amortize” has been replaced by impairment testing regime based on subjective assumptions. Therefore, it is more likely to have inconsistent compliance by the first-time adopters in their transition period under the new reporting approach. Thus, this study has the purpose of examining the compliance levels under a variety of provisions of HKAS 36. By using the data of annual reports of Hong Kong listed firms, first-time adopters, the research found the material levels of non-compliance and substantial changes in the quality of note-form disclosures bearing on impairment testing process. Further study on post transition period is identified and discussed. Keywords: Goodwill, Impairment, Financial Reporting Standard, Hong Kon

    A Consistent Implementation of IFRS 13 and IAS 36 for Non-current Assets

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    There is much debate for both the academic community and accounting professionals with respect to the use of fair value and cost accounting, as well as the application of impairment to current and non-current assets. Fair value and impairment are two related concepts, the reason being that in order to proceed with the latter, the current market price of an asset should first be measured. IAS 36 came into force to stipulate that no asset should be valued above its current actual value. Assets’ revaluation affects not only the companies’ outcome but also the applied depreciation method, which must be adjusted accordingly to the new data. Assets that cannot be measured to their fair value, in accordance with the IAS instructions, are grouped to form identifiable units within the company that was able to generate cash inflows and be tested for impairment as a whole. In this article, we focused on presenting a methodology from a technical approach on these issues, whilst at the same time remaining compatible with the principles of both accounting and finance. Real-life data from existing companies have been used not only for the valuation of the same following their transformation into cash-generated units, but also for non-current assets by controlling both the impairment and the depreciation process. We use cash flow generation models through the business plan process and apply certainty and uncertainty techniques such as sensitivity analysis and Monte Carlo simulation. After having reviewed the estimations and bearing in mind the structure of the model, we have concluded that specific parameters are affecting the fair value measurement on non-current assets. The value of this article is to develop a methodology that can be easily applied to different companies and is compatible with the spirit and provisions of both the international accounting standards as well as those of financial accounting. Keywords: FVA, cost accounting, finance, impairment, O

    The Effect of IFRS on the Financial Ratios of Canadian Public Mining Companies.

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    The objective of this study is to add to the body of research concerning International Financial Reporting Standards (IFRS). To accomplish this objective, it will examine whether Canada’s adoption of IFRS, which replaced Canadian Generally Accepted Accounting Principles (GAAP), appears to affect the reported financial performance of Canadian public mining companies. Financial information for 2010 from the audited financial statements, as stated under IFRS and Canadian GAAP, were used to compute selected financial ratios. These financial ratios were tested to determine if statistically significant differences in their dispersion and central tendency resulted from adopting IFRS. It was found that no statistically significant differences existed in the dispersion of the ratios. However, statistically significant differences were found in the central tendency of three of the ratios: quick ratio, return on assets, and comprehensive return on assets. The results of this study will provide valuable information for investors, Canadian public mining companies, and government policy makers in other countries around the world

    Mandated disclosures under IAS 36 Impairment of Assets and IAS 38 Intangible Assets: Value relevance and impact on analysts' forecasts

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    Drawing on a large sample of European firms, we examine whether variant compliance levels with mandated disclosures under IAS 36 Impairment of Assets and IAS 38 Intangible Assets are value relevant and affect analysts’ forecasts. Our results indicate a mean (median) compliance level of about 84% (86%) but high variation among firms; and disclosure levels regarding IAS 36 being much lower than those regarding IAS 38. In depth analysis reveals that non-compliance relates mostly to proprietary information and information that reveals managers’ judgment and expectations. Furthermore, we find a positive (negative) relationship between average disclosure levels and market values (analysts’ forecast dispersion). Results, however, hold more specifically for disclosures related to IAS 36, and these also improve analysts’ forecast accuracy. Our findings add knowledge regarding the economic consequences of mandatory disclosures, have an appeal to regulators and financial statement preparers, and reflect on the IASB’s concerns to increase the guidance and principles on presentation and disclosure

    Goodwill impairment: A comparative study under US GAAP, IFRS, and China GAAP

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    According to the current international financial accounting standards (IFRS), goodwill is no longer amortized, but an impairment test should be performed at the end of each year. Once an impairment loss is confirmed, it cannot be reversed. This study aims to compare the causes and impact of the goodwill impairment losses with prior researches. The cases of Kraft Heinz Company, Dalian Zeus Entertainment Co., Ltd, and Bayer Group that disclosed impairment losses in the fiscal year 2018 reporting under US GAAP, China GAAP and IFRS are analyzed and compared. Our findings based on the ROE, ROA, ROS and goodwill-to-assets ratio analysis of these three companies are concluded as (1)goodwill impairment losses harm the overall corporate performance and show lagging information, and (2) goodwill impairment losses are relative with big bath, and (3) irrational mergers and acquisitions and large-scale write-offs prompt opportunistic management.De acordo com as atuais normas internacionais de contabilidade financeira (IFRS), o ágio não é mais amortizado, mas um teste de redução ao valor recuperável deve ser realizado ao final de cada ano. Uma vez confirmada, uma perda por redução ao valor recuperável não pode ser revertida. Este estudo tem como objetivo comparar as causas e o impacto das perdas por redução ao valor recuperável de ágio com pesquisas anteriores. Os casos da Kraft Heinz Company, da Dalian Zeus Entertainment Co., Ltd e do Bayer Group que divulgaram perdas por redução ao valor recuperável no ano fiscal de 2018 relatando sob US GAAP, China GAAP e IFRS são analisados e comparados. Nossas descobertas baseadas na análise de ROE, ROA, ROS e ágio / ativo dessas três empresas são concluídas como (1) as perdas por redução ao valor recuperável do ágio prejudicam o desempenho geral da empresa e mostram informações atrasadas e (2) as perdas por redução ao valor recuperável são relativas com grande banho; e (3) fusões e aquisições irracionais e baixas em larga escala estimulam o gerenciamento oportunista

    Accounting for carbon emission trading: an Australian perspective

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    The emergence of market-based mechanisms to reduce greenhouse gas emissions presents a challenge for accountants who are now required to reflect the new economic given to carbon credits and related assets in the company accounts. Given the absence of formal accounting guidelines, carbon market participants (liable entities and carbon credit providers) around the world are able to select accounting practices and reporting methods based on individual judgment. The main aim of this thesis is to explore current accounting practices (asset classification, sequent measurement and impairment testing) of Australian carbon credit providers. In addition to exploring the underlying reasons for specific accounting practices, this study also aims to uncover emerging normative views drawing on expert opinions. The study was conducted using case-study methodology and in-depth interviews, supported by archival data and secondary data. The study used institutional theory to interpret research interviews. In general, it was found that disclosures of related accounting information are incomparable due to the lack of formal benchmark guidelines. While the research results show accounting practices for carbon credits and related assets are in accordance with existing general accounting standards and conceptual frameworks, the preferred asset classification of carbon credits varies among the case site participants, according to specific market requirements and economic uncertainty. Applicable values and valuation methods differ from case site to case site due to the nature of each company’s business, internal operations and economic factors. Impairment testing conducted by each organisation requires reference price indices from various sources, but basically they are determined by the nature of assets and professionals. Revenue and expense recognition greatly relies on accounting estimation made by in-house, on-hand and external forestry professionals from government agencies and private bodies. When trying to elicit an emerging normative viewpoint, the expert views indicate asset classification, valuation, impairment; revenue and expense recognition should be prepared conservatively, based on a true and fair view. In conclusion, accounting policy makers and professional accountants in Australia need to address these issues to improve the quality of the accounting information in this area. Further research should focus on the implications and other developments of the carbon credit accounting practices

    Step Zero: Determinants and Implications of Reliance on the Qualitative Goodwill Impairment Assessment

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    Thesis (Ph.D.)--University of Washington, 2019I examine the use of qualitative versus quantitative impairment testing methods and their differential implications for future impairments and goodwill valuation. Using hand-collected data, I find that the likelihood of reliance on a qualitative assessment is decreasing in both the complexity of goodwill and the risk of an underlying goodwill impairment. I also find that the likelihood of large future goodwill impairments is lower on average for firm-years in which the firm relies on a qualitative assessment. Finally, I investigate investor perceptions of this choice and find evidence that investors place a premium on goodwill when firms rely on a qualitative assessment versus a quantitative test. This finding suggests that investors perceive a firm’s goodwill impairment testing method choice as reflective of management’s private information. Overall, results suggest that managers are not using the discretion in ASU 2011-08 opportunistically, which was a concern in implementing this new standard
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