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The effects on the listing Corporation profits from the assets impairment provisions of evolution

Author: YuKai LiuHui From: www.yourpaper.net Posted: 2007-11-20 06:05:14 Read:
Abstract: in February 15, 2006 China promulgated the "standards" impairment of assets, impairment of assets has been confirmed shall not be reversed, for the impairment of asset of this provision is of great significance.This paper mainly studies the evolution of assets impairment provisions, combined with the case analysis of the change of asset impairment system of our country to the listing Corporation to cause, and explore the relevant provisions for impairment of assets in the new criterion of significance.
Keywords: impairment of assets of listing Corporation profit effect of

First, the introduction of
China's "enterprise accounting system" and "enterprise accounting standards" Provisions (hereinafter referred to as the "old standard"), the enterprise shall regularly or at the end of every year at least, to conduct a comprehensive inspection of the assets, reasonably estimate the possible loss of each asset, the asset loss possible assets impairment.1998 promulgated the "Limited by Share Ltd" Regulations of accounting system of accounts receivable, inventories, short-term investments and long-term investment impairment provision, in 2000 promulgated the "enterprise accounting system" provisions of the assets depreciation increases the range of fixed assets, intangible assets, in the construction process, entrusted loans, thereby expanding into eight impairment of assets to prepare, and ask the listing Corporation must perform the assets impairment provisions.The old standard also stipulates "recognised assets loss and write-off, if later retracted, should be adjusted accordingly has assets impairment provision".
In February 15, 2006 the Ministry of Finance issued a new accounting standards for business enterprises (hereinafter referred to as the "new standard"), not only a single set of "Enterprise Accounting Standards No. eighth -- impairment of assets", is still "Enterprise Accounting Standards No. second -- long term equity investment", "enterprise accounting Standards No. twenty-second -- the recognition and measurement of financial instruments" standards concerning the impairment of assets.According to the new standards only part of the assets can be reversed, "impairment of assets" involved in the assets, biological assets standards are clearly stipulated back (specified in Table 1) [1].
Table 1: asset impairment accounting policy table
The property name measurement attribute has confirmed the loss to the
"Impairment of assets" criterion relates to the asset's recoverable amount shall not be reversed
Net realizable value of inventories can go back to the
Consumable biological material net realisable value can go back to the
Production of biological materials recoverable amount shall not be reversed
The public welfare biological materials is not impaired processing --
Real estate investment (cost model) recoverable amount shall not be reversed
Investment real estate (measured at fair value) fair value is not specified in the
The construction contract cost is not specified in
Income tax assets taxable income can turn
The unguaranteed residual value, fair value can be back to the
Financial assets (fair value) is not impaired processing --
Financial assets (amortized value) the current value of the expected future cash flow can be reversed
Financial assets (equity investment instruments and related derivatives) the current value of the estimated future cash flow is not reversed
Oil exploitation rights (proven mineral rights) recoverable amount shall not be reversed
Oil exploitation rights (undiscovered mineral rights) fair value cannot be reversed
(source: Zhang Wangjun interpretation. The new policy of accounting of assets impairment accounting monthly, 2006; 8:27) and
Because the accounting for impairment of assets exist possibility of profit management, accounting policy for impairment of assets has been a focus in the accounting standard system.The new guidelines prohibit reversal of impairment losses of assets impairment is the breakthrough of a new system, the provision will have a greater impact on enterprises especially the profits of listing Corporation.The new criterion can completely restrain the use of impairment to earnings management behavior?The old standard of impairment of assets related provisions on how listing Corporation profits cause what kind of impact?"Impairment of assets" promulgated and implemented will produce short-term and long-term impact on how listing Corporation?This paper will discuss these issues.

Two, the old accounting standards of assets impairment of listing Corporation profit
Back to the old rules allow the impairment of assets and to increase the amount of provisions of current profits of enterprises, and enterprises use impairment reversal of making false profits opened convenient ways.
Because of China's listing Corporation is facing a lot of supervision, and the supervision is often based on financial indicators more single as an evaluation criterion, so the listing Corporation's management in order to meet the regulation, is bound to conduct earnings management using various means.The scholars of the impairment of assets through different methods and views for empirical research, consistently the reserve policy of earnings management by using the results of the impairment of assets of listing Corporation.To Kai (2004) shows an empirical study on Chinese stock listing Corporation earnings manipulation, impairment of assets and bad debts project and operation of the project due two projects is the main means to match as the motivation of earnings manipulation [2].Zhao Chunguang (2006) empirical research on the relationship between assets impairment and earnings management show, before impairment losses and the company will be back to the asset impairment of earnings management to avoid loss, impairment of profitable companies in reversal of assets impairment earnings management to avoid earnings decline in [3].
In recent years, driving some listing Corporation tend to their own interests, to "impairment - back" game, the provision for impairment of assets and rushed back to the "iron" enterprise performance, so as to achieve the security card, St, issuance, allotment of the purpose of the phenomenon is also emerge in an endless stream.Such as: ST Kelon in 2000 net profit of negative 678000000 yuan; 2001 net profits are negative l5.56 billion yuan, the provision of impairment of assets 635000000 yuan; in the face of 3 consecutive losses to delisting pressure ST Kelon, in 2002 net profit of 101000000 yuan, of which the provision for impairment of assets to 350000000 yuan.
In order to further the understanding of the implementation of the assets impairment standards of old standards in effect, the author of the Shenyin Wanguo Securities Research Institute "stock" in 300 by the focus of the listing Corporation in 2005 the newspaper conducted a survey analysis.According to statistics, impairment of intangible assets and long-term equity investment impairment three together accounted for the company in 2005 profit before tax proportion reached more than 20% of the 34 companies, the proportion of provision for impairment of fixed assets, more than 100% of the shares, including G, patriotic, Shaanxi International Trust & Investment A, North China Pharmaceutical listing Corporation 7 G Huaxin, which reached as high as 570.97%, patriotic shares up to 554.64%.Through the survey showed that, many companies the first half of 2005 annual provision for impairment of assets disparities, further analysis of the accounting report, can be found in assets impairment on randomness.G Huaxin as an example.The company nearly five years of impairment as table 2, the data show that in 2001 to 2003 G Huaxin impairment of balance changes gently, did not appear large fluctuations, and in 2004 appeared in 2003 compared to mutation, the impairment of the turn of nearly four times the balance.Appear such circumstance, while the possibility of assets impairment cannot be ruled out, but is more likely to be companies as profit regulation means.G Huaxin (specialized in cement production and sales) in the industry for investment demand presents the recent high point of the economy, but it is still in the amount of impairment, it is likely in the next industry downturn years greatly to the past an impairment, the impairment of assets as a means of profit smoothing processing.
Table 2:G China from 2001 to 2005 of impairment of the table (unit: yuan)
Years of 2001.12.31 2002.12.31 2003.12.31 2004.12.31 2005.6.30

The impairment of balance of 35066161.72 39486567.56 41326726.07 159344584.6 157982984.6
(source: provide data obtained according to the wind information financial terminal)



Three, impairment of assets under the new accounting standards impact on the listing Corporation profits
The new criterion specifies the provision for impairment of assets, put forward a measurement method to recover the amount method to judge and asset impairment of assets, make sure the asset impairment loss has strong operability; and introduces the concept of asset group, it is difficult to estimate the recoverable amount of assets shall be incorporated into the individual property
To determine the recoverable amount of the group; goodwill should be tested for impairment, to determine if it should confirm the impairment loss.At the same time, the new standards stipulated by the securities investment, real estate, trade fair value measurement (similar to the old standard of "investment") is no longer considered impairment.In addition to trade securities and financial instruments (including the original receivables, loan) and inventory impairment loss of assets allowed to return; the equity method accounting of long-term equity investments, fixed assets, construction in progress, intangible assets (including goodwill) of the asset impairment loss is no longer allowed to return.Difference between the assets impairment later whether to return, it is a substantial breakthrough of new standards than the old standards in this area.
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