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Causes and management of assets impairment listed companies to manipulate profits

Author: LiQingWen From: www.yourpaper.net Posted: 2009-06-10 02:05:39 Read:
[Abstract] This paper lists the listed companies for asset impairment to manipulate profits manifestations, in-depth analysis of the listed companies to manipulate profits impairment of assets of the internal and external causes, and targeted its governance recommendations.
Listed companies [words]; Impairment of assets; impairment of assets; profit

A, the status of implementation of the impairment of assets

New "Enterprise Accounting Standards" relative to the old criteria, there is indeed a great improvement, but there are still many deficiencies unclear criteria for the classification of the asset group, asset impairment recognition and measurement difficulty, asset impairment disclosure of the information is not comprehensive enough, external regulatory difficult, leading to the operability is not strong. And combined with the listing of the company's own motives, listed companies took the opportunity to be feasible, the use of these vulnerabilities exist for asset impairment, abuse impairment of assets manipulate profits.

Listed companies manifestations of impairment of assets manipulate profits

Vague definition of impairment of assets related accounting standards, and with greater flexibility, provision for the impairment of assets, the reversal provoked in some of the annual reports of listed companies in the manufacturing profits girders become listed adjustment of profits magic. Specific performance is as follows:
(A) The provision for impairment of assets, increased corporate profits
In accordance with the regulations, listed companies should regularly or at least at the end of each year, a comprehensive inspection of each asset as an impairment of the asset loss may occur. The intention is to promote listed companies to follow the principle of prudence, to correct past loss provisions due to insufficient the "profits foam" reinforce the true value of the assets at the end and profitability, reduce financial risk. The provisions of the "profit" in particular, to "avoid loss" of listed companies, the life-and-death. Class company to the brink of the edge of the loss, financial condition continued to deteriorate, a significant increase in expenses for the period, if more factual provision for eight impairment of assets, the result would surely result in the current round loss. The only mention of impairment allowances not to mention less mention, in order to avoid the current period's net loss and escape the "life and death amulet.
(B) provide more for impairment of assets, reduce corporate profits
With more assets for impairment, "big bath", that is focused on a huge provision for profit for the year, caused when huge loss, can move forward with ease in the coming year, not to mention less impairment provision, to prepare for the coming year losses, such widespread.
(C) the current provision for impairment later less confirm the cost to increase profits
Current profits are robust, and the subsequent period profits are not robust. Such as inventory, their depreciation ready to make profit for the period to calculate low ending inventory cost reduction will lead to the low cost of sales in subsequent periods, so profit rebound. Such as fixed assets, provision for impairment of the carrying value reduced under the same conditions in the rate of depreciation, depreciation method, residual rate for subsequent periods due to the decrease in depreciation and makes profits increase. This earnings management without the need for a large number of reversed impairment allowances can be realized more covert.

Third, the use of internal and external causes of impairment of assets manipulate profits

(A) internal factors: the enterprise's own motives due
Listed companies often bear the task belongs to the Group or its holding company to the market to raise funds, especially at this stage of the development of the capital market is still not complete, but it is not easy to get listed qualifications. Therefore, as resource scarcity listed companies in the entire group, even a region, it is precious, and in order to avoid the loss of resources due to successive years of losses caused by illegal operations is not surprising. In addition, the Commission on the initial offering of shares of listed companies or allotment provides for a series of prerequisites to the issue of new shares or rights have to take advantage of the impairment of financial packaging motivation. In addition, in some places, due to the phenomenon of the "official out the numbers, figures out the official" existence, which is the internal one of the motivations for the impairment of assets manipulate profits. There are today's enterprise is not honest phenomena have occurred, then the perfect technology, is also likely to be management bypassing of the impairment of assets to become a management tool to manipulate profits.
(B) External factors: imperfect, the relevant provisions of operability is not strong due
1 asset group division is more difficult to determine
New guidelines for the division of the asset group to the lack of clear standards. Since the internal management of enterprises such as production operations and other factors to be considered in the recognition of an asset group. When enterprises with more products, more production lines, is more difficult to determine the asset group; diversified enterprise, it is more difficult to determine the asset group. Due to the lack of clear standards division of the asset group, vulnerable to the influence of human factors. The division of the asset group is different, and directly affect whether provision for asset impairment and provision for how much. Therefore, enterprises are likely to take advantage of the division of the asset group to manipulate the impairment of assets and results of operations.
Each asset impairment was recognized different standards
Recognition criteria there are different types of impairment of assets, including the permanent standard, the possibility of standard and economy standards. Permanent standard when the book value of the assets exceeds the fair value, and be able to determine the status of permanent impairment loss is recognized. The use of this standard requires management to the estimated asset impairment losses mainly temporary asset impairment losses may soon be restored, eliminating the need to pre-impairment allowances to confirm; whether permanent is beyond the ability of management judgment required them to predict with certainty the future matters too harsh. The possibility of standard refers to an impairment loss is recognized when the carrying value of the assets may not be fully recoverable. Recognition and measurement basis of this criterion in the choice of when to use may be inconsistent. Economy standards is the book value of the assets exceeds the fair value of that impairment loss is recognized, similar to the cost and market value of the stock, this principle requires continuous assessment of impairment of assets. This standard, however, presupposes that the fair value of an asset is available. Judging from the current situation is permanent standards and the possibility of standard, recognized both standards for asset impairment inevitable defects involving human judgment factors determine whether an asset exists permanent or the possibility of impairment is not clear quantitative criteria, which undoubtedly greatly increase the possibility of enterprise management authorities to manipulate accounting information to manipulate the company's profits, which to some extent.
3 nor specific provisions for impairment of assets measured
First, asset impairment of the recognition and measurement difficult. Impairment of assets in accordance with the accounting standards require the recoverable amount is less than its carrying value of the assets (including individual asset and asset group). The recoverable amount is calculated by two approaches, the asset's fair value less costs of disposal, net; assets estimated present value of the future cash flows. But to the use of these two methods in practical work reasonably sure the recoverable amount of the assets or have greater difficulty. The one hand, China's current market economy is not perfect, the various assets, the price of the market mechanism is not sound, fair value made difficult calculation of the present value of future cash flows expected net cash flows, the asset's useful life and discount rate is more difficult to determine the use of less unsound; the other hand, at this stage of intermediary service organizations, enterprises in fixed assets, intangible asset, due to technical updates, market prices falling value of devaluation, its confirmation measurement far beyond accounting professional competence, professional technology assessment agencies to identified needs outside the enterprise.
Asset impairment provision of the complexity of the standard, and its provisions do not specifically. The new accounting standards in accordance with the types of assets impairment provision and the corresponding provisions of the conditions should be recognized as an impairment, as to how the provision, the provision ratio, completely professional judgment in accordance with the actual situation and practitioners from the corporate to carry out. A large enterprise may be involved in more than ten kinds of assets impairment testing, including basic, such as the provision for bad debts, inventory provision for diminution in the value of fixed assets impairment, a variety of investment impairment and other special intangible assets such as indefinite Less value test, goodwill impairment test, an impairment of the asset group test, headquarters assets impairment testing. Accounting personnel and business personnel judgment analysis capabilities put forward higher requirements, the related employees whether they have the ability to timely, reasonable to draw impairment test results, which gave the enterprise management authorities to whitewash financial statements and operating results possible.
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