FASB: A Look at Revised Standards for Asset Impairments and Discontinued Operations

2002 ◽  
Vol 13 (5) ◽  
pp. 67-73 ◽  
Author(s):  
Paul Munter
Keyword(s):  
Asset Impairments ◽  
Discontinued Operations

Shreffler Stores Accounting Issues Related to Consumer Receivables, Asset Impairment, and Discontinued Operations: A Problem-Based Learning Unfolding Problem

2010 ◽  
Vol 25 (4) ◽  
pp. 775-787 ◽  
Author(s):  
Philip G. Cottell
Keyword(s):  
Financial Reporting ◽  
Problem Based Learning ◽  
Actual Case ◽  
Financial Reports ◽  
Capstone Course ◽  
Accounting Firm ◽  
Accounts Receivable ◽  
Team Working ◽  
Asset Impairment ◽  
Discontinued Operations

ABSTRACT: Shreffler Stores, a large, diversified holding company in the retail industry has recently acquired Value Amalgamated Lots (VAL), a catalog retailer. In the following Problem-Based Learning unfolding problem, students will assume the role as a member of the financial reporting team, working on the Shreffler Stores’ annual report for several periods. Students will focus on issues relating to the operations of VAL, the subsequent impact on the financial reports of Shreffler Stores, and how results drive later management decisions. The events were taken from an actual case encountered in the conduct of an audit performed by a public accounting firm. Among the accounting concepts addressed are accounts receivable, impairments of different kinds of assets, and accounting for discontinued operations. The problem can be used as a whole in a capstone course or in pieces as part of an intermediate course.

Changes to the growth and discount rates and asset impairment

2020 ◽  
Vol 33 (4/5) ◽  
pp. 577-592
Author(s):  
Maxeem Georges
Keyword(s):  
Growth Rate ◽  
Discount Rate ◽  
Discount Rates ◽  
Estimation Model ◽  
Content Type ◽  
Listed Firms ◽  
Opportunistic Behaviour ◽  
Asset Impairment ◽  
Asset Impairments ◽  
Insight Into

Purpose With timeliness and measurement of asset impairments as well as management opportunistic behaviour being topical, since the issuance of Australian Accounting Standards Board (AASB) 136, this study aims to examine whether assumptions about growth and discount rates made about asset recoverable amounts determine asset impairments. Design/methodology/approach This study uses a sample of 450 firm-year observations representing 133 Australian listed firms from 2015 to 2018. An estimation model is used where asset impairments is the dependent variable, growth and discount rates are the variables of interest and several impairment indicators are included as controls. Findings The results show that the decrease in growth rate but not the increase in discount rate affects the recognition of large asset impairments, where firms decrease the growth rate in the year of recognition. A change in discount rate affects asset impairments only when it is higher than the industry average. Hence, the growth rate is the management’s tool of choice in the recognition of asset impairments. Originality/value This study provides additional insight into how AASB 136 is used in practice. This includes investigating the tools used by firms in the calculation of asset recoverable amount and whether firms provide important information, as a part of disclosure. The results are of interest to investors and policymakers because they highlight the need for more restrictions around growth rate assumptions and less variation in disclosure.

The effect of nonrecurring items on goodwill and CEO market-based compensation

2018 ◽  
Vol 17 (2) ◽  
pp. 150-176 ◽  
Author(s):  
Yoshie Saito
Keyword(s):  
Firm Value ◽  
Chief Executive ◽  
Executive Pay ◽  
Content Type ◽  
Book Value ◽  
Special Items ◽  
Industry Level ◽  
The Difference ◽  
Using Data ◽  
Discontinued Operations

Purpose This paper aims to analyze the association between goodwill defined as difference between market and book value of equity and reports of nonrecurring items, namely, special items, discontinued operations and extraordinary items to suggest information related to restructuring activities measured by these items can link the valuation and incentive roles of accounting. Economic intuition suggests that successful managerial efforts should increase firm value. Yet, the link between the valuation and stewardship roles of earnings has been difficult to verify. Design/methodology/approach The author first estimates whether nonrecurring items have an incremental ability to explain goodwill, measured as the difference between market and book value of equity, at the industry level and then estimates whether firm-specific accounting bias is associated with the industry-level signals sent by nonrecurring items. The author then analyzes whether these items are associated with the use of chief executive officer (CEO) market-based compensation. Findings The author’ results show that information contained in special items increases firm-specific goodwill, indicating that it sends signals to investors about future growth opportunities, while that of discontinued operations reduces goodwill, suggesting that it provides signals about the adjustments of book value. She does not find any significant informational role for extraordinary items. She also finds that the signals sent by special items are negatively associated with the use of CEO market-based compensation, while those relayed by discontinued operations are positively associated with the use of market-based pay. Research limitations/implications Contrary to prior studies, the results show special items and discontinued operations are both value and incentive relevant. There are two caveats to this analysis. First, owing to the frequent changes in the definition of discontinued operations, the analysis is conducted using data between 1992 and 2003. Second, some might argue that industry-level incremental R2 might not be appropriate for a compensation analysis. However, entities often use industry norms as a benchmark to set CEO compensation. Thus, it is reasonable to think that industry-level signals matter for executive pay. Originality/value The author’s findings suggest that compensation committees in firms across industries consider the information contained in special items and discontinued operations, and selectively alter the level of incentives to encourage managerial efforts.

Financial statement presentation of discontinued operations

2010 ◽  
Vol 21 (2) ◽  
pp. 97-101 ◽  
Author(s):  
Elaine Henry ◽  
Oscar J. Holzmann
Keyword(s):  
Financial Statement ◽  
Discontinued Operations

Long-Lived Asset Impairments in the Shipping Industry and the Impact on Financial Statement Ratios: Comparing U.S. GAAP and IFRS Standards

2013 ◽  
Vol 3 (2) ◽  
pp. 76 ◽  
Author(s):  
James Penner ◽  
Jerry Kreuze ◽  
Sheldon Langsam
Keyword(s):  
Financial Reporting ◽  
Financial Statement ◽  
Shipping Industry ◽  
Generally Accepted Accounting Principles ◽  
Financial Reporting Standards ◽  
Asset Impairment ◽  
The Difference ◽  
Asset Impairments ◽  
The Impact ◽  
Us Gaap

In this paper, we investigate asset impairment standards particularly as they relate to differences between United States generally accepted accounting principles (US GAAP) and international financial reporting standards (IFRS) for the impairment of long-lived assets in the shipping industry and the corresponding impact on financial statement analysis ratios.  Our study provides evidence that return on assets and asset turnover ratios diverge significantly as a result of the difference between US GAAP and IFRS on asset impairments within the shipping industry.  Reporting differences between US GAAP and IFRS can impede the comparability of financial reporting.  Asset impairment accounting differences can have significant differences for companies reporting under these two accounting standards.

Financial performance following discontinued operations

2020 ◽  
Vol 19 (4) ◽  
pp. 429-447
Author(s):  
Binod Guragai ◽  
Paul D. Hutchison
Keyword(s):  
Financial Performance ◽  
Performance Improvement ◽  
Least Square ◽  
Regulatory Change ◽  
Content Type ◽  
Future Performance ◽  
Regulatory Rule ◽  
Prior Literature ◽  
The Impact ◽  
Discontinued Operations

Purpose Prior literature provides empirical evidence that financial performance improves for core remaining operations after a firm discontinues some of their operations. This study aims to examine whether the association between discontinued operations and future financial performance improvement is affected by a regulatory rule (i.e. Statement of Financial Accounting Standards 144 [SFAS 144]) that significantly altered the reporting requirements of discontinued operations. This study also examines whether the association is dependent on the profitability of the operations discontinued. Design/methodology/approach Ordinary least square regressions are used to test the association between discontinued operations and financial performance improvement, conditional on the profitability of operations discontinued in the pre-SFAS 144 and SFAS 144 regulatory regimes. Data on profitability of operations discontinued is hand-collected. Findings Results suggest that firms experience improvement in financial performance following the reporting of discontinued operations in the pre-SFAS 144 era. Using hand-collected data on the profitability of operations discontinued, this research study also shows that improvement in performance is stronger for firms that discontinue loss operations compared to those that discontinue profitable operations. Originality/value This study explores the impact of regulatory change on the association between discontinued operations and future performance. Furthermore, unique hand-collected data is used to understand whether financial performance improvement is conditional on the profitability of the operations discontinued. Results documented in this paper should be of interest to investors, regulators and analysts in understanding the long-term strategic implications of discontinued operations.

Tangible Long-Lived Asset Impairments and Future Operating Cash Flows under U.S. GAAP and IFRS

2017 ◽  
Vol 93 (1) ◽  
pp. 187-211 ◽  
Author(s):  
Elizabeth A. Gordon ◽  
Hsiao-Tang Hsu
Keyword(s):  
Predictive Value ◽  
Cash Flows ◽  
Negative Association ◽  
Data Availability ◽  
Economic Factors ◽  
Negatively Associated ◽  
Operating Cash Flows ◽  
Reporting Incentives ◽  
Asset Impairments ◽  
Jel Classifications

ABSTRACT This paper investigates the predictive value of tangible long-lived asset impairments for changes in future operating cash flows under U.S. GAAP and IFRS. We find that impairments reported under IFRS are negatively associated with changes in future operating cash flows, whereas those under U.S. GAAP, on average, are not. We investigate whether differences in the predictive value are attributable to differences in recognition or measurement, providing evidence suggesting that impairment recognition under U.S. GAAP is delayed. Evidence also suggests that the value-in-use measurement attribute, allowed under IFRS, does not induce under-impairing as IFRS and U.S. GAAP impairments are similarly related to future impairments. The main result of a negative association under IFRS, but not U.S. GAAP, holds after considering future impairments to control for measurement differences, macro-economic factors, and firm reporting incentives. Further, impairment losses under IFRS are more predictive in high-enforcement countries. JEL Classifications: D78; F02; M16; M41; G38. Data Availability: Data used are available from sources identified in the paper.

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