On The Reliability Of Accounting Information For Impairment Of Assets

China's enterprise accounting system requires eight listed companies to make provision for impairment of assets since 2001, marking the deepening of the application of asset impairment accounting in China.

However, what are the characteristics of the accounting information of asset impairment?

Will assets impairment accounting affect the reliability of information?

How to regulate asset impairment accounting?

Further understanding of these problems will directly affect the effect of asset impairment accounting implementation.

The asset impairment accounting pays more attention to the relevance of information. "The concept of entrusted responsibility" and "decision usefulness view" are two authoritative opinions about the financial accounting objectives in the accounting field. The essential difference lies in the fact that the quality of accounting information is more concerned with reliability or relevance.

Asset impairment accounting refers to the recognition that assets are likely to flow into the enterprise's full economic benefits below the current book value of the assets, and that the impairment of assets should be recognized, measured and disclosed in accounting.

Its essence is to replace the cost measurement with value measurement, and the book value is greater than the value part as the loss or expense of asset impairment.

It can be seen that asset impairment accounting is an effort to provide a measure of the true value of assets.

It is generally believed that the closer the asset measurement is to its true value, the more beneficial it will be for the information users to make investment decisions.

It is in this sense that we can think that the theoretical starting point of asset impairment accounting is the "decision usefulness view", which aims at providing decision information related to future cash inflows or outflows to real and potential investors rather than reporting accountability to owners.

Obviously, asset impairment accounting pays more attention to the relevance of information.

Two, asset impairment accounting may affect the reliability of information. 1. can improve the relevance of accounting measurement attributes, often reducing the reliability of information.

In order to realize the accounting objective of "decision usefulness view", asset impairment accounting has revised the single historical cost measurement attribute under the principle of historical cost.

The different measurement attributes have obvious differences in the correlation and reliability of accounting information.

The 2. major judgment range affects the reliability of information.

According to the provisions of the enterprise accounting system, data on short-term investment market prices, net realizable value of inventories, recoverable amount of long-term investments, recoverable amount of fixed assets, recoverable amount of intangible assets, recoverable amount of construction projects, and recoverable amount of entrusted loans are the basis for enterprises to confirm the value reduction of assets.

To some extent, the determination of "net realizable value" and "recoverable amount" depends on the subjective judgement of accounting professionals.

"Net realizable value" refers to the value of an enterprise in the course of its operation, at the estimated selling price minus the estimated completion cost and the estimated sales cost.

There are unavoidable subjective factors in these estimates.

As for the recoverable amount, the higher the net sales price of an asset is than the expected value of future cash flow projected from the disposition of the asset at the end of its continued use and service life.

It is more uncertain to determine the future cash flow value in the future.

In particular, the new four impairment provisions involve real estate and intangible assets valuation. Compared with the original four preparations, the assets measurement is more difficult and even more than the accounting personnel's professional judgment ability. Unless the help of appraisers of real estate and intangible assets is sought, it is difficult to get the appropriate standard of asset impairment.

In short, in the enterprise accounting system, many provisions on asset impairment preparation need to be combined with various factors to carry out complicated professional judgment when executing. The subjectivity of professional judgment will inevitably affect the accuracy of the impairment provision, and the provision of impairment provisions directly affects the profit indicators that the enterprises are very concerned about.

Therefore, when the corporate governance structure and the internal control system are not perfect, there will be a larger profit adjustment space for the provision of asset impairment, which will affect the reliability of information.

3. strong accounting policies can selectively affect the reliability of information.

The relevant provisions of the enterprise accounting system on the provision for impairment of enterprises are not clear enough, and the optional elasticity of the specific accounting policies of enterprises is relatively large, which is especially prominent in the short-term investment and the accounts receivable impairment provision.

(1) short term investment.

When the end cost of short-term investment is calculated by the method of lower cost or market price, the enterprise can, according to its specific circumstances, adopt separately the total investment, the investment category or the single investment.

If a short-term investment is more significant (such as 10% or more of the total short-term investment), it should be calculated on the basis of individual investment and determine the provision for depreciation.

In view of the overall investment and the depreciation of investment according to the investment category, it will offset a portion of the loss. Therefore, it is the most stable and the most conservative way to prepare the short-term investment price drop according to the single investment.

But the choice of which system is not clear.

(2) accounts receivable.

The method for enterprises to prepare bad debts is determined by the enterprises themselves.

Generally speaking, the three methods of percentage of receivables, age analysis and percentage of sales can be selected, and the proportion of extraction is determined by the enterprise itself, so it has strong mobility.

Different estimation methods and different percentage of bad debt losses will yield different financial results, which will provide a possibility for enterprises to manipulate profits by using method changes.

In addition, the enterprise accounting system stipulates that "accounts receivable cannot be fully prepared for bad debts" with related party members, but it is not clear whether the accounts receivable of group companies should be prepared for bad debts.

The provision of internal pactions has great impact on the profits and losses of enterprises.

Three, improving the reliability of accounting information of assets impairment. 1., strengthen the unity and clarity of asset impairment accounting.

(1) the standards making department should carefully determine the scope of professional judgment and prudently give enterprises the right to choose accounting policies.

Because of the imperfect corporate governance structure, accounting standards and incomplete accounting information market, the existence of accounting policy option is inevitable. Foreign studies also show that giving enterprises certain accounting flexibility can facilitate enterprises to pass the company's unique information to the market through professional judgment and accounting choice, thereby reducing the implementation cost of the guidelines (Scott, 1997).

It can be said that the relevant provisions of the enterprise accounting system related to the asset impairment policy are the concrete application of the basic accounting theory, and also the concrete embodiment of our country's efforts to increase the accounting reform and integrate with the international accounting system as soon as possible.

However, the development time of China's capital market, especially the stock market, is still very short. The market players, whether they are listed companies or investors, are still immature. In such a immature market, the implementation of a mature market accounting system may be costly.

Many empirical research results have also found that many enterprises that are facing "report" pressure do not correctly apply the accounting option granted by the enterprise accounting system, but regard it as an opportunity for profit manipulation, violating the original intention of the relevant provisions of asset impairment accounting, resulting in the wrong allocation of resources in the stock market.

Therefore, although the author does not advocate a simple elimination of accounting options to obtain the true and reliable accounting information, he still believes that it is absolutely necessary to properly restrict the right of enterprises to choose accounting policies.

(2) the securities regulatory authorities should increase the supervision over the accounting choice of enterprises and improve the pparency of information disclosure of listed companies.

Because the scarce resources of China's stock market are still mainly based on the government's performance of listed companies' "report results", it is difficult to avoid many companies failing to pass the "actual performance" to achieve "reporting performance" and thus losing the qualification of resource allocation. They often use the accounting option to restructure "report performance" so as to realize their refinancing in the stock market.

Therefore, the securities regulatory authorities should reform the way of resource allocation and intensify supervision, forcing listed companies to disclose the impact of accounting choices on profits.

2., strengthen the independent audit of asset impairment.

Asset impairment is usually estimated by the auditors' management units based on relevant factors. There is a larger profit adjustment space, and the risk of wrongdoing is greater.

A certified public accountant should plan and carry out audit work with due professional prudence to obtain sufficient and appropriate audit evidence to evaluate whether the auditor's management is reasonable and disclose whether the asset impairment allowance is reasonable.

When there is a difference between the assets impairment allowance estimated by the certified public accountant and the audited entity's accounting statements according to the audit evidence, it should be judged whether the difference is reasonable.

If the discrepancy is considered unreasonable, the CPA should be adjusted to the audited unit. If the audited unit refuses to adjust, the CPA should give an opinion on the audit opinion of reservations or negations according to its importance. When there is no objective data or significant uncertainties, the CPA can not judge the reasonableness of the assets impairment provision of the audited entity, and should issue an audit report with reservations or refusal to express opinions.

In order to standardize the audit of asset impairment, we should formulate relevant independent auditing standards as soon as possible in order to standardize the audit of asset impairment, and formulate the relevant auditing standards as soon as possible. We should make clear the specific auditing procedures of the impairment preparations, and strive to check the profit manipulation of enterprises through asset impairment preparation through the independent auditing of the Certified Public Accountants (CPA).