The Impact Of Asset Impairment Policy On Accounting Conservatism

As an important accounting practice of corporate financial accounting,accounting conservatism is important for the users of financial reporting.Accounting information has predictive values,overly aggressive or robust accounting policies will lead to making the wrong decisions that cause damage to their interests.Therefore,in the two large-scale reforms of the accounting standards since 2001,Accounting standard setters have pay attention to the articles of accounting conservatism.Asset impairment accounting is an important manifestation of the principle of conservatism,and it is the important factor of changes in accounting standard on accounting conservatism.Asset impairment itself is derived from the requirement of accounting conservatism,but when companies have incentives to manage earnings,impairment of assets policy became effective channels to manipulate profits,making accounting conservatism companies affected.Studies have confirmed that accounting conservatism has increased with accounting standards reform deepening especially with asset impairment policy reform before 2006.But with the development of the capital market growth,accounting goal changed.The goal transitioned from concept of fiduciary duty to the decision-usefulness view.So in 2006 the new accounting standards turned the status of accounting conservatism from the important features to the additional accounting information requirements of reliability and correlation.The requirements of conservatism principle in the new guidelines decreases,which can be seen from assets impairment changes.This paper examines the relationship between assets impairment policy changes and accounting conservatism of listed companies,and the differences between different operating conditions listed companies on the relationship.Furthermore,the paper deeply studies the relationship between different types of asset impairment policy and accounting conservatism.This paper combines theoretical analysis and empirical research methods,based on the relevant literature review and theoretical study of asset impairment accounting conservatism and policies and their relationship,and explore the impact of asset impairment policy on accounting conservatism after the implementation of the new accounting standards.The main conclusions are as follows:1.From 2001 to 2012,China’s listed companies accounting conservatism is prevalent.Prior to 2007,as an as an important feature of the quality of accounting information,the accounting conservatism has been continuously enhanced.Since 2007 the implementation of the new accounting standards,under the guide of decision-useful accounting targets,China’s listed companies accounting conservatism declined.Asset impairment policy change is an important cause of changes in accounting conservatism.The changes of new asset impairment policy in assets impairment of measuring,confirming and Impairment reversal,and the introducing of fair value measurement model led to the accounting conservatism in listed company dropped after 2007.Due to the new assets impairment policy strictly limited assets impairment behavior of listed companies,reducing the space of using assets impairment to earnings management,the explanatory power of enterprises asset impairment scale to accounting conservatism has weakened after the implementation of new asset impairment policy.2.The choice of assets impairment policies in listed companies exist incentives to manage earnings.Constrained by regulatory accounting,loss companies in order to improve the company’s performance and turn the company to a profit,more time will be to achieve the goal of earnings management policies by selecting the asset impairment.Therefore,compared to profit companies,the impact of asset impairment policy on accounting conservatism in loss companies are more obvious.3.The impact of different types of asset impairment on accounting conservatism has differences.The empirical study found that the listed company’s long-term asset impairment size is positively correlated with accounting conservatism,and short-term asset impairment size is negatively correlated with accounting conservatism.The impact of fixed asset impairment size on accounting conservatism is greater and there has a significant positive correlation.While accounts receivable and inventory impairment scale and accounting conservatism was significantly negatively correlated.Because of the provisions of the new asset impairment of long-term policy for asset impairment provision shall not be reversed once,so after 2007 long-term asset impairment of listed companies can be considered truthfully reflect the changes of enterprise asset,which is in line with the requirements of accounting conservatism;but the new rules are not particularly limited reversal of short-term asset impairment,and thus listed company may have a tendency to use short-term asset impairment to manipulate profit.Based on the above findings,the article propose the following suggestions:standard-setting agency should improve rele-vant regulations and operation rules for the fair value measurement model,and make this newly introduced measurement model play a better role;On the accounting conservatism application they should follow the principle of proportionality,and prevent listed companies abusing accounting conservatism to earnings management;Because shot-term assets impairment reversal are not restricted in accounting standards,standard-setting agency should strengthen external oversight mechanisms to the independent audit and standardized audit program of short-term asset impairment reversal.