Effects of the asymmetric accounting treatment of tangible and intangible impairments in IAS36: International evidence

Using an international sample of 21 countries that follow International Financial Reporting Standards (IFRS), we investigate the association of tangible and intangible asset impairments with future cash flows. International Accounting Standard 36 (IAS36) requires that an asset shall be impaired when...

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Bibliographic Details
Published inJournal of economic asymmetries Vol. 11; pp. 96 - 103
Main Authors Karampinis, Nikolaos I., Hevas, Dimosthenis L.
Format Journal Article
LanguageEnglish
Published Elsevier B.V 01.06.2014
Subjects
Accounting asymmetries
Asset impairment
IAS36
IFRS
Accounting asymmetries
IFRS
IAS36
Asset impairment
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Summary:Using an international sample of 21 countries that follow International Financial Reporting Standards (IFRS), we investigate the association of tangible and intangible asset impairments with future cash flows. International Accounting Standard 36 (IAS36) requires that an asset shall be impaired when its recoverable amount is lower than its carrying amount in financial statements. Future cash flows constitute a core determinant of the estimated recoverable amounts. However, IAS36 treats tangible and specific kinds of intangible assets, such as goodwill, in an asymmetric fashion; while impairment tests for tangible assets shall be performed when relevant indicators exist (such as predictions of decreased future cash flows), specific kinds of intangible assets, such as goodwill, shall be tested on an annual basis. Consistent with our expectations, we find that this asymmetric treatment enhances timeliness of goodwill impairments but decreases their reliability in forecasting future cash flows compared to tangible impairments.
ISSN:1703-4949
DOI:10.1016/j.jeca.2014.08.001