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

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  • Karampinis, Nikolaos I.
  • Hevas, Dimosthenis L.

Abstract

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.

Suggested Citation

  • Karampinis, Nikolaos I. & Hevas, Dimosthenis L., 2014. "Effects of the asymmetric accounting treatment of tangible and intangible impairments in IAS36: International evidence," The Journal of Economic Asymmetries, Elsevier, vol. 11(C), pages 96-103.
    • Handle: RePEc:eee:joecas:v:11:y:2014:i:c:p:96-103
    DOI: 10.1016/j.jeca.2014.08.001
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    1. Tadeusz Dudycz & Jadwiga Praźników, 2020. "Does the Mark-to-Model Fair Value Measure Make Assets Impairment Noisy?: A Literature Review," Sustainability, MDPI, vol. 12(4), pages 1-24, February.

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    Keywords

    Accounting asymmetries; Asset impairment; IFRS; IAS36;
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