Determinants of Long-Lived Asset Impairments under U.S. GAAP and IFRS

• In Event: IFRS and Regional GAAP Comparisons

Abstract

This paper investigates the determinants of the impairments of long-lived operating assets under U.S. GAAP and IFRS. By employing an international setting covering 26 countries from 2005 through 2011, I document that asset impairments under the two standards both reflect certain economic factors and reporting incentives. Under US GAAP, asset write-offs strongly reflect GDP growth, unemployment rate, industry trend and some measures of firm performance. And managers tend to take a big bath or smooth income through the decision and measurement of asset impairments. Under IFRS the asset write-offs reflect most economic factors but less reporting incentives in general, but enforcement takes an important role in this mapping process. When the enforcement is low, IFRS adopters tend to manage earnings through the reporting of impairment loss. In summary, long-lived asset impairments reflect more underlying economics and less reporting incentives under IFRS than US GAAP, but such differences are also determined by the institutional characters.

Authors

• Elizabeth Gordon, Temple University

• Hsiao-Tang Hsu, Temple University