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

• In Event: Forum on Reporting Standards

Abstract

This paper explores the determinants of tangible long-lived asset impairments under US GAAP and IFRS. Using a sample covering 26 countries, we document that impairments under each standard are associated differently with economic factors and reporting incentives. Under IFRS, impairments are associated with six of the seven macro-economic factors and firm-specific characteristics examined including the changes in GDP, unemployment rate, changes in industry returns, changes in operating cash flows, changes in earnings, and volatility. Whereas US GAAP impairments are associated with only three: changes in the GDP, changes in industry returns and volatility. Under US GAAP, the reporting incentives of taking a “big bath,” income smoothing, having private debt, and CEO turnover are associated with asset impairments. Conversely, IFRS impairments are related to fewer reporting incentives, including taking a “big bath” with more foreign assets and having private debt. Taken together, the findings suggest that IFRS impairments are more related to economic factors while US GAAP impairments are more related to reporting incentives. Further, when enforcement is low, impairments are more associated with reporting incentives than economic factors for IFRS reporters.

Authors

• Hsiao-Tang Hsu, Texas A&M University- Corpus Christi

• Elizabeth Gordon, Temple University