Academic literature on the topic 'Write-Downs'

Reliance Corporation, a leading manufacturer of analog and mixed signal products and high performance memory products, experienced a significant downturn in 2004, resulting in a substantial inventory write-down of the memory products inventory. This case requires you to examine the issues of inventory valuation and disclosures and managerial motivations in managing earnings. A recovery of inventory values in the first quarter of 2005 provides a setting for evaluating subsequent financial statement reporting and for understanding the importance of ethics in financial reporting decisions. This case also provides you with an opportunity to research accounting literature, apply an accounting standard to a realistic setting, appreciate the judgments involved in financial reporting decisions, and understand difficulties in the evaluation of materiality.

We study the drivers of financial distress using a large-scale field experiment that offered randomly selected borrowers a combination of (i) immediate payment reductions to target short-run liquidity write-downs to target long-run debt constraints. We identify the separate effects of the payment reductions and interest write-downs using both the experiment and cross-sectional variation in treatment intensity. We find that the interest write-downs significantly improved both financial and labor market outcomes, despite not taking effect for three to five years. In sharp contrast, there were no positive effects of the more immediate payment reductions. These results run counter to the widespread view that financial distress is largely the result of short-run constraints. (JEL G56, K35)

Purpose The aim of this paper is to study the rhetoric of goodwill impairment, more specifically rhetoric, as it is constructed in the form of accounts (i.e. statements that explain unanticipated or untoward behavior). The authors argue that goodwill impairment is not only a technical matter but also a rhetorical practice by means of which external scrutiny is responded to. Design/methodology/approach The data corpus consists of explanations provided by corporations regarding impairment of goodwill. Data were collected from annual reports from companies quoted on NASDAQ OMX Stockholm, Sweden. The impairment explanations were analyzed according to a taxonomy of account types. The explanations were subjected to close reading to discern the potential rhetorical functions of the different accounts. Findings Seven account types are identified and discussed, namely, excuse, justification, refocusing, concession, mystification, silence and wordification. Research limitations/implications There is a need for further research that explores the process of authorship (i.e. writing, editing, negotiating and revising) through which the texts of financial communication are produced. Practical implications The findings have implications for the future formulations of standards regarding qualitative explanations in financial reporting in general and explanations of goodwill impairment in particular. Originality/value The paper contributes to the knowledge about the use of natural language and rhetoric in financial communication.

ABSTRACT Using a financial reporting and valuation model, we investigate the construct validity of Basu's (1997) asymmetric timeliness (AT) regression coefficient as a measure of conditional conservatism in corporate financial reporting. We predict that the AT coefficient will be positive even in the absence of conditional conservatism, and it will vary with non-accounting factors even if the degree of conditional conservatism is held constant. Our empirical analysis shows that AT coefficient estimates vary in directions predicted by our theory. Specifically, we find that AT coefficient estimates increase with expected returns and asymmetry in the distribution of returns, and decrease with cash flow persistence. Importantly, we identify the spread between the variances of bad news and good news accruals as an alternative measure of conditional conservatism that is free of the effects confounding the AT coefficient. Consistent with a key implication of conditional conservatism, we find that the variance of bad news accruals is significantly higher than the variance of good news accruals primarily due to conditionally conservative accruals related to inventory write-downs, long-term asset write-downs, and goodwill impairments. A series of placebo tests provides additional support for the construct validity of our alternative measure of conditional conservatism. Data Availability: Data are publicly available from the sources indicated in the text.

The objective of IAS 36 is to guide a company on how to apply procedures to ensure that its assets are carried at no more than their recoverable amount. The standard IAS 36 is however obscure and full of gaps to be filled with assumptions made by the CFO. Considering the obscurity of IAS 36, the audit of goodwill impairment tests and possible write downs can have different outcomes depending on the relationship between the auditor and CFO. This paper contributes to the literature by investigating how the auditor-CFO relationship influences the audit of goodwill impairment tests and possible write downs. The primary data consist of eight semi-structured interviews with four auditor-CFO pairs, in four Swedish listed companies. The auditor- CFO relationship and related negotiations are found to highly influence the audit of goodwill impairment tests and possible write downs. The findings indicate that the respondents view the auditor-CFO relationship as being proactive. Depending on what role the auditor is ascribed in the relationship by the CFO, the goodwill impairment tests and possible write downs have a different outcome, where optimistic values of the impairment tests are either upheld by implementation of relevant strategies or write downs are conducted.

År 2005 blev det obligatoriskt för noterade bolag inom EU att upprätta sin koncernredovisning enligt IFRS. Dessa internationella redovisningsstandarder har som mål att skapa jämförbara, transparenta, relevanta, tillförlitliga och begripliga finansiella rapporter vilka behövs för att fatta ekonomiska beslut. Användandet av IFRS ökar inte bara inom EU utan också länder utanför EU, så som Kanada, Ryssland och Japan. Vid införandet av IFRS gick många bolag från att redovisa avskrivning av goodwill, till att göra nedskrivningstest enligt IAS 36 p. 134 och skriva ned goodwill vid behov. Användningen av nedskrivning av goodwill istället för avskrivning kan ge en klarare bild av företagen för intressenter. Det existerar dock kritik mot hur IAS 36 p. 134 och dess föreskrivningar för nedskrivningar tillämpas i redovisningspraxis. Tidigare studier i ämnet harmonisering, har visat att arbetet med att skapa jämförbarhet i praxis inte alltid lyckas. Samtidigt är differentieringen mellan anglosaxiska och kontinentala redovisningssystem inte lika tydliga idag som de varit i det förflutna. Detta gör det intressant att undersöka harmoniseringen och jämförbarheten i redovisningspraxis i företag, med länder som inte är medlemmar i EU. Genom en komparativ studie mellan länderna Kanada, Ryssland och Japan undersöks till vilken grad de tillämpar IFRS och vilken skillnad som existerar mellan de olika länderna.Studien använder sig av ett abduktivt förhållningssätt och syftar till att göra en komparativ studie över hur 85 företag redovisar nedskrivning av goodwill i länderna Kanada, Japan och Ryssland. En kvalitativ ansats, med en komparativ design används i första hand eftersom denna studie syftar till att undersöka harmoniseringsprocessen och dess kontinuerliga utveckling.Resultatet i studien visar att företagen i de tre länderna skiljer sig åt i vilken utsträckning som de redovisar enligt IAS 36 p. 134, som behandlar nedskrivning av goodwill. De kanadensiska företagen följer i genomsnitt paragraferna under IAS 36 p. 134 bättre än de andra länderna, medan resultatet för de företag som tillämpar nedskrivning av goodwill visar att de japanska företagen följer underparagraferna bäst.Slutsatsen som kan dras är att beroende på ett lands redovisningstradition samt vilka redovisningsprocesser som länderna använder, så kommer företagen följa internationella redovisningsprinciper i olika utsträckning.<br>In 2005, it became mandatory for listed companies within the EU to prepare their consolidated financial statements in accordance with IFRS. These international accounting standards aim at creating comparable, transparent, relevant, reliable and comprehensible financial statements that are needed to make financial decisions. The use of IFRS increases not only within the EU but also in countries outside the EU, such as Canada, Russia and Japan. When introducing IFRS, many companies failed to write impairment tests under IAS 36, p. 134, and write down goodwill if necessary. The use of goodwill write-downs instead of depreciation can provide a clearer picture of the companies for stakeholders. However, there is criticism of how IAS 36, p. 134, and its provisions for impairment are applied in accounting practice.Earlier studies in the subject of harmonization have shown that the work of creating comparability in practice does not always succeed. At the same time, the differentiation between Anglo-Saxon and Continental accounting systems is not as clear today as they have been in the past. This makes it interesting to investigate the harmonization and comparability of accounting practices in companies, with non-EU countries. A comparative study between Canada, Russia and Japan examines the extent to which they apply IFRS and the difference that exists between the different countries.The study uses an abductive approach and aims to make a comparative study of how 85 companies report goodwill impairment in the countries of Canada, Japan and Russia. A qualitative approach, with a comparative design, is used primarily because this study aims at examining the harmonization process and its continuous development.The result of the study shows that companies in the three countries differ to what extent they report in accordance with IAS 36, p. 134, which deals with write-downs of goodwill. Canadian companies, on average, follow the paragraphs of IAS 36, paragraph 134, better than the other countries, while the results of the goodwill impairment show that the Japanese companies comply best with the under-paragraphs.The conclusion that can be drawn is that depending on the country's accounting tradition and the accounting processes used by the countries, companies will comply with international accounting principles to a varying degree.

碩士<br>國立成功大學<br>會計學系碩博士班<br>96<br>The Ministry of Finance in China announced two major accounting acts in 1999 and 2000 respectively. In 1999, the “Additional Regulation on Accounting Systems for the Limited Companies” was issued, which marked a change in accounting rules for asset write-downs from the “voluntary” regime to the “mandatory” regime. Moreover, the “Enterprise Accounting Systems” was issued in 2001, which increased additional four asset items that an enterprise can choose to write down. In this study, these new items are referred as “New Four Items” and their old counterparts are referred as “Traditional Four Items”. In this setting of accounting changes, the purpose of this research is to examine the influences of the aforementioned accounting regulation changes in China on the determinants of asset write-downs and the resulted value relevance changes in accounting information. The empirical results for the influences of the accounting change on the determinants of asset write-downs suggest that: (1) After the enactment of Additional Regulation on Accounting Systems for the Limited Companies in 1999, the magnitude of asset write-downs is mainly explained by managers’ opportunistic reporting incentives but not the firm’s economic conditions; (2) The “New Four Items” of asset write-downs regulated by Enterprise Accounting Systems in 2001, has encouraged management to recognize asset write-downs based on the firm’s economic substance. As to the influences on the value relevance changes in accounting information, our results indicate: (1) After the enactment of Additional Regulation on Accounting Systems for the Limited Companies in 1999, investors placed more weights on accounting earnings but less weights on book values in their valuation decision; (2) The “New Four Items” of asset write-downs regulated by Enterprise Accounting Systems in 2001 has increased the value relevance of both accounting earnings and book value in the same time. In the sensitivity analysis, I applied the “return model” to examine the value relevance of accounting information and found that the earnings-return relationship is lower after the enactment of Additional Regulation on Accounting Systems for the Limited Companies in 1999, indicating that earnings’ informativeness has diminished after then. Moreover, the earnings-return relationship is higher after the enactment of Enterprise Accounting Systems in 2001, indicating that earnings’ informativeness has increased after then.

博士<br>國立臺灣大學<br>會計學研究所<br>96<br>Nissim and Penman (2006), and Ohlson (2006) notice that extant GAAP mixes both balance sheet and income statement perspectives in measuring earnings and thus will decrease accounting earnings’ usefulness in securities valuation. For example, asset write-offs are recognized under balance sheet perspective, and they not only decrease current earnings, but will also increase the future earnings due to the reduction in subsequent depreciation expenses accompanied by the asset write-offs. The purpose of this study is to address whether investors understand the implications of decreased depreciation expense due to write-downs recognition, and hence the market will not react to the increase in reported earnings in the following year. The sample includes all U.S.A firms in Compustat database that recognized write-offs in their financial reports during the period of 2002-2006. The security return - earnings change regression results indicate that the decreases in depreciation expense accompanied by the write-down recognition is positively related to security return in the next year. The hedge return results also support the findings of regression analysis. As expected, hedge returns are significantly different from zero when based upon write-down amount or the decreased depreciation expense. This is consistent with that investors do not anticipate correctly the earnings increase after write-downs period. However, this study also examines the future security returns for a sample of firms reported goodwill write-down which has no effect on the subsequent earnings, and finds the amount of goodwill write-offs is positively correlated with security return in the next year. It means that the possibility of reversal of overreaction in the year of write-down cannot be ruled out. Overall, the results are consistent with that investors cannot assess the implication of asset write-offs for future earnings in an unbiased way. To avoid the misevaluation by investors, the accounting standard boards might want to consider adopting the pure income statement approach in earnings measurement (Ohlson, 2006).

碩士<br>東海大學<br>會計學系<br>101<br>This study investigates the effect of insider trading on value relevance of assets write-downs (asset impairment). Managers play a critical role in the treatment of impairment of assets, involving discretions and judgments. The process is undisclosed and unknown to outsiders. Prior researches suggest that insider trading reflects insiders’ private information on future prospects of firms. If insider trading reflects private information of managers, insider trading could convey information about the value relevance of asset write-downs. This study uses the samples occuring impairment of assets and insider trading in the same year. The sample covers firms listed on TSE and OTC from 2004 to 2012. Price model and return model are used to investigate whether insider trading affects the value relevance of asset write-down. The results shows that insider trading affect value relevance of asset write-downs. In addition, the effect of insider net buying is greater than insider net selling. The results also hold if the sample is limited to electric industry. In sum, the results support that insider trading conveys information to enhance the value relevance of asset write-downs.

碩士<br>中原大學<br>會計研究所<br>94<br>Taiwan’s Financial Accounting Standards Committee of the Accounting Research and Development Foundation issued SFAS No.35, “Accounting for Asset Impairment,” in July 2004. This accounting standard was effective for financial year ending after December 31, 2005, with early adoption encouraged. The primary objective of this paper is to contrast the earnings management incentives and corporate governance mechanisms of impaired asset write-down firms that adopt the standard in 2004 (early adopters) and 2005 (late adopters). Based on the literature before, there are two characteristics about write-downs. One is the information signaling perspective, write-downs help managers to convey the private information about the underlying economics beyond the historical cost accounting (Rees et al. 1996；Minnick 2004). The other is the opportunistic behavior perspective, write-downs are employed by managers to engage in “big bath” or “income smoothing” reporting behavior (Zucca et al. 1992；Riedl 2004). The issuance of SFAS No. 35 allows managers to exercise discretion over the timing and amount of asset write-downs. We investigate whether corporate governance mechanisms are likely to reduce information asymmetry problems and agency cost problems. The contrast of impaired asset write-downs across the two years is an interesting question. This study adapts a methodology proposed by Riedl (2004) to examine whether earnings management incentives and corporate governance mechanisms dominate the reported write-down firms between 2004 and 2005. The stacking of the equations allows statistical tests of differences in coefficient estimates across the two years. In our research, earnings management incentives variables include BATH, SMOOTH and DEBT; corporate governance mechanisms variables include IB, IS, SAME, BN and BH. Empirical results reveal that early adopters are associated with lower earnings management incentives and better corporate governance mechanisms, and late adopters are associated with higher earnings management incentives and worse corporate governance mechanisms. These results imply that early adopters use reporting flexibility to reveal their private information about the true value of the firm; alternatively, late adopters use this discretion opportunistically distort the underlying economics of the firm. Moreover, these results suggest that corporate governance mechanisms are introduced to communicate private information and reduce the information asymmetry between the firm and its investors. Meanwhile, the mechanisms are also designed to limit opportunistic behavior and reduce the agency cost between managers and all stakeholders. We argue that corporate governance mechanisms restrict earnings management incentives on the impaired asset write-downs. This paper contributes to the literature on asset impairments and corporate governance limit earnings management. The results of this study should be of interest to Taiwan’s Financial Accounting Standards Committee due to the multiyear adoption policy.

This study examines the timeliness of write-downs taken by U.S. financial institutions during the financial crisis of 2007-2008. The timeliness of write-downs is measured by benchmarking the quarterly accounting write-down schedule with the devaluation schedule implied by credit indices such as the ABX. The results show that accounting write-downs are less timely than the devaluations implied by credit indices. In a cross-sectional analysis of the determinants of the timeliness of write-downs, I document that higher corporate governance quality is positively related to timelier write-downs. Furthermore, I observe that regulatory investigations and litigation pressure are positively related to the timeliness of write-downs, whereas the write-downs by firms with more complex exposures, higher financial leverage, and tighter regulatory constraints are less timely. In addition, I control for numerous exposure-specific characteristics and document that less risky exposures, and exposures that were affected later during the financial crisis, were written down later. Regarding the consequences of timeliness, this study finds that the exposure to risky assets is reflected faster in stock returns for firms with timelier write-downs.

Despite the need for accurate oil and gas reserves estimates which honor disclosure requirements of the United States Securities and Exchange Commission (SEC), a number of exploration and production companies have allegedly overstated and subsequently written down their reserves during the last 20 years. Reserves write-downs are of great interest to numerous groups involved in the reserves estimation process and outcome, including estimators, managers, investors, creditors, and regulators. Considering the magnitude and nature of some alleged overstatement cases, it appears that some of these parties may benefit from a better understanding of reserves reporting, the relative risk of overstatements, the regulatory environment and enforcement procedures, and identifying questionable reserves data. After discussing the context and importance of reserves and write-downs, there is a detailed examination of the SEC, including the agency's reserves reporting requirements, and their enforcement methods. A number of alleged overstatement and write-down "case studies" are presented, with details on the specific Federal Laws alleged to have been violated by corporations or individuals and then cited by the SEC and shareholder lawsuits. We also conclude that there may be greater write-down potential due to the updated SEC reserves reporting guidelines. A comprehensive series of systematic questions have been compiled and quick-look graphical techniques have been developed that may be used to gain insight into -and potentially raise questions about- an operator's reserves data.

This chapter details how the eurozone's leadership redeemed itself in 2012–13, though only very partially, by moving from an abhorrence of sovereign and bank debt restructuring to an embrace of both. As 2011 turned into 2012, economic reality increasingly intruded into eurozone policymakers' world view. As such, starting in the second half of 2011, Europe's policy errors were slowly, divisively, and incompletely righted. Within less than two years, the early taboo on debt write downs had given way to Europe's first sovereign restructuring in generations and to an agreement that failing banks should write down creditors' claims before receiving any government aid. On both the sovereign and banking sides, the eurozone was moving from bail-out to bail-in.