What Is Asset Impairment Accounting?

Asset impairment accounting refers to the total economic benefits that an asset may flow into the enterprise in the future are lower than the existing book value of the asset, and the asset impairment is recognized, measured and disclosed in accounting. Its essence is to use value measurement instead of cost measurement, and the part of the book value greater than the value is recognized as asset impairment loss or expense.

Asset impairment accounting

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1. The usefulness of decision-making is the theoretical starting point of asset impairment accounting ^[1]

1. Recognition criteria for asset impairment ^[1]

Before the third accounting reform in China in 1992,

From a historical perspective, the practice of asset impairment accounting originates from the application of pragmatism. The initial financial accounting required that asset measurement be as objective and reliable as possible from the perspective of the information provider. They believe that, apart from historical costs, other measurement attributes are generally unrelated to past transactions and events and are not eligible to become financial measurement attributes. Under the influence of this concept, asset measurement tends to use historical cost measurement attributes. ^[2]

Accounting standards represent a set of accounting objectives, accounting principles, accounting procedures, and accounting concepts that are compatible with the market economy. Its social attributes tell us: different social systems and levels of socio-economic development necessarily require the corresponding combination of accounting theory and accounting practice. High-quality accounting standards are shown to provide investors with useful information, and whether this goal can be achieved depends not only on the standards themselves, but also on whether the standards are compatible with the environment. Compared with developed countries and developed market economies, the status quo in China is diversified. Multiple operating methods, multiple forms of ownership, multiple levels of development, multiple levels of technology, and multiple levels of education coexist. Development, the allocation of resources, the level of market supervision, and the establishment of market concepts are all in their infancy. Therefore, the organic integration of a set of market economy accounting practices represented by the concept of accounting standards with Chinese accounting standards and accounting practices requires a fairly long running-in process. Today's Chinese economy has been integrated into the tide of the world economy. In the trend of world economic integration, China's international economic exchanges are bound to increase. In order to open to the outside world in an all-round way, channels for communication must be opened first. Accounting is an international business language. If the language is not communicated, foreign economic communication will be severely hindered. Therefore, making accounting information internationally comparable has become the objective necessity of China's economic development. It is also only possible to better balance the respective interests of the government, investors and enterprises. Only in this way can China's accounting standards be truly fair, open, and fair, thereby achieving an ideal state. ^[2]

(I) Problems in Asset Impairment Accounting Practice ^[1]

(1) Suggestions on asset impairment in accounting practice ^[1]

1. Strengthen the quality and learning of accountants

The improvement of the comprehensive quality and ability of accounting personnel is not only the need for asset impairment accounting, but also the needs of the entire accounting reform, and it is the need to adapt to the modern enterprise system. In order to meet the requirements of asset impairment accounting, accountants should carefully study and understand the spirit of the new accounting standards, take the initiative to learn, actively think, boldly explore, pay attention to practice, continuously enrich their professional knowledge, and improve their own and business standards. This will improve their professional judgment. In addition, effective training of accounting professionals should be carried out, and professional ethics education should be strengthened to improve the professional ethics of accounting personnel.

2. Reduce subjective judgment appropriately '

In order to more truthfully disclose the value of assets, a large number of artificial judgment factors have been added to the asset impairment standards, which leaves certain room for activity and judgment for accounting personnel. And subjective judgment will inevitably affect the reliability of financial information. At present, under the condition of inadequate internal control systems and low quality of accounting personnel, asset impairment standards give enterprises more professional judgment and choice of accounting policies, which will provide enterprises with an opportunity to carry out accounting manipulation. Therefore, human judgment should be appropriately reduced to limit the right of enterprises to choose accounting policies.

3. The regulations for reversing asset impairment losses are more standardized and reasonable

When there is an indication that the asset has been impaired, an impairment loss is recognized. When there is an indication that the previously identified impairment loss no longer exists or has decreased, the entity reassesses the recoverable amount of the asset, It is reasonable to recognise the reversal of asset impairment losses accordingly. Prohibiting the reversal of asset impairment may lead to new abuses, so it should be strictly regulated while allowing the reversal of asset impairment losses.

4. Strengthen the recognition of fair value of goodwill

Effective information and price markets are an important guarantee for the smooth implementation of asset impairment standards. Modern information technology can be used to make the company's asset impairment provisions accrual, improve the operability of goodwill, and enhance the fairness and objectivity of asset impairment information. The norm-setting organization should issue more detailed explanations and explanations with strong operability to further regulate the behavior of corporate value distribution.

Suggestions for asset impairment in the implementation environment

1. Improve provision for impairment

The internal control system must achieve the separation and containment of incompatible positions. In the calculation process, some key positions must be effectively separated to achieve the effect of mutual supervision and restraint. At the same time, it is necessary to strengthen the hierarchical approval management within the enterprise. The accrual of super powers must be approved by the shareholders' meeting, and the authorization mechanism must be strictly regulated. Establish and improve the internal financial budget system. Internal audit and internal supervision are indispensable and important contents for enterprises to strengthen internal control. Focus on weak links for error detection and correction, and help enterprises establish a reasonable internal control system for asset impairment.

2. Strengthen the inspection and supervision of asset impairment

Because the measurement of net realizable value and recoverable amount is usually an estimate made by the management of the audited unit based on relevant factors, the risk of misstatement is relatively large, and the disclosure of information on asset impairment by listed companies is very limited. Under the premise of asymmetric information of the management unit of the audited unit and the user of the accounting information, the role of the accounting firm should be brought into full play to strengthen the responsibilities of the intermediary agency, especially the auditor. The securities regulatory department should increase the supervision of corporate accounting options, force listed companies to disclose the degree of impact of accounting policy choices such as asset impairment on profits, and increase the transparency of information disclosure of listed companies.

3. Comprehensively evaluate the business performance of enterprises

Information users may be confused by the temporary situation of the enterprise when they inspect the operation of the enterprise. Because the disclosure of asset impairment information will lead to a decrease in profits and affect the performance of the company's operating performance, a small number of companies are reluctant to disclose the company's asset impairment information. Therefore, the asset status of an enterprise should be taken as the main content reflecting the business performance of the enterprise, the asset status of the enterprise should be clearly included in the scope of the company's operating responsibility system, and the business performance of the enterprise should be comprehensively examined.

4. Improve the corporate governance structure of listed companies

Corporate governance has narrow and broad sense. The narrow definition of corporate governance mainly refers to the relationship among the shareholders, directors, supervisors and managers of the company; the broader corporate governance also includes relationships with stakeholders. To improve the corporate governance structure of the company, the functions of the shareholders 'meeting, the board of directors, the board of supervisors, and managers must be improved, the supervisory functions of the shareholders' board, the board of supervisors, and independent directors should be strengthened, and a modern enterprise system should be established. Second, we must strengthen the disclosure of information. The accounting policies and changes in accounting policies chosen by listed companies, the reasons for the changes, and their impacts should be disclosed to all stakeholders. Each stakeholder or board of supervisors has the right to ask the management authority for unreasonable accounting. Explain or disclose the policy.

In short, although China has made a significant leap in the formation of its accounting system, there is still a grey space in the new accounting standards that will be manipulated by individual companies. Therefore, the gradual and standardized operation of the standard requires the joint supervision of the regulatory department and the enterprise in an effort to truly implement the essence and connotation of the new standard in accounting practice.