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Introduction
Impairment is an important part of financial accounting because this figure could influence company’s profit and further impacts the amount of tax paid by the company. Therefore， it is very crucial to determine the amount of asset’s impairment to make sure that the carrying amount accurately records the value of an asset. This paper’s goal is to discuss why the impairment of non-current assets continues to be seen as a difficult issue in financial reporting under international accounting and financial reporting standards.
1.The logic of impairment
The definition of an asset is that “a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.” （IFRS Foundation， 2010， p.7）. This definition uses the future economic benefit concept to define assets as risky investment projects. Therefore， if the carrying amount of an asset is greater than its recoverable amount， it means that the carrying amount does not accurately reflect the value of the asset， and then an impairment loss has occurred （Elliott & Elliott， 2015， pp. 425-431）.
2.The carrying amount
Most companies use the depreciated historical cost as the carrying amount. However， this way cannot precisely record the value of asset because there is inflation in market， meaning assets’ value changing continuously. Instead， some companies are recommended to choose depreciated revalued amount， e.g. in South America， which can solve this problem using inflation accounting system. Unfortunately， it also cannot avoid the weakness of depreciation. This is partly because accountant just empirically sets the depreciation rate and useful lives of asset， which would easily make deviation between reality expense and book expense. As a result， it is not reasonable to simply use the difference value between the higher carrying amount and the lower recoverable amount as the impairment amount.
3.The recoverable amount
“The recoverable amount is the higher of the net selling price and the value in use.” （Elliott & Elliott， 2015， p.426）. This article would emphasize analysis this part because the recoverable amount could directly influence the figure of impairment. The definition is that “the net selling price is the amount at which an asset could be disposed of， less any direct selling cost.” （Elliott & Elliott， 2015， p.426）. The problem is that some assets may do not have a relevant active market where they have price to be sold. In this condition， some companies estimate the net selling price based on the latest transaction of similar non-current assets provided by other parties， which is based on a third party at arm’s length. However， internal and external auditors still have enough reasons to doubt the accuracy or correctness of this figure. This item’s definition is that “the present value of the future cash flows obtainable as a result of an asset’s continued use， including those resulting from its ultimate disposal” （IFRS Foundation， 2014）. When accountants calculate the amount of value in use， they need to know assets’ discount rate， the future income stream and the service life， which are very hard estimated in practical. The discount rate is the asset’s market pre-tax basis interest rate. In many cases， the asset’ interest rate is very difficult calculated； instead， accountants could apply other rate to estimate， like WACC. Meanwhile， this way also need to consider other influential factors， such as the investment risky， government polices and risk-free rate fluctuating （IFRS Foundation， 2014）. However， those risky mentioned above are uncertain and changeable， so we still fail to calculate and determine appropriate discount rates. What is more， it is very difficult to predict the pre-tax income stream. The future cash flow is affected by many factors. For example， depending on managers’ assessment of the future economic benefits of enterprise， technology innovation and budget. Furthermore， it is still a problem how much percentage dose the asset contribute to the future income of a company. What is more， the asset’s service life is hard estimated as well， which is just determined by managers’ judgment. 4.Conclusion
Even though the impairment of non-current assets continues to be seen as a difficult issue， such as the process of the indications of impairment， the record of the carrying amount and the recoverable amount. However， I believe those problem could be addressed strategically within the policy adopted. Depending economics’ researches and improve， the evaluation process of impairment could be more and more normative.
references
Elliott， B. & Elliott， J. 2015. Financial Accounting and Reporting. 17th ed. Harlow： Pearson
IFRS Foundation. 2010. IAS The Conceptual Framework for Financial Reporting. [Online]. Available at： http：//eifrs.ifrs.org/eifrs/bnstandards/en/2015/framework.pdf. Accessed December 13， 2016.
IFRS Foundation. 2014. IAS 36 Impairment of Assets： Technical Summary. [Online]. Available at： http：//www.ifrs.org/IFRSs/Documents/Technical-summaries-2014/IAS%2036.pdf. Accessed December 12， 2016.
Tong， C. 2016. Non-Current Assets Intangible Assets， Module ASB2504 Financial Accounting. [Powerpoint presentation]. Bangor University， unpublished.
作者簡介：
周璟，中南林业科技大学班戈学院。
Impairment is an important part of financial accounting because this figure could influence company’s profit and further impacts the amount of tax paid by the company. Therefore， it is very crucial to determine the amount of asset’s impairment to make sure that the carrying amount accurately records the value of an asset. This paper’s goal is to discuss why the impairment of non-current assets continues to be seen as a difficult issue in financial reporting under international accounting and financial reporting standards.
1.The logic of impairment
The definition of an asset is that “a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.” （IFRS Foundation， 2010， p.7）. This definition uses the future economic benefit concept to define assets as risky investment projects. Therefore， if the carrying amount of an asset is greater than its recoverable amount， it means that the carrying amount does not accurately reflect the value of the asset， and then an impairment loss has occurred （Elliott & Elliott， 2015， pp. 425-431）.
2.The carrying amount
Most companies use the depreciated historical cost as the carrying amount. However， this way cannot precisely record the value of asset because there is inflation in market， meaning assets’ value changing continuously. Instead， some companies are recommended to choose depreciated revalued amount， e.g. in South America， which can solve this problem using inflation accounting system. Unfortunately， it also cannot avoid the weakness of depreciation. This is partly because accountant just empirically sets the depreciation rate and useful lives of asset， which would easily make deviation between reality expense and book expense. As a result， it is not reasonable to simply use the difference value between the higher carrying amount and the lower recoverable amount as the impairment amount.
3.The recoverable amount
“The recoverable amount is the higher of the net selling price and the value in use.” （Elliott & Elliott， 2015， p.426）. This article would emphasize analysis this part because the recoverable amount could directly influence the figure of impairment. The definition is that “the net selling price is the amount at which an asset could be disposed of， less any direct selling cost.” （Elliott & Elliott， 2015， p.426）. The problem is that some assets may do not have a relevant active market where they have price to be sold. In this condition， some companies estimate the net selling price based on the latest transaction of similar non-current assets provided by other parties， which is based on a third party at arm’s length. However， internal and external auditors still have enough reasons to doubt the accuracy or correctness of this figure. This item’s definition is that “the present value of the future cash flows obtainable as a result of an asset’s continued use， including those resulting from its ultimate disposal” （IFRS Foundation， 2014）. When accountants calculate the amount of value in use， they need to know assets’ discount rate， the future income stream and the service life， which are very hard estimated in practical. The discount rate is the asset’s market pre-tax basis interest rate. In many cases， the asset’ interest rate is very difficult calculated； instead， accountants could apply other rate to estimate， like WACC. Meanwhile， this way also need to consider other influential factors， such as the investment risky， government polices and risk-free rate fluctuating （IFRS Foundation， 2014）. However， those risky mentioned above are uncertain and changeable， so we still fail to calculate and determine appropriate discount rates. What is more， it is very difficult to predict the pre-tax income stream. The future cash flow is affected by many factors. For example， depending on managers’ assessment of the future economic benefits of enterprise， technology innovation and budget. Furthermore， it is still a problem how much percentage dose the asset contribute to the future income of a company. What is more， the asset’s service life is hard estimated as well， which is just determined by managers’ judgment. 4.Conclusion
Even though the impairment of non-current assets continues to be seen as a difficult issue， such as the process of the indications of impairment， the record of the carrying amount and the recoverable amount. However， I believe those problem could be addressed strategically within the policy adopted. Depending economics’ researches and improve， the evaluation process of impairment could be more and more normative.
references
Elliott， B. & Elliott， J. 2015. Financial Accounting and Reporting. 17th ed. Harlow： Pearson
IFRS Foundation. 2010. IAS The Conceptual Framework for Financial Reporting. [Online]. Available at： http：//eifrs.ifrs.org/eifrs/bnstandards/en/2015/framework.pdf. Accessed December 13， 2016.
IFRS Foundation. 2014. IAS 36 Impairment of Assets： Technical Summary. [Online]. Available at： http：//www.ifrs.org/IFRSs/Documents/Technical-summaries-2014/IAS%2036.pdf. Accessed December 12， 2016.
Tong， C. 2016. Non-Current Assets Intangible Assets， Module ASB2504 Financial Accounting. [Powerpoint presentation]. Bangor University， unpublished.
作者簡介：
周璟，中南林业科技大学班戈学院。