代写ACCT13-303、Java/Python编程代写

日期：2022-11-20 11:29

ACCT13-303 Advanced Financial Accounting

Impairment of Assets (inc. Intangibles)

Question: Do managers time the recognition of asset impairments?

Answer: Maybe! If managers have profit target-based bonuses.

Objective

The aim of the assignment is for students to investigate a contemporary reporting issue and apply the

theories from the subject to interpret current reporting practice and reporting options.

Empirical Analysis and Report [25 Marks].

Introduction

This project explores the reporting of asset impairment (including intangibles) by Australian listed

companies. Considering the impairment of assets is required as part of the reporting process but this

is arguable more complex for intangible assets. The profession and regulators have grappled with

accounting for intangible assets including goodwill and the subsequent amortization and impairment

for many years with reporting requirements changing periodically. The issue of timing of impairment

recognition and the judgements in the process especially for value in use (VIU) computations and

identifying cash generating unit (CGU) leave impairment of assets generally, and intangibles more

specifically, being open to opportunistic behaviour by management. Or are management being

informative about asset values?

The project is motivated by three factors:

(1) Impairment of asset is constantly flagged as an area of focused inquiry in ASIC’s annual review

of financial reports;

(2) A current financial reporting issue is the impact of COVID-19 and post-COVID economic shocks

on the impairment of assets during the 2020 through 2022 financial reporting periods; and

(3) The future impact of current impairments on performance metrics and remuneration.

(1) ASIC & Company Reporting of Impairment of Assets

ASIC announces every year via media release the financial reporting issues they will focus on for that

year and for some time has identified “recoverability of the carrying amounts of assets such as

goodwill, other intangibles and property, plant and equipment” as an area they will review in company

filed financial reports.i Despite these warnings ASIC continually finds impairment issues. Figure 1

providers an example detailing ASIC’s findings on the 2019 financial reports.ii

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Figure 1: ASIC Review of 31 December 2019 Financial Reports

(2) Impact of COVID-19

COVID-19 is an example of a large and unusual impairment event firms need to consider in their

financial reporting. ASIC’s annual media release on 15 December 2020 specifically flagged the impact

of COVID-19 as an ongoing impairment factor that it expects firms to consider.iii This warning reflected

ASIC’s review of filed 2020 annual reports that found some firms deficient in their reporting despite

ASIC’s prompting earlier in 2020 to pay attention to impairment and COVID-19 in particular. Figure 2

documents ASICs overarching comments.iv

2. Asset values and impairment testing

ASIC continues to identify concerns about assessments of the recoverability of the carrying values of assets, including

goodwill, exploration and evaluation expenditure, and property, plant and equipment.

Findings include:

Reasonableness of cash flows and assumptions: There continue to be cases where the cash flows and

assumptions used by entities to determine recoverable amounts are not reasonable or supportable in light of

historical cash flows, economic and market conditions, and funding costs.

In particular:

o assumptions derived from external sources were not assessed for consistency and relevance, and

o the entity’s forecast cash flows did not appear reasonable and had exceeded actual cash flow for a

number of reporting periods.

Determining the carrying amount of cash generating units: Some entities appear to have:

o identified cash generating units (CGUs) at too high a level despite cash inflows being largely

independent, resulting in cash flows from one asset or part of the business being incorrectly used to

support the carrying values of other assets

o not included all assets that generate the cash inflows in the carrying amount of a CGU, such as

inventories and trade receivables and tax balances, and/or

o incorrectly deducted liabilities from the carrying amount of a CGU.

Use of fair value: ASIC still sees entities using discounted cash flow techniques to estimate fair value where

the calculations are dependent on a large number of management inputs. Where it is not possible to reliably

estimate the value that would be received to sell an asset in an orderly transaction between market

participants, the entity may need to use the asset’s value in use as its recoverable amount.

Impairment indicators: Some entities are not paying sufficient attention to impairment indicators, including

significant adverse changes in market conditions, and reported net assets exceeding market capitalisation.

Disclosures: ASIC continues to find a number of entities not making necessary disclosure of:

o sources of estimation uncertainty

o key assumptions, including discount rates and growth rates

o sensitivity analysis

o instances where a reasonably foreseeable change in one or more assumptions could lead to

impairment, and/or

o for fair values, the valuation techniques and inputs used.

These disclosures are important to inform investors and other users of financial reports given the estimation uncertainty

associated with many asset valuations. They enable users to make their own assessments about an entity’s carrying

values and risk of impairment.”

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Figure 2: ASIC Comments on 2020 COVID-19 Impairment Reporting

ASIC’s comments arising from their review of 31 December 2020 financial statements as

related to impairment are outlined in Figure 3.v

Figure 3: Extract of Attachment to 21-135 ASIC review of 31 December 2020 financial reports

Go to the ASIC website https://asic.gov.au/about-asic/news-centre/find-a-media-release/2021-

releases/21-354mr-asic-review-of-30-june-2021-financial-reports/ and see the comments ASIC made

regarding the 2021 financial reports. Note the comment re post-COVID that “The findings of [2021

review] emphasise that directors and auditors should continue to focus on impairment of assets,

particularly as some businesses may be adversely affected in a post-COVID environment or by

continuing pandemic impacts in overseas markets.”

(3) Future remuneration impact of impairments

This last issue we can only speculate on at this time as we need to see 2023 onwards reporting

periods. But technically if firms become unimpaired then that can reverse the prior impairments. The

question is will they? We can, however, think about the potential effects if the assets are unimpaired

and think about the incentives for management to potentially not reverse the 2020/2021 impairments.

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Empirical Issues with Impairment

Your Audit Committee have asked you as the accountant to investigate impairment practices of other

companies. The Audit Committee are preparing recommendations for the Board of Directors and

therefore seek to understand the impairment practices of other companies so they can benchmark

best reporting practice and ensure they minimize the risk of an ASIC investigation. Furthermore, the

Board seek to avoid ASIC requiring the company to adjust the accounts after an investigation and the

negative PR associated with a restatement.

There are several key issues with impairing assets that the Board and Audit Committee you need to

investigate and report back about including:

What firms and industries are reporting larger and more frequent impairments?

Do other firms regularly impair assets including goodwill and intangibles?

When firm’s impair assets what method do they use, how do they derive the relevant inputs,

and what disclosures are made?

How did firms deal with COVID-19 and how did the method and or disclosures change in the

2020-2022 financial reports?

Have firms reversed COVID-19 related impairment losses or are they considering potential

reversal of impairments post-COVID-19?

What remuneration incentives are provided to management and how might remuneration

impact the timing and judgments around impairments in 2020, 2021 and potentially 2022?

Do the impairment requirements outlined in IAS 36 and related disclosures increase the

decision usefulness of the financial statements?

These issues are outlined in more detail in the following pages which also document the

assessment requirements.

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REQUIREMENTS TOTAL MARKS 100 (Reweighted to 35)

Overview/Objective

You are to prepare a report for the Audit Committee outlining your findings from investigating

the impairment practices of an Australian listed entity, its industry, and two comparison firms.

You will focus your analysis on the Australian listed entity chosen by you – focus on firms with

significant impairments in 2020-2021. In analysing the issues outlined in the assessment you should

incorporate industry and two other firms as comparison firms into your analysis. Furthermore, your

report and analysis should also incorporate relevant empirical research, the conceptual framework,

accounting standards, and accounting theories.

Requirements

1) Collect Annual Reports and Data for your entity and two comparison firms:

a) Obtain the annual report for the past 5 years from DatAnalysis

(https://bond.libguides.com/az.php?q=datanalysis ).

b) Download the financial data from DatAnalysis – this will give you the basic P&L, BS and

the “Revenue Expense” tab will have some detailed line items including impairments (the

“Revenue Expense” tab is normally only for 3-4 years while financials will be 10 years).

2) Set up a table using the downloaded financial data and annual reports to document

total impairments by your entity and the two comparison firms.

The table should include relevant information, for example: which assets/asset classes were

impaired, assets before impairment, % impaired, impairment expense as a % of EBIT before

impairment. Your table might include the following lines (or be more than one table).

Comment on the magnitude and nature of the assets impaired by the firm. The table below is

a draft exemplar – you can modify as needed.

Item 2018 2019 2020 2021 2022

Asset – PPE

Impairment PP&E

% PP&E Impaired

Asset – Intangibles B4

Impairment of Intangibles

% Intangibles Impaired

Etc

Impairment other assets

Total Impairment Expense

EBIT (B4 impairment charge)

Impairment % EBIT

3) For each major asset class impaired, document how your entity arrived at the impairment

expense. What method and what key inputs? How does this compare with the two

comparison firms? Summarise the major disclosures rather than cut and paste (you could snip

to an appendix) but be sure to reference back to the relevant page in the annual report.

4) Analyse the impact of COVID-19/post COVID on impairment reporting:

a) How did the reporting of impairment change in 2020 through 2022 in response to COVID-

19/post COVID?

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b) Do the financial statements provide sufficient decision useful information? If not

identify any areas where the disclosure is deficient. Use prior years as a base. How

does your entity’s practices compare with industry and two comparison firms?

c) Is there any discussion or evidence that your entity or the two comparison firms are

considering reversal of impairments (either in the past or potentially in the future

post- COVID-19)?

5) Are there any incentives for management to bias impairments in 2020 or 2021 (either

overly aggressive or to under-write off)? How might those incentives impact the

recognition of impairment reversals post COVID-19?

a) To address this look at your entity’s remuneration policy for short- and long-term

remuneration. Which elements of remuneration rely on some form of “profit” measure

and/or some form of “asset” measure in the performance metrics as these are potentially

impacted by impairment expense and reduced (impaired) assets? (HINT: many firms use

return on invested capital (ROIC) where the numerator is an adjusted firm determined

profit measure and the denominator is an adjusted net asset number – see remuneration

report and other footnotes to the accounts).

b) How does the impairment decision (the numbers) impact the disclosed

remuneration calculation – think about 2020, 2021 and future years.

c) What incentives do the remuneration contracts (terms and conditions) provide

management in relation to recognising (timing), magnitude (biasing estimates),

and booking future reversal of impairments? Relate to theory and research.

6) Based on the evidence you collect what do you conclude about impairment of intangibles

in 2020 through 2022? Do the current disclosures and requirements of IAS 136 (i) improve

the decision usefulness of financial reports and (ii) assist users analyse the stewardship of

management?

7) Based on your report, are there any issues you think regulators might want to consider?

When working on this empirical assignment remember the old accounting saying that:

“What counts is what gets counted”

References and Sources

i See for example 19-341MR Financial reporting focuses for 31 December 2019, https://asic.gov.au/about-asic/news-

centre/find-a-media-release/2019-releases/19-341mr-financial-reporting-focuses-for-31-december-2019/

ii See https://asic.gov.au/about-asic/news-centre/find-a-media-release/2020-releases/20-173mr-asic-review-of-31-

december-2019-financial-reports/

iii See 20-325MR ASIC highlights focus areas for 31 December 2020 financial reports under COVID-19 conditions |

ASIC - Australian Securities and Investments Commission

iv See 20-329MR ASIC review of 30 June 2020 financial reports | ASIC - Australian Securities and Investments

Commission

V See https://asic.gov.au/about-asic/news-centre/find-a-media-release/2021-releases/21-135mr-asic-review-of-31-

december-2020-financial-reports/