Some firms engage in “big bath accounting” whereby management can overestimate an impairment loss during a down year in order to enhance earnings in the future. Generally, recognizing expense sooner rather than later is considered conservative. What is your opinion of this practice?
Added by Manuel M.
Step 1
** Show more…
Show all steps
Your feedback will help us improve your experience
Adi S and 50 other Principles of Accounting educators are ready to help you.
Ask a new question
Labs
Want to see this concept in action?
Explore this concept interactively to see how it behaves as you change inputs.
Recommended Videos
An assessment of accounting practices for asset impairments is especially important in the context of financial reporting quality in that it requires the exercise of considerable management judgement and reporting discretion. The importance of this issue is heightened during periods of ongoing economic uncertainty as a result of the need for companies to reflect the loss of economic value in a timely fashion through the mechanism of asset write-downs. There are many factors which can affect the quality of impairment accounting and disclosures. These factors include changes in circumstance in the reporting period, the market capitalization of the entity, the allocation of goodwill to cash generating units, valuation issues and the nature of the disclosures. Required: Discuss the importance and significance of the above factors when conducting an impairment test under IAS 36 Impairment of Assets.
Adi S.
Instead of the current 2016 results*, assume that TED-Europe's financial performance far exceeded management's stretch goal. In this case, would it be ethical to utilize earnings management techniques to reduce operating income (e.g., reschedule the routine maintenance on non-production machinery that is traditionally performed in January to December of the current year)? Explain. What impact would this type of earnings management have on future financial performance? Why might management be incentivized to engage in income decreasing earnings management? *In 2016 the company fell $500,000 short of their target.
Akash M.
Oregon scoreboard corporation files quarterly and annual financial statements with the sec. With the situation above is that a good or bad financial reporting practice? What is the accounting concept?
Recommended Textbooks
Horngren’s Cost Accounting
Cost Accounting A Managerial Emphasis
Principles of Accounting Volume 1: Financial Accounting
Transcript
18,000,000+
Students on Numerade
Trusted by students at 8,000+ universities
Watch the video solution with this free unlock.
EMAIL
PASSWORD