An Investigation of the Difference between SFAS No.121 and SFAS No.142/144

• Main Authors: Huai-wen Hsu, 許懷文
• Other Authors: Chia-Ling Chao
• Format: Others
• Language: zh-TW
• Published: 2010
• Online Access: http://ndltd.ncl.edu.tw/handle/47146074433748214807

碩士 === 國立中正大學 === 會計與資訊科技研究所 === 98 === This paper investigates whether the adoption of SFAS No.142/144 improves the quality of reported impairments. Specifically, this paper compares the extent to which economic factors and reporting incentives affect the magnitude of asset impairments between the SFAS No.121 regime and SFAS No.142/144 regime. The empirical results reveal that, comparing to the SFAS No.121 regime, the association between asset impairments asset and economic factors is greater in SFAS No.142/144 regime. On the ther hand, the association between asset impairments and reporting incentives is higher in SFAS No.121 regime than in SFAS No.142/144 regime. In addition, this paper also examines the timeliness of asset write-offs. Consistent with the expectation, the results indicate that, management recognizes SFAS No. 142 write-offs timelier than SFAS No. 121 write-offs, suggesting that the timeliness of asset write-offs is much improved via the new accounting treatment for goodwill impairments. Prior research investigates whether managers use the magnitude of asset write-offs to manage earnings. However, Rees et al. (1996) indicate that to the extent that this is the primary motive for an asset write-off, firms may also exercise discretion over operating accruals. Accordingly, this study examines whether management use asset impairments and discretionary accruals jointly to manage earnings, and how corporate governance mechanisms affect such earnings management behavior. The results document that the negative discretionary accruals and asset impairments are endogenous, and they are negatively assoiciated. The implication is that managemers use asset write-offs and discretionary accruals jointly to manage earnings downward. In addition, the debt covenant, “big bath,” and income smoothing hypotheses are partially supported. Finally, the results reveal that relative to firms with weak corporate governance structures, firms with stronger governance mechanisms are more likely to constrain such earnings management behavior via using asset write-offs and discretionary accruals jointly.