An evaluation of asset impairment decisions by Australian firms and whether this was

impacted by AASB 136

David Bond, Brett Govendir and Peter Wells

Accounting Discipline Group, University of Technology Sydney

Abstract

Focussing on asset impairments recognised in financial reports, this paper evaluates how
managers of Australian firms are implementing the relevant regulation. This is undertaken
both before and after transition to IFRS to provide insights into whether the prescriptive
requirements of AASB 136 (IAS 36) impacted the recognition of asset impairments.
Evidence is provided that the incidence of asset impairments increased significantly for firms
where there were indicators of impairment subsequent to the transition to IFRS. However, the
majority of such firms are still not recognising impairments, and in most cases the asset
impairments recognised are not material or not of a magnitude suggested by the indicators of
impairment. This suggests there are potentially issues with either compliance with the
regulation or that additional disclosures are necessary for firms not making asset impairment.

Key words : Impairment of assets, AASB 136

JEL Classification : M41, G32

1
1. Introduction

The objective of this paper is to evaluate the implementation of asset impairment

regulation by managers of Australian firms through an examination of asset impairment

recognised in financial reports. This is undertaken between 2000 and 2012 which includes

both the period when the requirement for asset impairment was addressed by AASB1010

Recoverable amount of non-current assets, and subsequent to transition to International

Financial Reporting Standards (IFRS) when it was addressed by AASB 136 Impairment of

assets.1Of particular concern is whether there is evidence of firms implementing the

regulation requiring the recognition of asset impairment in manner which is consistent with

the economic circumstances, financial performance and asset values of the firm. Furthermore,

are the regulations being complied with and is information being disclosed which would be

expected to reduce uncertainty about firm value? Additionally, did the recognition of asset

impairment change with transition to IFRS and the implementation of AASB 136 which is

much more prescriptive in the measurement of recoverable amount and is central to the

determination of asset impairment?

The primary motivation for this paper is to enhance our understanding of the

recognition of asset impairment by Australian firms, and the extent to which this is consistent

with the regulations requiring asset impairment. This is important as there are a number of

high profile firms which ostensibly should have recognised asset impairments, and this was

either considerably delayed or has not occurred and there are scant disclosures of why.2 For

example, Qantas Ltd had a market value per share substantially less than book value for 5

years, by as much as 50%. This persisted from 2009 until 2013, a period where profitability

and operating cash flows were at best marginal and these would all be considered indicators

1
The Australian equivalents to IFRS were required to be adopted for financial years beginning on or after 1
January 2005. For most firms with 30 June year ends, 30 June 2006 was the first year of applying the Australian
equivalents to IFRS. Hence in the interests of simplicity we will refer to 2006 onwards as the IFRS period,
although it does include 31 December 2005 year ends.
2
There is no evidence the disclosures resulted in lowering the gap between book value and market value.

2
of impairment. In 2014 an impairment of $2.947b was recognised and there was finally an

alignment of book value with market value. Similarly, Fairfax Media Ltd reported poor

financial performance and a book value significantly in excess of market value for a number

of years before it recognised an asset impairment of $2.865b in its 30 June 2012 financial

report. Only after years with a book value considerably less than market value was there

finally an asset impairment and book value consistent with market value. While the above

firms eventually recognised an asset impairment, Seven West Media Ltd has had a market-to-

book value of substantially less than one since 2011, and it is presently 0.64. This has not

been the catalyst for asset impairments and there have been scant disclosures to support the

decision not to impair assets, other than to say that the regulation was complied with (i.e.,

trust me). Concerns with how the regulation requiring asset impairment is being implemented

have also been expressed recently by the Australian Securities and Investments Commission

(ASIC), and they note problems with the mismatching of cash flows, the reasonableness of

cash flow assumptions, the identification of cash generating units and disclosure.3 However,

ASIC concerns are largely driven by anecdotal evidence rather than systematic empirical

analysis. This suggests an analysis of the financial statements of firms where asset

impairment is expected to provide insight into how the regulation is being implemented and

asset impairments recognised.

A second motivation for this study is to evaluate the impact of differences in the style

of regulation on its implementation. With transition to IFRS and the implementation of

AASB 136, the regulation requiring asset impairment while maintaining the same concepts

was much more prescriptive in the measurement of recoverable amount, and hence the

determination of asset impairments. Critically, did this impact the implementation of the

3
ASIC Media Release 13-160 ASICs area of focus for 30 June 2013 financial reports.

3
regulation and change the recognition of asset impairments? This is relevant for regulators

who may be concerned with how regulatory style impacts the implementation of regulation.

This paper complements a growing stream of research which evaluates asset

impairment. Asset impairment decisions have been the subject of extensive investigation

internationally (e.g., Riedl 2004; Jarva 2009) as well as in Australia (e.g., Cotter, Stokes and

Wyatt 1998). However, this research has generally focused on the identification of

opportunistic motivations impacting the recognition of asset impairments. The

implementation of AASB 136 has also been considered with respect to the impairment of

goodwill, and in particular the discount rates used and disclosed (e.g., Carlin and Finch 2009;

Bradbury 2010). However, the issue of how the regulation is being implemented more

generally has received little attention. Accordingly, this paper contributes to the asset

impairment literature and provides insights into whether the presence of external indicators of

impairment is manifesting in recognised asset impairment as required by the regulation. This

is of concern to standard setters, financial market regulators, auditors and financial statement

users alike.

From a sample of 5,839 Australian firm-years between 2000 and 2012 we find that

there are 543 (29%) firm-years where asset impairments is recognised, with the impact on the

book value of the firm generally being immaterial. Within this sample there are 1,857 firm-

years (32%) that report at least one external indicator of impairment (i.e., book value

exceeding market value). Furthermore, for this subsample the majority reported poor

performance, suggesting more indicators of impairment are present. However, only 242 of

these firm years (13%) recognised asset impairment. There is some evidence that this

increased with the application of the more prescriptive requirements of AASB 136, but the

association between asset impairment and indicators of impairment remains weak. The first

contribution of this paper is that there is little evidence that firms are complying with the

4
regulatory requirements for recognising asset impairment, and there are limited disclosures

required where firms do not recognise asset impairment.Increased disclosures might be

considered by regulators and through this greater attention directed at the decision by the firm

not to impair assets. The second contribution of this paper is to suggest a review of the

disclosure requirements for firms recognising asset impairments to consider either the nature

of the information disclosed, or whether they extended beyond the cash generating unit where

the impairment is recognised which may be limiting the present disclosures.

Of the 543 firm-years where asset impairment is recognised, only 158 (29%) include an

impairment of goodwill. This is a consequence of the number of cash generating units in the

firms and how goodwill is allocated across the cash generating units. The third contribution

of this paper is to identify a limitation of the papers that consider impairment of goodwill

only, and that the impairment of assets should be considered more generally. Given the focus

on goodwill impairments in many studies and the subjectivity of goodwill valuation, the

strong findings for opportunistically motivated assets impairment are probably expected. For

the firms recognising asset impairment only 242 (45%) had a book value greater than market

value. A final contribution of this study is that the evaluation of asset impairments is

problematic as impairment decisions are evaluated at the cash generating unit level and this

may be obscured in aggregate firm level information.

The remainder of the paper is organised as follows. In the following section an

overview of the regulation and prior research into asset impairment are introduced. From this

hypotheses are developed. In Section 3, the research design is described and in Section 4 the

sample selection procedure and some preliminary descriptive statistics are provided. Section

5 sets out the main results of the analysis regarding asset impairment. Finally, the conclusions

are presented in Section 6.

5
2. Regulatory background and theory development

2.1 Regulatory Background

Since 2000 there has been a regulatory requirement in Australia for non-current assets

to be recognised at no more than recoverable amount. In the period immediately prior to

transition to IFRS this was addressed by AASB 1010 Recoverable amount of non-current

assets and when this standard was issued in 2000 there was the intention that it should be in

general conformity with IAS 36 as it was issued in 1998. This was reflective of a broad

strategy of convergence being followed at the time by the Australian Accounting Standards

Board (AASB)4 and this is evidenced by the terminology used. This includes the use of the

term recoverable amount and the stated requirement for an asset to be written down to its

recoverable amount when the carrying amount is greater than recoverable amount (para

5.2). However, recoverable amount was not precisely defined, and merely described as the

net amount of cash flows expected to be recovered from disposal and continued use of assets

together. Little explanation was provided for how this should be determined. Nor was the

discounting of cash flows specifically addressed, and there were anecdotes of net cash flows

not being discounted.

With transition to IFRS the requirements for asset impairment prescribed in IAS 36

were replicated in AASB 136 Impairment of assets, and in contrast to the prior standard it

was highly prescriptive of how decisions on asset impairment should be made, how

recoverable amount is measured and hence how asset impairment should be determined. In

terms of the volume of regulation, there are 40 paragraphs addressing the determination of

4
See Policy Statement 6 International Harmonisation Policy issued by the AASB and PSASB in 1996.

6
recoverable amount, and of these 28 paragraphs address the estimation of value in use. It

included detailed requirements that where there are indicators of impairment such as

significant decline in firm value, significant changes in in technology, market, economic or

legal environments, changes in market interest rates, asset obsolescence or changes in asset

utilisation, firms should undertake impairment testing (AASB 136, para 12). Impairment

testing requires the determination of the recoverable amount of the asset, which is defined

as the higher of fair value or value in use (AASB 136, para 6). For some assets where fair

value is observable in an active market this will be relatively straightforward. For some

assets it will be much more problematic and value in use will have to be estimated. Again,

guidance is provided describing the procedures for estimating future cash flows and discounts

rates (IAS 36, para 30). Impairment testing involves the comparison of carrying value with

recoverable amount, and impairment is required to ensure that carrying value does not

exceed recoverable amount (AASB 136, para 59).

When implementing AASB 136 it will often be applied to groups of assets, referred to

as cash generating units, rather than individual assets. However, a process consistent with that

outlined above is applied to the cash generating unit, and an order is prescribed for the

impairment of assets within a group. Goodwill within a cash generating unit is impaired first,

and then subject to conditions the remaining assets are impaired on a pro-rata basis (AASB

136, para 104). This creates a number of issues when evaluating asset impairment if there is

more than one cash generating unit within a business.

First, determination of whether asset impairment is required may not always be

possible from aggregate firm level information.5 Where firm market value exceeds book

value it is possible that there will be no cash generating units where recoverable amount is

less that carrying amount and no impairment is necessary. However, there may be individual

5
This would require information about the relative size and loss of value within the separate cash generating
units which is not disclosed.

7
cash generating units where recoverable amount is less than carrying amount. Accordingly,

impairment may be necessary notwithstanding there being no externally identifiable

indicators.6 Where aggregate firm level recoverable amount is less than carrying amount, it is

expected that there will be at least one cash generating unit where recoverable amount is less

than carrying amount and impairment will be necessary. In this study the focus is on how

firms are implementing the regulation, so while considering all firms, particular attention is

focussed on those where market value is less than book value (an indicator of impairment,

AASB 136, para 12(d)) and an impairment decision is necessary.

Second, whether impairment within a cash generating unit is applied to goodwill or

other assets will depend on the allocation of goodwill across the cash generating units of the

firm. If no goodwill has been allocated to the cash generating unit for which impairment is

required, assets other than goodwill will be subjected to impairment. This is an issue for

studies that evaluate impairment of goodwill only (e.g., Ramanna and Watts 2012) and it is

for this reason that the focus is on impairment generally rather than goodwill alone.7

Critically, how this regulation is being implemented and whether asset impairment is

recognised, where necessary, is a major concern for standard setters, financial market

regulators and financial statement users. Furthermore, with transition to IFRS and the

adoption more prescriptive approach taken to the measurement of recoverable amount, was

there a change in the recognition of asset impairment?

2.2 Empirical research

There is a significant literature evaluating asset impairment. This has considered the

incidence of asset impairment (e.g., Strong and Meyer 1987) and there is evidence that asset

6
Consistent with this we observe that 301 observations where asset impairments are recognised (55% of those
recognising asset impairments) arise where market value exceeds book value.
7
In this regard we note that in our sample of firms recognising impairment, only 158 (29%) are impairing
goodwill. Most asset impairments relate to tangible assets (69%).

8
impairment is associated firm economic characteristics and performance (e.g., Cotter et al.

1998). However, evidence on price reactions to asset impairment is mixed and this has been

attributed to the nature of the assets being impaired and concerns about timeliness in the

recognition of asset impairment (e.g., Francis, Hanna and Vincent 1996; Collins and Henning

2004; Jarva 2009; Muller, Neamtiu and Riedl 2010). The determination of asset impairment

requires the exercise of considerable discretion and hence many studies consider whether

they are opportunistically motivated (e.g., Elliott and Shaw 1988; Francis et al. 1996; Cotter

et al. 1998; Riedl 2004; Beatty and Weber 2006; Christensen, Paik and Stice 2008; Garrod,

Kosi and Valentincic 2008; Jarva 2009, 2014). Results are consistent across different

countries and regulatory environments and suggest asset impairment is opportunistically

motivated. Furthermore, there is evidence that effective corporate governance mechanisms

may constrain opportunism (e.g., AbuGhazaleh, Al-Hares and Roberts 2011).8

In many of these studies controls are included for firm performance and this includes

many factors that would in terms of the current regulation be labelled as indicators of

impairment. However, this is not the focus of these prior studies and the relevance of these

factors to the recognition of asset impairment has received scant separate consideration.

Furthermore, sample firms have been broadly selected. This reflects concerns with

identifying the association between asset impairment and opportunistic motivations, rather

than the extent to which asset impairment is consistent with the requirements of the relevant

regulation. Hence, the focus of this study is whether there is evidence that financial

statements are being prepared in a manner consistent with the requirements of AASB 136,

and whether firms are recognising asset impairment where this is suggested by the presence

8
Much of this literature focuses on goodwill impairment as it is motivated by how SFAS 142 Goodwill and
other intangible assets was implemented, and how it impacted reporting behaviour. Notwithstanding, there are
exceptions such as AbuGhazaleh et al. (2011).

9
of indicators of impairment.9 This is considered important as the asset impairment

recognised, and the accompanying disclosures would provide information about expected

future performance and future cash flows. This would lead to lower parameter uncertainty in

estimating firm value (Lewellen and Shanken 2002; Pstor and Pietro 2003) and reduce

uncertainty about firm value in the same manner as management earnings forecasts (Rogers,

Skinner and Van Buskirk 2009).

As discussed in section 2.1, between 2000 and 2012 there was a requirement for firms

to recognise asset impairment where the carrying amount of assets exceeded the recoverable

amount of the asset. This was addressed in the period prior to transition to IFRS by AASB

1010, and subsequent to transition with AASB 136. The initial concern in this paper is

whether there is evidence that for firms recognised asset impairment in a manner consistent

with the regulation. This is reflected in the following hypothesis.

H1: Is evidence that firms are recognising asset impairment where

there are indicators of impairment.

The second concern of this paper is whether the nature of the regulation impacted its

application. As discussed in section 2.1 there was considerable discretion in the application of

AASB 1010 and this is in stark contrast with the requirements of AASB 136 which would be

considered detailed and prescriptive.

While regulators might argue that this is likely to increase compliance with regulatory

intent, the actual impact is less certain. Shaw (1995) and Beresford (1999) both express

concerns about whether practitioners are able to critically understand and apply complex

regulations, which are likely to contribute to standards overload. These concerns are echoed

by Bonner (1994) in relation to auditors. She suggests that more complex tasks, or in this case

regulations, are likely to adversely impact auditors judgement performance and this likely

9
This should be distinguished from where firms are recognising impairment, or excessive impairment for
entirely opportunistic reasons.

10
reflects an increasing concern with strict regulatory compliance at the expense of the exercise

of professional judgment. This conclusion is supported by Bennett, Bradbury and Prangnell

(2006) who, based on an analysis of specific regulation, find that more prescriptive

regulations require less professional judgement. It is therefore not surprising that Nelson,

Elliott and TarpIey (2002) provide evidence that managers are more (less) likely to attempt

earnings management, and auditors are less (more) likely to constrain it, where accounting

regulations are more (less) precise and earnings management actions can be structured to

demonstrate compliance with the regulation.

This suggests that the change in the regulation relating to asset impairment with

transition to IFRS, and the adoption of a more prescriptive regulation, may not have led to

greater adherence to the intent of the regulators. We test the following hypothesis to

determine if there was a change in the recognition of asset impairments across the two

regulatory regimes.

H2: With the adoption of a more prescriptive regulation there was

an increase in the recognition of asset impairment by firms
where there is evidence that asset impairment decisions are
necessary.

3. Research design

The primary concern in this paper is whether there is evidence of firms recognising

asset impairment in response to deteriorating economic circumstances, financial performance

and asset values in accordance with the requirements of the regulation. This is reflected in the

research design.

The determination of asset impairment requires the exercise of judgement by

management, but as a safeguard against over-optimism the regulation identifies detailed

indicators of impairment and if any of these are present impairment testing is required to be

11
undertaken (AASB 136, para 12, IAS 36 BCZ24). This would be expected to lead to asset

impairment being recognised. While these indicators are not explicitly identified in AASB

1010, they would have been equally relevant to the determination of whether impairment is

necessary and they are included in the initial version of IAS 36 (issued in 1998) which would

have been considered authoritative. Accordingly, these factors will be used to identify firms

where impairment is likely necessary, and the extent to which impairment is necessary.

While primarily concerned with evaluating how firms are implementing the regulation,

it is recognised that financial reports are a joint statement of management and auditors (Antle

and Nalebuff 1991, p. 31). Auditors are a source of accounting expertise and will review

critical accounting decisions, such as impairment testing. Hence consideration is also given to

how auditors impact the recognition of asset impairment, but this is on the basis of their

direct involvement in the financial reporting process rather than as a corporate governance

mechanism.

This suggests the estimation of the following model to evaluate how the regulation

prescribing asset impairment is being implemented:

=0 +1 / +2 +3 +4 +5 +

6 +7 + (1)

To determine whether the recognition of asset impairment changed across the regulatory

periods, equation (1) is re-estimated with an indicator variable to distinguish the two

regulatory periods to capture any change in impairments generally, and with interaction terms

to capture changes in the extent to which there is a change in the extent to which any of the

indicators of impairment are deterministic of asset impairment.

12
 =

0 + 1 / + 2 + 3 + 4 + 5 +

6 +7 + (2)

And:

= 0 + 1 / + 2 + 3 + 4 + 5 +

6 +7 + 8 + 9 / + 10 +

11 + 12 + 13 + 14 +

15 + (3)

The variables in these regressions are measured as follows.

Impair

The focus of this paper is the incidence of asset impairment (Impair) and this is measured in

the first instance as continuous variable being the asset impairment per share recognised in

the income statement in accordance with the disclosure requirements of AASB 136.

Recognising that indicators of impairment may lead to asset impairment but the magnitude of

the asset impairment may be highly variable, as a sensitivity the analysis is undertaken with

Impair measured as a dichotomous variable. As impairments are negatively signed, to ensure

consistency in the results from regressions with the continuous variable, this assumes the

value 0 if an asset impairment is recognised, otherwise 1.

Indicators of Impairment

The initial concern in this study is whether the presence of indicators of impairment is

associated with the recognition of asset impairment. Consistent with the requirements of the

13
regulation we identify external factors which are indicators of impairment, and which

externally observable.

A book value in excess of market value is an indicator that the market has determined

that the value of assets is less than book value (AASB 136, para 12(d)). Hence B/M is

included as an independent variable and is measured as the ratio of the book value of equity

over the market value of equity at the end of the financial year. This is included as a

continuous variable as the greater the excess the stronger the indication that an asset

impairment should be recognised. If book value has been greater than market value for more

than one year this suggests that the decline in value that the firm has experienced is not

transitory. Hence, Yrs is included in the regression and this is a dichotomous variable

assuming the value one if B/M has been greater than one for two years (current and

preceding), and zero otherwise.

An increase in the B/M may have occurred because of a substantial decline in market

value, however this may not have resulted in a value greater than one. There may be

individual cash generating units to which the decline in market value can be attributed and

this doubtless contributed to the identification of declines in market value as an indicator of

impairment (AASB 136, para 12(a)). Therefore, we complement B/M with BHR, which is the

buy-hold return for the stock over the financial year, as a further indicator of impairment.

Other indicators of impairment may be observable internally during the financial year,

and these would become observable externally at year end when the financial statements are

prepared. Where economic performance of an asset is worse than expected asset impairment

is necessary (AASB 136, para 12(g)). Evidence of this would include actual cash flows and

profitability being worse than expected (AASB 136, para 14(b)-(d)). Accordingly, we include

earnings before impairment charges per share (Earn) and aggregate cash flow from operating

and investing per share (CF) as further indicators of impairment.

14
Audit

Recognising that audit quality may be relevant to decisions relating to the

implementation of the regulation we include AuditQual as an independent variable which

assumes the value one if the firm is audited by a Big 4 auditor, and zero otherwise.

Evaluating impairment decisions may also impact the requisite audit effort and hence we in

AuditEff as an independent variable measured as the percentage change in audit fees for the

firm.

Regulatory change

With the change in regulation on transition to IFRS this may have changed the

incidence of asset impairments. To evaluate this we consider differences in the magnitude or

frequency of asset impairment (reflecting the dependent variable used) by including a

dichotomous variable, IFRS, which has the value one if the financial reports are from the

post-transition period (i.e., prepared under AASB 136) and zero otherwise. This variable is

also interacted with the other independent variable to determine whether there any changes in

the association with those variables and asset impairment in the post-transition period.

4. Sample selection and data description

Sample observations for this paper were chosen in the first instance between 2000 and

2012 so as to include firm-years from periods both before and after the adoption of IFRS in

Australia. Financial report information was obtained from the Morningstar Datanalysis

database, stock price information was obtained from SIRCA SPPR database and audit data

was obtained from the UTS Audit database. Financial information was supplemented where

necessary with hand collected information from financial reports where asset impairments

15
were potentially aggregated in abnormal items in the Morningstar database. Firms in the

agriculture, financial services, real-estate investment sectors were excluded because changes

in asset values may not be recognised as impairment due to the application of fair value

accounting (e.g., AASB 140 Investment Property; AASB 141 Agriculture). While there is

provision in other standards such as AASB 116 Property Plant and Equipment and AASB

138 Intangible Assets for the recognition of assets at other than cost (i.e., the revaluation

model), in practice very few firms avail of this choice and it is reasonable to assume that

remaining firms have significant assets recognised at cost and for which AASB 136

Impairment of Assets would be relevant.10 This ensured that sample firm-years are more

likely to be recognising assets at cost and decrements in asset value would be recognised as

impairment in accordance with AASB 136 Impairment of Assets or an equivalent. This

identified a final sample of 5,839 firm year observations where all necessary information was

available.

Descriptive statistics for sample firms are provided in Table 1. This shows that for the

full sample of firms the mean (median) book value of equity per share was $1.279 (0.424),

and the mean (median) of stock price was $0.977 (0.663). The mean asset impairment was

$0.010 per share and this represents less than 0.4% of mean total assets. Doubtless

influencing this is limited number of firms recognising asset impairments, with only 543

firms (9.3%) of firms recognising asset impairment. For firms recognising asset impairment,

mean impairment is $0.105. Of the firms recognising asset impairment, 158 firms recognised

an impairment of goodwill, while 196 recognised an impairment of an identifiable intangible

asset and 374 recognised an impairment of tangible assets. This reaffirms the decision to

address asset impairment generally rather than focus on goodwill in particular, and suggests

10
Asset impairments could be recognised for assets measured at fair value between the years where revaluation
is undertaken. Accordingly, changes in asset values may be recognised as both impairments and revaluations.
However, these circumstances are rare and unlikely to influence the results.

16
that studies focusing on goodwill impairment may be missing a significant proportion of

impairments.

5. Results

To provide insights into the full extent of the recognition of asset impairments we

provide descriptive statistics for the full sample in Table 1. For these firm year observations

the mean (median) B/P ratio is 0.977 (0.663) and this indicates considerable skewness in the

distribution of this variable. This is confirmed by the 75th percentile being 1.187, and there

are a significant number of firms with a B/P ratio of greater than one and for which asset

impairment is ostensibly an accounting issue. We identify 543 (9.3%) firm-year observations

where asset impairments are being recognised, and for these firms the mean (median)

impairment per share is -0.105 (-0.026). Again this identifies considerable skewness and most

asset impairments are economically small. Of the firm-years where asset impairment is

recognised, 158 (29%) include an impairment of goodwill, while 196 include impairment of

identifiable intangible assets and 374 impairment of tangible assets. This confirms the

concerns expressed above about focussing on goodwill impairments only, and assuming the

goodwill is allocated to the cash generating units where impairment is required to be

recognised.

In Table 2 attention is directed at firms where the firm has a book value greater than

market value (B/P>1). This is undertaken to focus attention of firms where there is at least

one indicator that impairment is necessary. This identifies 1857 firm-year observations (32%

of the full sample) with a book value in excess of market value. Furthermore, for these firms

it is also notable that while the mean values of earnings per share and cash flows per share

(CFOPS+CFINV) are 0.066 and 0.042 respectively, the median values were economically

little different from zero. Accordingly, for a majority of this subsample the existence of

17
indicators of impairment is likely not limited to book value being greater than market value.

Hence, it is somewhat surprising that only 242 (13%) of these firms-year observations are

recognising asset impairment, there is little support for H1. Of these impairments, only 85

(35%) include an impairment of goodwill and this highlights the problem of assuming

goodwill is allocated across the cash generating units where impairments are being

recognised. For firms-years where asset impairment is recognised (Panel B) it is clear that

while some firms are recognising material impairments and the mean impairment per share is

-0.122, most asset impairment is relatively small and the median asset impairment per share

is only -0.033. Whether this is sufficient, or commensurate with the indicators of impairment

will be addressed in the subsequent analysis.

In combination these tables suggest that the incidence of asset impairment is relatively

low, and this is particularly so for firm-years where there is at least one indicator of

impairment. Furthermore, the magnitude of recognised asset impairment is low, and the

majority are economically immaterial. This initial analysis provides little support for H1.

To provide further insight into the nature of firm-years with at least one indicator of

impairment we further partitioned them on the basis of size, with the results presented in

Table 3. This reflected concerns that smaller firms may not be subject to the same level of

scrutiny and this may impact the results. Included in our subsample of firm-years there are

1,212 firm-years with a market capitalisation of greater than $10m and 197 (16%) of these

firms recognised an asset impairment (Panel A). This contrasts with only 45 (7%) of firm-

years with a capitalisation below $10m recognising an asset impairment. This may be a

consequence of smaller firms being subjected to less scrutiny by directors, auditors,

regulators and investors. It is also notable that firm performance, measured as earnings and

cash flows are poorer for smaller firms, but the median values of earnings and cash flow for

the larger firms indicates that the majority of the larger firms are still experiencing poor

18
performance. Hence, while there is evidence of more asset impairment is being recognised by

larger firms, concerns about lack of recognition of asset impairment persist for all firms.

Recognising the regulatory change that occurred in 2006, firm-years were partitioned

on the basis of whether the historic Australian regulation applied (i.e., ASB 1010) or whether

the post transition to international accounting regulations applied (i.e., AASB 136). The

sample includes more firms from the post-transition period (1,137 compared to 720), and

there was proportionately greater recognition of asset impairment in the post-transition period

(195 or 17% compared to 47 or 7%). However, it is notable that there are still less firms

recognising asset impairment than would otherwise be expected given presence of indicators

of impairment. Again, there is little support for H1.

To evaluate the association between impairment and indicators of impairment,

equation 1 was estimated with the results presented in Table 5. Focusing initially on

impairment measured as a continuous variable (Panel A) and firm-years where the book

value is greater than market value (and firms most likely need to undertake impairment

testing and recognise asset impairments) it is notable that the model has an adjusted R2 of

15.2%. While this is statistically significant given the regulatory prescription there is an

expectation this might be greater. The co-efficient on the indicators of impairment are

generally as expected given that impairment is negatively signed. While B/P is not significant

this is likely a consequence of firms already being partitioned on the basis of B/P. The co-

efficient on YRS (2=-0.092, t-stat=-3.326) is negative and significant while the co-efficient

on Earn is positive and significant (3=0.595, t-stat=18.343) suggesting that the magnitude of

impairment is greater if book value has been greater than market value for two years and if

the firms is less profitable. The co-efficient on CF is not significant and this is likely a

consequence of this measure being confounded by higher investing cash flows where firms

are able to raise debt and equity to finance asset acquisition. Finally the co-efficient on BHR

19
is negative and significant (5=-0.090, t-stat=-3.498) and while surprising this may simply

reflect a poor stock return not being an indicator of impairment if it follows historic high

market values and high profitability. When the equation was estimated for the full sample of

firms the model lost explanatory power and this would have been adversely impacted by

difficulties assessing asset impairments in cash generating units on the basis of aggregate

firm level information.

The results when impairment is measured as a dichotomous variable are presented in

Panel B. For both the B/P>1 subsample and the full sample the model has minimal

explanatory power (2.1% and 2.2% respectively). For both samples the decline in explanatory

power is consistent with the limited number of material asset impairments receiving less

weight in the analysis (and many asset impairments recognised being small), together with a

high proportion of firm-years where there are indicators of impairment but asset impairment

is not recognised. Furthermore, when the full sample is considered many of the co-efficients

have a different sign from that expected and this is likely a consequence of the high

proportion of firms recognising asset impairment within a cash generating unit when there are

no aggregate firm level indicators of impairment. It is also notable that the co-efficient on

AuditQual Changes between Panels A and B and this suggests that Big 4 auditors are more

likely to require a large impairment where necessary, but generally their clients are larger,

more profitable and less likely to need to make an asset impairment.

In summary the results for tests of hypothesis one are weak and while there is some

evidence that firms with indicators of impairment are recognising asset impairment, this is

not pervasive and many are recognising either small impairments which are not

commensurate with the magnitude of the indicators of impairments or not recognising asset

impairment. This result is consistent with extant literature which provides strong evidence of

opportunistic incentives being a major determinant of asset impairments (e.g., Elliott and

20
Shaw 1988; Francis et al. 1996; Cotter et al. 1998; Riedl 2004; Beatty and Weber 2006;

Christensen et al. 2008; Garrod et al. 2008; Jarva 2009, 2014). Further weakening these tests

are the number of firms recognising impairment where there is no externally identifiable

indicator of impairment at the aggregate firm level. Finally, the proportion of firms

recognising impairment of goodwill is relatively low, and this is inconsistent being

distributed across all cash generating units as is assumed in many impairment studies.

In Table 6 we commence our evaluation of whether there are differences in the

recognition of asset impairment subsequent to the transition to IFRS and the implementation

of AASB 136, and this is undertaken with the inclusion of an indicator variable, IFRS. In

Panel A asset impairment is measured as a continuous variable and the results are little

changed from those in Table 5. Critically, for the subsample where book value exceeds

market value the co-efficient on IFRS is not significant (?=0.023, t-stat=0.792), and for the

full sample the model has literally no explanatory power. These results contrast with those in

Panel B where asset impairment was measured as dichotomous variable, and for both the

samples of firms the coefficient on IFRS was negative and significant which is indicative of

a greater incidence of impairments subsequent to the transition to IFRS and more prescriptive

regulations.

This result complements those provided in Table 5 and suggests that both before and

after transition to IFRS and more prescriptive regulations some firms recognised

economically material asset impairment. However, subsequent to transition to impairment

there was an increased incidence of small asset impairment which may not have been

commensurate with the indicators of impairment observed. Furthermore, many firms with

indicators of impairment are not recognising asset impairments. Hence, there is at best

limited support for H2, in that while there may have been an increase in the recognition of

asset impairment, they may not have been fully reflective of the economic circumstances.

21
 Finally, in Table 7 we consider whether there was a change in the relation between the

recognition of asset impairment and the various indicators of impairment in the post-IFRS

period. The results across Panels A (continuous) and B (dichotomous) and for the sample

with book value greater than market value and the full sample provide few additional

insights. First, the models have poorer than expected explanatory due to the low incidence of

firm-years recognising impairment where there are indicators, and firms recognising

impairment where there are no externally observable indicators. Second, a significant

proportion of the asset impairment recognised is economically insignificant. In combination

this causes considerable instability on the regression results, including co-efficients not being

significant or changing sign across the different regressions. Accordingly, while there may

have been an increased recognition of asset impairment subsequent to transition to IFRS, the

associations with indicators of impairment are still tenuous and there is again little support for

H2.

6. Conclusion

The objective of this paper was to evaluate how the regulation prescribing asset

impairment is being implemented by managers through an examination of asset impairment

being recognised in financial reports. Of particular concern was whether evidence could be

found that the regulations are being complied with and whether information about expected

future performance and future cash flows is being provided through the recognition of asset

impairment and the associated disclosures. Furthermore, did this result change with transition

to IFRS and implementation of the more prescriptive AASB 136.

We provide evidence that for 1,857 (32%) of our sample firms book value exceeds

market value and there is at least one indicator of impairment. For these same firms there is

also evidence of poor performance with reported earnings and cash flows being economically

22
immaterial for the majority of these firms. Furthermore, for many firms these circumstances

persisted for a number of years. However, only 242 (13%) recognised asset impairment and

the association of asset impairment with indicators of impairment is weak. There is some

evidence that this improved with the more prescriptive requirements of AASB 136 but the

association between asset impairments and indicators of impairment remains weak. Hence,

the first contribution of this paper is that there is little evidence that firms are complying with

the regulatory requirements for recognising asset impairment. Problematically, where there

are external indicators of impairment present but asset impairment is not recognised, the

mandated disclosures are minimal. Given the proportion of firms in this circumstance,

regulators might consider increased disclosure for firms not impairing assets thereby

directing greater attention at the decision by the firm not to impair assets. The majority of

asset impairments recognised are economically immaterial, and the association with

indicators of impairment is weaker than would be expected. The second contribution of this

paper is to suggest a review of the disclosure requirements for firms recognising asset

impairment to consider either the nature of the information disclosed or whether the

disclosures are extended beyond the cash generating unit where the impairment is recognised.

Of the 543 firm-years where asset impairment is recognised, only 158 (29%) include an

impairment of goodwill. This is a consequence of the number of cash generating units in the

firm and how goodwill is allocated across the cash generating units. The third contribution of

this paper is to identify a limitation of the papers that consider impairment of goodwill only,

and that the impairment of assets should be considered more generally. Given the focus on

goodwill impairment in many studies, the strong findings for opportunistically motivated

asset impairment is probably expected. For the firms recognising asset impairment only 242

(45%) had a book value greater than market value. A final contribution of this study is that

23
the evaluation of asset impairment is problematic as impairments are evaluated at the cash

generating unit level and this may be obscured in aggregate firm level information.

Not addressed in this study, but which might be considered in future studies is how

investors respond to asset impairment decisions and what evidence is there of share price and

market impacts.

24
 7. References

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Goodwill Impairments: UK Evidence', Journal of International Financial
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Antle, R. & Nalebuff, B. 1991, 'Conservatism and Auditor-Client Negotiations', Journal of
Accounting Research, vol. 29, pp. 31-54.
Beatty, A. & Weber, J. 2006, 'Accounting Discretion in Fair Value Estimates: An
Examination of SFAS 142 Goodwill Impairments', Journal of Accounting Research,
vol. 44, no. 2, pp. 257-88.
Bennett, B., Bradbury, M. & Prangnell, H. 2006, 'Rules, principles and judgments in
accounting standards', Abacus, vol. 42, no. 2, pp. 189-204.
Beresford, D.R. 1999, 'It's Time to Simplify Accounting Standards', Journal of Accountancy,
vol. 187, no. 3, pp. 65-7.
Bonner, S.E. 1994, 'A model of the effects of audit task complexity', Accounting,
Organizations and Society, vol. 19, no. 3, pp. 213-34.
Bradbury, M.E. 2010, 'Commentary: Discount Rates in Disarray Evidence on Flawed
Goodwill Impairment Testing', Australian Accounting Review, vol. 20, no. 3, pp. 313-
6.
Carlin, T.M. & Finch, N. 2009, 'Discount Rates in Disarray: Evidence on Flawed Goodwill
Impairment Testing', Australian Accounting Review, vol. 19, no. 4, pp. 326-36.
Christensen, T.E., Paik, G.H. & Stice, E.K. 2008, 'Creating a Bigger Bath Using the Deferred
Tax Valuation Allowance', Journal of Business Finance & Accounting, vol. 35, no. 5-
6, pp. 601-25.
Collins, D. & Henning, S. 2004, 'Write-Down Timeliness, Line-of-Business Disclosures and
Investors Interpretations of Segment Divestiture Announcements', Journal of
Business Finance & Accounting, vol. 31, no. 9-10, pp. 1261-99.
Cotter, J., Stokes, D. & Wyatt, A. 1998, 'An analysis of factors influencing asset writedowns',
Accounting & Finance, vol. 38, no. 2, pp. 157-79.
Elliott, J.A. & Shaw, W.H. 1988, 'Write-Offs As Accounting Procedures to Manage
Perceptions', Journal of Accounting Research, vol. 26, pp. 91-119.
Francis, J., Hanna, J.D. & Vincent, L. 1996, 'Causes and Effects of Discretionary Asset
Write-Offs', Journal of Accounting Research, vol. 34, pp. 117-34.
Garrod, N., Kosi, U. & Valentincic, A. 2008, 'Asset Write-Offs in the Absence of Agency
Problems', Journal of Business Finance & Accounting, vol. 35, no. 3-4, pp. 307-30.
Jarva, H. 2009, 'Do Firms Manage Fair Value Estimates? An Examination of SFAS 142
Goodwill Impairments', Journal of Business Finance & Accounting, vol. 36, no. 9-10,
pp. 1059-86.
Jarva, H. 2014, 'Economic consequences of SFAS 142 goodwill write-offs', Accounting &
Finance, vol. 54, no. 1, pp. 211-35.
Lewellen, J. & Shanken, J. 2002, 'Learning, Asset-Pricing Tests, and Market Efficiency', The
Journal of Finance, vol. 57, no. 3, pp. 1113-45.
Muller, K., Neamtiu, M. & Riedl, E.J. 2010, 'Information asymmetry surrounding SFAS 142
goodwill impairments', Harvard Business School Accounting & Management Unit
Working Paper, no. 1429615.
Nelson, M.W., Elliott, J.A. & TarpIey, R.L. 2002, 'Evidence from Auditors about Managers'
and Auditors' Earnings Management Decisions', Accounting Review, vol. 77, no. 4, p.
175.
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of Finance, vol. 58, no. 5, pp. 1749-90.

25
Ramanna, K. & Watts, R. 2012, 'Evidence on the use of unverifiable estimates in required
goodwill impairment', Review of Accounting Studies, vol. 17, no. 4, pp. 749-80.
Riedl, E.I. 2004, 'An Examination of Long-Lived Asset Impairments', The Accounting
Review, vol. 79, no. 3, pp. 823-52.
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uncertainty', Journal of Accounting and Economics, vol. 48, no. 1, pp. 90-109.
Shaw, J. 1995, 'Audit failure and regulatory overload', Accountancy, vol. 115, no. 1219, p. 82.
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Returns', The Journal of Finance, vol. 42, no. 3, pp. 643-61.

26
 Table 1: Descriptive Statistics
All firms listed on the ASX with data available between 2000 and 2012
Panel A:
Std.
Obs. Mean Min p25 Median p75 Max
Dev
Assets 5839 3.161 10.997 0.000 0.150 0.790 2.910 234.927
Liabilities 5839 1.883 9.889 0.000 0.027 0.286 1.393 224.359
BV 5839 1.279 2.545 0.000 0.095 0.424 1.401 42.398
P 5839 2.541 6.102 0.001 0.130 0.600 2.460 119.950
B/P 5839 0.977 1.385 0.000 0.352 0.663 1.187 57.979
Impairment type:
Goodwill 5839 -0.003 0.038 -1.281 0.000 0.000 0.000 0.000
Identifiable Intangibles 5839 -0.002 0.027 -0.952 0.000 0.000 0.000 0.000
Tangibles 5839 -0.004 0.047 -2.251 0.000 0.000 0.000 0.000
Total 5839 -0.010 0.073 -2.251 0.000 0.000 0.000 0.000
NPAT 5839 0.136 0.505 -6.802 -0.014 0.021 0.175 13.986
NPAT+Spec 5839 0.127 0.490 -4.015 -0.019 0.017 0.166 11.621
CFOPS 5839 0.205 0.547 -5.733 -0.007 0.033 0.248 13.933
CFINV 5839 -0.219 1.361 -32.540 -0.168 -0.029 -0.002 34.542
CF 5839 -0.015 1.353 -33.230 -0.054 -0.005 0.084 35.291
Panel B:
Impairment type:
Goodwill 158 -0.121 0.201 -1.281 -0.126 -0.041 -0.010 -0.000
Identifiable Intangibles 196 -0.071 0.129 -0.952 -0.081 -0.018 -0.003 -0.000
Tangibles 374 -0.064 0.177 -2.251 -0.054 -0.016 -0.004 -0.000
Total 543 -0.105 0.218 -2.251 -0.104 -0.026 -0.006 -0.000
Where:
Assets : Total assets per share for firm i in year t
Liabilities : Total liabilities per share for firm i in year t
BV : Book value or Net Assets per share for firm i in year t
P : Price per share at year end for firm i in year t
B/P : BV/P
Impairment : Impairment expense per share for firm i in year t
B/P^ : (BV + Impairment) /P

NPAT : Net profit after tax before special items per share for firm i in year t
NPAT+Spec : Net profit after tax including special items per share for firm i in year t
CFOPS : Net cash flow from operations from cash flow statement per share for firm i in
CFINV : year t Investment cash flow from the cash flow statement per share for firm i in
Total
CF : year tcash flow per share for firm i in year t (CFOPS+CFINV)
Free

27
 Table 2: Descriptive Statistics
B/M>1 firms listed on the ASX with data available between 2000 and 2012
Panel A:
Std.
Obs. Mean Min p25 Median p75 Max
Dev
Assets 1857 2.721 8.571 0.003 0.229 0.887 2.738 200.469
Liabilities 1857 1.386 7.311 0.000 0.045 0.353 1.232 188.024
BV 1857 1.335 2.971 0.002 0.152 0.495 1.408 42.398
P 1857 0.942 2.533 0.001 0.077 0.270 0.905 42.370
B/P 1857 2.050 2.050 1.000 1.225 1.534 2.164 57.979
Impairment type:
Goodwill 1857 -0.006 0.050 -1.243 0.000 0.000 0.000 0.000
Identifiable Intangibles 1857 -0.004 0.035 -0.952 0.000 0.000 0.000 0.000
Tangibles 1857 -0.006 0.068 -2.251 0.000 0.000 0.000 0.000
Total 1857 -0.016 0.097 -2.251 0.000 0.000 0.000 0.000
NPAT 1857 0.066 0.412 -1.787 -0.017 0.009 0.083 11.621
NPAT+Spec 1857 0.040 0.442 -4.015 -0.030 0.005 0.076 11.621
CFOPS 1857 0.124 0.360 -4.498 -0.006 0.024 0.157 4.225
CFINV 1857 -0.082 1.519 -28.401 -0.118 -0.021 -0.001 34.542
CF 1857 0.042 1.559 -27.571 -0.044 -0.003 0.071 35.291
Panel B:
Impairment type:
Goodwill 85 -0.127 0.198 -1.243 -0.138 -0.042 -0.013 -0.001
Identifiable Intangibles 88 -0.083 0.138 -0.952 -0.107 -0.028 -0.005 -0.000
Tangibles 170 -0.068 0.214 -2.251 -0.046 -0.018 -0.003 -0.000
Total 242 -0.122 0.243 -2.251 -0.124 -0.033 -0.007 -0.000
Where: All variables as previously defined

28
 Table 3: Descriptive Statistics
Firms listed on the ASX with data available between 2000 and 2012
Panel A: Market Capitalisation>10m and BTM>1
Std.
Obs. Mean Min p25 Median p75 Max
Dev
Assets 1212 3.686 10.167 0.010 0.582 1.783 4.079 200.469
Liabilities 1212 1.971 8.987 0.000 0.154 0.670 1.853 188.024
BV 1212 1.715 2.672 0.010 0.351 0.945 2.037 42.398
P 1212 1.228 2.360 0.004 0.210 0.560 1.410 42.370
B/P 1212 1.731 1.004 1.000 1.186 1.436 1.901 14.874
Impairment type:
Goodwill 1212 -0.008 0.060 -1.243 0.000 0.000 0.000 0.000
Identifiable Intangibles 1212 -0.005 0.033 -0.505 0.000 0.000 0.000 0.000
Tangibles 1212 -0.009 0.083 -2.251 0.000 0.000 0.000 0.000
Total 1212 -0.022 0.115 -2.251 0.000 0.000 0.000 0.000
NPAT 1212 0.104 0.490 -1.787 -0.005 0.040 0.138 11.621
NPAT+Spec 1212 0.069 0.527 -4.015 -0.019 0.028 0.124 11.621
CFOPS 1212 0.176 0.406 -4.498 0.001 0.074 0.246 3.266
CFINV 1212 -0.145 0.716 -10.150 -0.190 -0.052 -0.006 12.642
CF 1212 0.031 0.779 -9.961 -0.064 0.004 0.127 12.858
Impairment type:
Goodwill 68 -0.143 0.214 -1.243 -0.197 -0.043 -0.018 -0.001
Identifiable Intangibles 71 -0.084 0.108 -0.505 -0.111 -0.035 -0.015 -0.000
Tangibles 144 -0.076 0.231 -2.251 -0.056 -0.021 -0.005 -0.000
Total 197 -0.135 0.257 -2.251 -0.139 -0.038 -0.011 -0.000
Panel B: Market Capitalisation<10m
Assets 645 0.907 3.507 0.003 0.086 0.219 0.690 38.660
Liabilities 645 0.285 0.557 0.000 0.008 0.052 0.273 4.280
BV 645 0.622 3.351 0.002 0.061 0.132 0.364 38.108
P 645 0.405 2.753 0.001 0.030 0.064 0.160 38.000
B/P 645 2.650 3.109 1.000 1.362 1.823 2.892 57.979
Impairment type:
Goodwill 645 -0.002 0.018 -0.297 0.000 0.000 0.000 0.000
Identifiable Intangibles 645 -0.002 0.038 -0.952 0.000 0.000 0.000 0.000
Tangibles 645 -0.001 0.010 -0.190 0.000 0.000 0.000 0.000
Total 645 -0.005 0.043 -0.952 0.000 0.000 0.000 0.000
NPAT 645 -0.004 0.179 -0.764 -0.029 -0.006 0.007 1.808
NPAT+Spec 645 -0.016 0.194 -1.277 -0.041 -0.008 0.006 1.808
CFOPS 645 0.027 0.223 -0.530 -0.011 -0.002 0.019 4.225
CFINV 645 0.035 2.379 -28.401 -0.023 -0.004 0.000 34.542
CF 645 0.062 2.422 -27.571 -0.028 -0.006 0.008 35.291
Impairment type:
Goodwill 17 -0.064 0.092 -0.297 -0.071 -0.028 -0.008 -0.002
Identifiable Intangibles 17 -0.077 0.230 -0.952 -0.019 -0.005 -0.001 -0.000
Tangibles 26 -0.021 0.048 -0.190 -0.012 -0.004 -0.002 -0.000
Total 45 -0.065 0.153 -0.952 -0.053 -0.010 -0.004 -0.000
Where: All variables as previously defined

29
 Table 4: Descriptive Statistics
Firms listed on the ASX with data available between 2000 and 2012
Panel A: Pre-IFRS and BTM>1
Std.
Obs. Mean Min p25 Median p75 Max
Dev
Assets 720 3.073 5.061 0.011 0.353 1.376 3.636 43.961
Liabilities 720 1.264 2.007 0.000 0.069 0.544 1.689 19.049
BV 720 1.808 4.136 0.007 0.225 0.724 1.884 42.398
P 720 1.324 3.578 0.003 0.125 0.400 1.310 42.370
B/P 720 1.828 1.144 1.000 1.207 1.468 1.987 11.886
Impairment type:
Goodwill 720 -0.001 0.020 -0.469 0.000 0.000 0.000 0.000
Identifiable Intangibles 720 -0.002 0.019 -0.330 0.000 0.000 0.000 0.000
Tangibles 720 -0.005 0.085 -2.251 0.000 0.000 0.000 0.000
Total 720 -0.009 0.091 -2.251 0.000 0.000 0.000 0.000
NPAT 720 0.099 0.550 -1.787 -0.011 0.019 0.112 11.621
NPAT+Spec 720 0.068 0.595 -4.015 -0.026 0.014 0.110 11.621
CFOPS 720 0.156 0.361 -1.561 -0.003 0.049 0.208 4.225
CFINV 720 -0.075 2.316 -28.401 -0.152 -0.031 -0.000 34.542
CF 720 0.080 2.363 -27.571 -0.054 0.001 0.110 35.291
Impairment type:
Goodwill 12 -0.087 0.129 -0.469 -0.104 -0.046 -0.019 -0.002
Identifiable Intangibles 15 -0.090 0.104 -0.330 -0.165 -0.053 -0.016 -0.000
Tangibles 27 -0.139 0.428 -2.251 -0.139 -0.016 -0.007 -0.000
Total 47 -0.131 0.336 -2.251 -0.155 -0.038 -0.007 -0.000
Panel B: Post-IFRS
Assets 1137 2.498 10.183 0.003 0.187 0.721 2.236 200.469
Liabilities 1137 1.462 9.207 0.000 0.035 0.239 0.956 188.024
BV 1137 1.036 1.833 0.002 0.122 0.405 1.174 26.021
P 1137 0.700 1.494 0.001 0.060 0.210 0.680 22.650
B/P 1137 2.191 2.447 1.000 1.237 1.587 2.297 57.979
Impairment type:
Goodwill 1137 -0.009 0.062 -1.243 0.000 0.000 0.000 0.000
Identifiable Intangibles 1137 -0.005 0.041 -0.952 0.000 0.000 0.000 0.000
Tangibles 1137 -0.007 0.053 -1.186 0.000 0.000 0.000 0.000
Total 1137 -0.021 0.100 -1.439 0.000 0.000 0.000 0.000
NPAT 1137 0.046 0.292 -0.984 -0.020 0.006 0.070 7.164
NPAT+Spec 1137 0.022 0.308 -1.904 -0.034 0.002 0.056 7.164
CFOPS 1137 0.104 0.358 -4.498 -0.008 0.014 0.124 3.266
CFINV 1137 -0.087 0.611 -10.150 -0.095 -0.017 -0.001 12.642
CF 1137 0.017 0.661 -9.961 -0.041 -0.005 0.046 12.858
Impairment type:
Goodwill 73 -0.134 0.207 -1.243 -0.175 -0.042 -0.013 -0.001
Identifiable Intangibles 73 -0.081 0.145 -0.952 -0.093 -0.024 -0.005 -0.000
Tangibles 143 -0.054 0.141 -1.186 -0.041 -0.018 -0.003 -0.000
Total 195 -0.120 0.215 -1.439 -0.122 -0.033 -0.007 -0.000
Where: All variables as previously defined

30
 Table 5:
All firms listed on the ASX with data available between 2000 and 2012
Panel A: Continuous Impairment
All
BTM>1
Firms
Coef. t-stat. Coef. t-stat.
B/P -0.005 -0.818 -0.009 -1.363
Yrs -0.092 -3.326 *** -0.028 -1.185
Earn 0.595 18.343 *** 0.000 0.104
CF -0.003 -0.337 -0.001 -0.190
BHR -0.090 -3.498 *** 0.006 0.778
AuditQual -0.058 -2.136 * -0.017 -0.975
AuditEff -0.013 -0.594 0.004 0.648
Constant 0.107 3.614 *** 0.019 1.242
Observations 1857 5839
Adjusted R2 0.152 0.000
F-Stat. 48.59 1.140
Panel B: Dichotomous Impairment
B/P 0.005 1.186 0.011 3.808 ***
Yrs -0.001 -0.092 0.030 2.817 **
Earn -0.011 -0.591 -0.000 -0.319
CF 0.002 0.474 0.002 0.765
BHR -0.028 -1.867 -0.011 -3.107 **
AuditQual 0.101 6.463 *** 0.075 9.760 ***
AuditEff -0.005 -0.366 -0.001 -0.190
Constant 0.064 3.787 *** 0.034 4.960 ***
Observations 1857 5839
Adjusted R2 0.021 0.022
F-Stat. 6.762 20.09
Where: All variables as previously defined
* = p-value < 0.05; ** = p-value < 0.01, *** = p-value < 0.001

31
 Table 6:
Analysis with Post-IFR indicator variable, excluding interactions All firms listed on the
ASX with data available between 2000 and 2012
Panel A: Continuous Impairment
All
BTM>1
Firms
Coef. t-stat. Coef. t-stat.
B/P -0.005 -0.769 -0.009 -1.320
Yrs -0.094 -3.399 *** -0.030 -1.256
Earn 0.594 18.320 *** 0.000 0.116
CF -0.003 -0.347 -0.001 -0.187
BHR -0.092 -3.565 *** 0.006 0.742
*
AuditQual -0.061 -2.230 -0.019 -1.107
AuditEff -0.014 -0.638 0.004 0.582
IFRS 0.023 0.792 0.018 1.025
Constant 0.100 3.288 ** 0.014 0.843
2
Adjusted R 0.152 0.000
F-Stat. 42.580 1.129
Observations 1857 5839
Panel B: Dichotomous Impairment
B/P 0.003 0.742 0.010 3.428 ***
Yrs 0.014 0.859 0.037 3.543 ***
Earn -0.008 -0.433 -0.000 -0.436
CF 0.003 0.575 0.002 0.744
BHR -0.015 -1.014 -0.010 -2.790 **
AuditQual 0.119 7.620 *** 0.085 11.103 ***
AuditEff 0.001 0.067 0.001 0.425
IFRS -0.123 -7.627 *** -0.076 -9.830 ***
Constant 0.098 5.678 *** 0.057 7.912 ***
Adjusted R2 0.051 0.038
F-Stat. 13.370 29.950
Observations 1857 5839
Where: All variables as previously defined
* = p-value < 0.05; ** = p-value < 0.01, *** = p-value < 0.001

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 Table 7:
Analysis with Post-IFR indicator variable, including interactions All firms listed on the
ASX with data available between 2000 and 2012
Panel A: Continuous Impairment
All
BTM>1
Firms
Coef. t-stat. Coef. t-stat.
B/P -0.007 -0.948 -0.008 -1.069
Yrs -0.130 -3.767 *** -0.044 -1.449
Earn 0.668 19.501 *** 0.000 0.175
CF -0.024 -0.894 -0.003 -0.324
BHR -0.119 -3.552 *** 0.013 1.371
*
AuditQual -0.086 -2.496 -0.028 -1.283
AuditEff -0.019 -0.557 0.027 1.523
IFRS -0.125 -1.853 0.000 0.004
B/P * IFRS 0.004 0.209 -0.001 -0.038
YRS * IFRS 0.113 1.948 0.035 0.689
Earn * IFRS -0.627 -6.066 *** -0.023 -4.817 ***
CF * IFRS 0.024 0.852 0.003 0.247
BHR * IFRS 0.118 2.219 * -0.023 -1.258
AuditQual * IFRS 0.083 1.469 0.026 0.729
AuditEff * IFRS 0.015 0.334 -0.027 -1.371
Constant 0.139 4.025 *** 0.016 0.844
2
Adjusted R 0.167 0.004
F-Stat. 25.780 2.533
Observations 1857 5839
Panel B: Dichotomous Impairment
B/P 0.001 0.253 0.009 2.912 **
Yrs 0.019 0.990 0.064 4.693 ***
Earn -0.009 -0.468 -0.000 -0.469
CF 0.027 1.728 0.003 0.639
BHR -0.010 -0.505 -0.012 -2.843 **
AuditQual 0.167 8.486 *** 0.112 11.686 ***
AuditEff -0.020 -1.036 0.009 1.180
IFRS -0.072 -1.869 -0.023 -1.514
B/P * IFRS 0.016 1.321 0.007 0.789
YRS * IFRS -0.017 -0.531 -0.068 -2.985 **
Earn * IFRS -0.026 -0.436 0.001 0.524
CF * IFRS -0.027 -1.638 -0.002 -0.291
BHR * IFRS -0.005 -0.166 0.006 0.747
***
AuditQual * IFRS -0.129 -3.998 -0.073 -4.556 ***
AuditEff * IFRS 0.037 1.402 -0.010 -1.160
***
Constant 0.078 3.979 0.038 4.649 ***
Adjusted R2 0.060 0.042
F-Stat. 8.829 18.150
Observations 1857 5839
Where: All variables as previously defined
* = p-value < 0.05; ** = p-value < 0.01, *** = p-value < 0.001

33