Study on the Asset Impairment Accounting

Abstract

To better perfect and perform the new asset impairment standards, this article studies the theoretical base, the range and characters, and the accounting manipulation space about the asset impairment, and relative advices to perfect the asset impairment accounting are proposed finally. To standardize enterprise accounting behaviors such as recognition, measurement, and reporting, and ensure the quality of accounting information, according to the "Accounting Law of the People's Republic of China", the Ministry of Finance issued the Accounting Standards for Business (including the basic standards and 38 concrete standards), and the law had been implemented in the listed companies and other part enterprises from Jan 1, 2007, and for enterprises or companies which implemented the new accounting standards, the influences were extensive. In this article, the theoretical base, the range and characters, and the accounting manipulation space about the asset impairment are researched as follows, and relative advices to perfect the asset impairment accounting are proposed finally. 1. Theoretical base of the asset impairment The value of asset is radically decided by the market economy and the trades and events happening in the economy, because the real value of the asset should be realized or proved by the future trades or events. The theoretical base of the asset impairment exists in two aspects. 1.1 The market economy theory As an economic system, the market economy could be compared with the planning economy of autarky and the mixed economy, and it is not the theoretical innovation of China, and it had existed early in the western economics. Comparing with other economic systems, the market economy has very distinct characters. (1) Freedom. The market economy specially advocates the free competition. According to this theory, all enterprises and users could compete for all market resources and products such as capital, technology, talent, land, and information, and the result of the competition is that all participation parties could maximize their own benefits. (2) Uncertainty. This uncertainty comes from the adjustment of "invisible hand" and the fluctuation of the market economy itself. The freedom will definitely induce the existence of the uncertainty, and the uncertainty will also embody the essential character of the market economy, i.e. the freedom. Therefore, future trades or events happening in the market economy will bring uncertain economic benefits for enterprises, and not only enterprises but also accounting personnel could not ensure that, so the uncertainty of this future economic benefit may induce that the future economic benefit will be lower than the book-value of the asset, and the asset impairment occurs. Of course, the impairment may not happen, and the maintenance of value even the increase of value may happen. Therefore, the essential characters of the market economy will decide that the value of asset may change (including the asset impairment). 1.2 The accounting objective theory Though the value of asset could not be confirmed by the accounting personnel, but it should be honestly reported to investors, so even if the value of asset is not exact, the inaccurate asset value report should be reported to the user of information, which is not only the embodiment of the accounting objective, but the responsibility of the accounting. To reduce the uncertainty to the minimum degree, and effectively avoid potential disclosure responsibility and risk, enterprises and accounting personnel should test and confirm the asset impairment, and provide more reliable asset value information report to the users of information, and the confirmation of the asset