The effect of Asset Impairment (IAS 36) in Improving the Quality of Accounting Information According to Users’ Perspective: Evidence from Jordan

Abstract

Purpose: The main purpose of this study is to investigate from the users' perspective the influence of adopting IAS 36 'impairment of assets' on accounting information in Jordan and to ascertain the extent to which impairment application can affect users’ decisions. In other words, this study aims to elicit perceptions regarding the motivations and techniques of using impairment loss to discover its effect and role in improving the quality (qualitative characteristics) of accounting information and its impact on the financial statements of users, to assist them in the decision-making process; it also aims to discover whether impairment loss is considered a tool for increasing the credibility of accounting information or a tool for manipulation. To explore the relevance (applicability) of international accounting standards to developing countries such as Jordan is a topic of significant interest amongst accounting information users.
Methodology/Approach/Research Questions: This thesis uses a multi-method approach; quantitative and qualitative approaches are both used to collect primary data concerning the 'impairment of assets' phenomenon. Questionnaire and interview surveys are used to explore the motivations and techniques of 'impairment of assets' in Jordan by obtaining the perceptions of respondents. Semi-structured interviews are used to elicit a better understanding of the research questions, confirming and elaborating on the questionnaire survey findings and supporting the development of the hypotheses. The triangulation of findings enables a comprehensive appreciation of the research topic and minimises the possibility of bias resulting from the use of a single method.
Analysis and Findings: The first findings are the agreement of the six groups of accounting information users regarding the importance of IAS 36 application, also indicate that there is a significant statistical difference among the respondents' opinions particularly between academics and other groups which indicates that academics were more aware of the importance of applying 'impairment of assets' than the other five groups. A plausible explanation for this result is that academics are more aware that impairment loss depends on market value (fair) instead of historic value, which is more convenient but less reliable.
The main conclusion reached through questionnaire and interview survey is the positive impact of 'impairment of assets' on the quality of accounting information according to users' perspective in Jordan. which means there is an impact of impairment on the quality of accounting information, and we assert this finding through correlation that impairment loss depend on market value (fair) instead of historic value, which is more convenient but less reliable .
The second finding reveals that two groups of respondents (Accountants and Investors) see impairment as a tool for manipulation. These two groups have similar views that impairment application is considered a technique used to manipulate illegally, in order for managers to achieve their own goals, such as increased compensation (salary), to declare a reasonable profit and avoid a loss, to obtain loans, and to raise share prices. These results can be attributed to scientific knowledge they have about advantages of the application of this standard. Furthermore, interview findings indicate that 68% of all respondents amongst all groups agreed that impairment improves the reliability and credibility of financial reports in Jordan.
One of the most important results from the respondents’ views is that impairment announcements provide new information to the market and assist the users to change or modify their decisions. However, interviews showed that investors and accountants have a different view of impairment application, considering it as bad news (weak company), all of these findings will be generalized for developing countries, also will be helpful for developed countries.
Research limitations/implications: These findings could be fruitful and helpful for external users of accounting reports and also for regulators and legislators in their attempts to constrain the incidence of earnings management and to enhance the quality of accounting information. The interview sample was quite small (only 14) since some interviewees in developing countries do not like to have their opinions tape-recorded or become worried if notes are taken by devices during the interview as it appears like an interrogation to them. Moreover, in the questionnaire survey, only 324 out of 749 were returned, since access to respondents (Elements sample) was very difficult as they do not stay in the same place. In terms of secondary data, a lack of disclosure limited this study regarding the variables.
Contribution: Very few studies concerned with 'impairment of assets' have been conducted on data obtained from financial reports in developed countries. Thus, a different perspective could be obtained from developing countries such as Jordan, which is different in numerous respects, and this will enhance IAS application and provide an accurate picture of impairment practices. Moreover, this study contributes to the literature by employing qualitative and quantitative methods that have not received attention in relation to the effect of monitoring mechanisms.