Asset Impairment Accounting And Profit Manipulation

First, some listed companies use assets impairment to control profits. The new accounting system expands the preparation of four assets impairment allowance to eight preparations, which is conducive to further squeezing the "water" of enterprise assets and providing more reliable and reliable accounting information for accounting information users.

However, the recognition and measurement of asset impairment requires that accounting practitioners make more use of professional judgment, so that companies can manipulate some freely controllable profit and loss recognition items in the external reports, so that profits can be pferred during different accounting periods.

If unrecognized losses and possible losses in the previous year are confirmed in the current period, in order to improve the performance of the following years, or the items that should be recognized as losses in the current period shall not be processed, and long-term loans should be made to enhance the profits this year.

This provides a space for listed companies to manipulate profits with asset impairment.

(1) the accounting policy for the preparation of asset impairment is highly selective. According to the enterprise accounting system, enterprises should still improve their short-term investment and receivables.

1. short term investment: when enterprises use the short-term investment cost and the market price lower, they can use the overall investment, according to the investment category or the single investment, according to their specific circumstances.

If a short-term investment is relatively large (such as 10% or more of the total short-term investment), it should be calculated on the basis of individual investment and determine the provision for depreciation.

In view of the total investment and the depreciation of investment according to the investment category, it will offset some of the losses. Therefore, it is the most prudent and most conservative way to prepare for short-term investment prices in terms of single investment.

But the choice of which system is not clear.

2. receivables: the method for enterprises to prepare bad debts is determined by the enterprise itself.

Generally, the percentage of percentage of receivables, age analysis and percentage of sales are available, and the ratio of extraction is determined by the enterprise itself, so it has strong mobility.

In addition, the enterprise accounting system stipulates that "accounts receivable can not be fully prepared for bad debts" with related party members. It also stipulates that "in the notes to the accounting statements," the reasons for not making provision for certain larger amounts of receivables, or the lower proportion of bad debts preparation (5% or less than 5%) "are not specified.

However, the preparation of internal pactions has great impact on the profits and losses of enterprises.

(two) some enterprises abuse accounting estimates to make more provision for asset impairment. The accounting system for enterprises stipulates that the provision for impairment of assets should be refunded in the original channel in the current period. This prevents enterprises from using earnings receivable bad debts to manipulate profits.

However, because the prudence principle itself has strong tendentiousness, the current profit is steady, but it is not stable in the later stage.

For example, inventory, provision for inventory depreciation, making the current profit calculation low, ending inventory cost reduction, will lead to lower sales costs in the later period, so that profits rebounded.

For enterprises with a larger proportion of final inventory accounting for assets, such as real estate development companies, this can be regarded as a means of manipulating profits.

As a result, an enterprise may write off a large amount of idle stock in a certain accounting year, make a huge loss in inventory prices, achieve a huge write off of inventory costs, and then achieve a substantial net profit in the next year.

This kind of earnings management only needs to estimate the net realizable value of the final inventory at a low level, without having to rush back to the impairment reserve in the next year.

Two, strengthen the audit of asset impairment preparation, and curb the manipulation of assets, and usually make the estimates made by the auditors' management according to the relevant factors. The risk of wrongdoing is greater, and audits depend largely on the professional experience and professional judgment of certified public accountants, which will inevitably increase audit risk.

Therefore, certified public accountants should plan and carry out audit work with due professional prudence. If necessary, they should make full use of experts' work to obtain sufficient and appropriate audit evidence to evaluate whether the auditor's management is reasonable and full disclosure of assets impairment provision.

At the stage of audit implementation, when the auditor is in charge of audit assets depreciation, he can usually use the following procedures: 1., evaluate the data, assumptions and calculation methods based on assets impairment preparation; 2. check the correctness of the calculation of assets impairment; 3., where possible, compare the amount of assets impairment and the actual number of assets in advance; 4. check the approval procedures for the preparation and verification of assets impairment; 5., after the inspection period; and 6., evaluate the adequacy of disclosure of assets impairment.

When evaluating the assumptions based on asset impairment, the CPA should consider the following items: understand whether the assumptions are properly based, such as government statistics, industry statistics or data compiled by the audited units; check the actual number of actual cases in advance, decide whether the assumption is reasonable; whether the assumptions based on the impairment of assets are contradictory; whether they are consistent with the plans of the management.

A certified public accountant should evaluate the appropriateness of the method used in the preparation of the assets impairment allowance according to the previous financial situation and operating results of the audited entity, the practice of the industry and the plan of the management.

The scope of review shall be determined according to the complexity of the calculation of impairment of assets, the degree of impact of asset impairment preparation on the fair reflection of accounting statements, and the evaluation results of CPA's procedures and methods for the impairment of assets prepared by the audited administrative authorities, as well as the evaluation results of relevant internal control systems.

Under the circumstances, the CPA should compare the amount of the asset impairment provision and the actual number of occurrence in advance so as to obtain evidence for the reliability of the provision for impairment of assets, determine whether it is necessary to adjust the method for preparing the asset impairment provision, determine the difference between the actual number and the number of assets impairment reserves, and pay attention to whether the audited units have made proper accounting treatment.

In addition, certified public accountants should check whether the procedures for the preparation and verification of assets impairment of audited units conform to the "notice on matters relating to the preparation of assets impairment for listed companies" and whether there is a certificate of approval such as the approval of the manager, board of directors or shareholders' general meeting, etc.

At the stage of audit report, when the CPA has different discrepancy between the assets impairment allowance estimated by the audit evidence and the audited entity's accounting statement, two, it should be judged whether the difference is reasonable.

If the difference is not reasonable, the certified public accountant should ask the audited unit to adjust it. If the audited unit refuses to adjust it, the CPA should consider it as a misstatement and consider it with other misstatements.

If the amount of discrepancy is within the acceptable scope, there is no need to adjust; however, when the cumulative number of differences has a significant impact on the accounting statements, the CPA should take all the differences into consideration.

If the audited entity fails to make an unreasonable or inadequate disclosure of assets impairment allowance, the certified public accountant shall, based on its importance, issue an audit report with reservations or negative opinions.

When there is no objective data or significant uncertainty, CPA can not judge the reasonableness of the assets impairment provision of the audited entity, and should consider its impact on the audit report.