Transpacific Industries - A Case Study in Profit Quality Through the Examination of Impairment Disclosures

MGSM Working Paper No. 2009-1

18 Pages Posted: 24 Feb 2009

See all articles by Tyrone M. Carlin

Tyrone M. Carlin

Southern Cross University; The University of Sydney Business School

Nigel Finch

Saki Partners

Guy Ford

Macquarie University - Graduate School of Management

Date Written: February 24, 2009

Abstract

This paper examines the profit quality of a goodwill-intensive firm, Transpacific Industries Group Limited (ASX.TPI), by specifically focusing on critical judgments and disclosures relating to goodwill impairment. The term "profit quality" is synonymous with terms such as "creative accounting" and "earnings management" refers to the degree of agressiveness or conservatism in the underlying estimates of a firms accounting disclosure. By examining the impairment disclosures made in accordance with AASB 136 - Impairment of Assets, an assessment is made of the reasonableness of a variety or critical assumptions, such as CGU growth rates and discount rates. This assessment is useful in judging the robustness of the firm's impairment testing methodology and its ability to promptly recognise an impairment charge, should an impairment even occur. The paper catalogues ten issues relating to critical accounting judgements that ultimately undemine the profit quality of TP, and the paper concludes with the view that TPIs methodology and approach to impairment testing is disingenuous, suggesting that TPI is applying a degree of agressiveness to profit recognition.

Keywords: Impairment, goodwill, profit quality, Transpacific Industries

JEL Classification: M40, M41

Suggested Citation

Carlin, Tyrone M. and Finch, Nigel and Ford, Guy, Transpacific Industries - A Case Study in Profit Quality Through the Examination of Impairment Disclosures (February 24, 2009). MGSM Working Paper No. 2009-1. Available at SSRN: https://ssrn.com/abstract=1348311 or http://dx.doi.org/10.2139/ssrn.1348311

Tyrone M. Carlin (Contact Author)

Southern Cross University ( email )

Lismore, New South Wales 2480
Australia

The University of Sydney Business School ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia
+ 61 2 9036 7230 (Phone)
+61 2 9351 7471 (Fax)

HOME PAGE: http://sydney.edu.au/business/staff/tyronec

Nigel Finch

Saki Partners ( email )

Australia

Guy Ford

Macquarie University - Graduate School of Management ( email )

99 Talavera Road
Sydney, NSW 2113
Australia
+61-2-9850-7813 (Phone)
+61-2-9850-9019 (Fax)

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