Tangible Long-Lived Asset Impairments and Future Operating Cash Flows under US GAAP and IFRS

55 Pages Posted: 12 Aug 2012 Last revised: 26 Apr 2017

See all articles by Elizabeth A. Gordon

Elizabeth A. Gordon

Temple University - Department of Accounting

Hsiao-Tang Hsu

Texas A&M University - Corpus Christi

Date Written: December 16, 2016

Abstract

This paper investigates the predictive value of tangible long-lived asset impairments for changes in future operating cash flows under US GAAP and IFRS. We find that impairments reported under IFRS are negatively associated with changes in future operating cash flows whereas those under US GAAP, on average, are not. We investigate whether differences in the predictive value are attributable to differences in recognition or measurement, providing evidence suggesting impairment recognition under US GAAP is delayed. Evidence also suggests that the value-in-use measurement attribute, allowed under IFRS, does not induce underimpairing as IFRS and US GAAP impairments are similarly related to future impairments. The main result of a negative association under IFRS but not US GAAP holds after considering future impairments to control for measurement differences, macro-economic factors, and firm reporting incentives. Further, impairment losses under IFRS are more predictive in high enforcement countries.

Keywords: IFRS, US GAAP, Impairment, Write-off, Enforcement

JEL Classification: D78, F02, M16, M41, G38

Suggested Citation

Gordon, Elizabeth A. and Hsu, Hsiao-Tang, Tangible Long-Lived Asset Impairments and Future Operating Cash Flows under US GAAP and IFRS (December 16, 2016). The Accounting Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2127868 or http://dx.doi.org/10.2139/ssrn.2127868

Elizabeth A. Gordon

Temple University - Department of Accounting ( email )

Philadelphia, PA 19122
United States
2152046422 (Phone)

Hsiao-Tang Hsu (Contact Author)

Texas A&M University - Corpus Christi ( email )

6300 Ocean Drive
Corpus Christi, TX 78412
United States

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