Mandated Disclosures Under IAS 36 Impairment of Assets and IAS 38 Intangible Assets: Value Relevance and Analysts’ Forecasts
36 Pages Posted: 8 Jun 2014
Date Written: June 6, 2014
Drawing on a large sample of European firms, we examine whether compliance with mandated disclosures under IAS 36 Impairment of Assets and IAS 38 Intangible Assets are value relevant and affect analysts’ forecasts. We focus on these two standards because intangible assets represent significant amounts on companies’ balance sheets. Additionally, impairment tests give rise to concerns about their implementation quality. Our results indicate a mean (median) compliance level of about 84% (86%) but high variation among firms; and disclosure levels regarding IAS 36 being much lower than those regarding IAS 38. In depth analysis reveals that non-compliance relates mostly to proprietary information and information that reveals managers’ judgment and expectations. Furthermore, we find a positive (negative) relationship between average disclosure levels and market values (analysts’ forecast dispersion). Results, however, hold more specifically for disclosures related to IAS 36, and these also improve analysts’ forecast accuracy. Our findings add knowledge regarding the economic consequences of mandatory disclosures, have an appeal to regulators and financial statement preparers, and reflect on the IASB’s concerns to increase the guidance and principles on presentation and disclosure in the revised Conceptual Framework.
Keywords: IAS 36, IAS 38, Intangibles, Impairments, Value relevance, Analysts' forecasts, Mandatory disclosures
JEL Classification: M40, M41, M48, G10
Suggested Citation: Suggested Citation