Accounting for Assets Impairment: Creative Impairment Strategy on Discount Rate Disclosure

Wulfenia, Vol, 21, iss. 2, pp: 136-159, 2014

22 Pages Posted: 10 Jun 2014

See all articles by Nur Laili

Nur Laili

Universiti Sains Islam Malaysia (USIM)

Khairil Faizal Khairi

Universiti Sains Islam Malaysia (USIM), Malaysia

Date Written: February 20, 2014

Abstract

Discount rates selection represent a centrally material factor impacting in goodwill valuation decisions. This study examines the consistency of opportunistic behavior in documenting the variances between discount rates used by companies and independently generated estimates of company specific, risk-adjusted discount rates. This study examines the selection of 20 top listed companies on Bursa Malaysia that have released their 2010 and 2011 annual reports with reported goodwill and analyzed using the CAPM and goodwill intensity. The dominant pattern was for observed discount rates to be lower rather than higher than the estimated value, with 15 (75%) companies of the 20 both in 2010 and 2011 in excess of 150 bps lower than independent risk-adjusted estimate. Therefore, the data provided evidence of the use of aggressively low discount rates, with the result that CGU asset portfolio recoverable amount values will have been overestimated and potential goodwill impairment losses deferred or avoided.

Keywords: Discount Rates, Value in Use Method, Goodwill Impairment Testing, Goodwill Intensity, FRS 136, Bursa Malaysia

Suggested Citation

Laili, Nur and Khairi, Khairil Faizal, Accounting for Assets Impairment: Creative Impairment Strategy on Discount Rate Disclosure (February 20, 2014). Wulfenia, Vol, 21, iss. 2, pp: 136-159, 2014. Available at SSRN: https://ssrn.com/abstract=2448101

Nur Laili

Universiti Sains Islam Malaysia (USIM)

Bandar Baru Nilai
Nilai, Negeri Sembilan 71800
Malaysia

Khairil Faizal Khairi (Contact Author)

Universiti Sains Islam Malaysia (USIM), Malaysia ( email )

Bandar Baru Nilai
Nilai, Negeri Sembilan 71800
Malaysia
+6067986427 (Phone)

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