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Can Impairment Recognition under IAS 36 Be Improved by Financial Performance?

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  • Mohammad Ebrahim Nawaiseh

Abstract

The study seeks first to examine how companies implement impairment test as required by IAS 36.Secondly, to explore and evaluate factors which may explain the effect of specific financial indicators on impairment loss. Quantitative analysis of a panel data sample of (30) companies listed on the Amman Stock Exchange (ASE) over 2005-2008 was carried out. Despite the fact that sample of companies listed on the ASE supposed to implement IAS36; only (41.10%) of the sample recorded an impairment recognition loss (30 out of 73). We find that impairment loss ratio showed fluctuated trends. We also find that probability of an impairment loss is positively affected by company size (SIZE) and operating cash flows (OCF). Research also reported a positive significant relationship between financial leverage (LEV), return on assets (ROA) and return on equity (ROE) .This can be explained by most public companies utilize financial leverage heavily to increase (ROA) and (ROE). We confirm insignificant statistical positive relationship between profitability measured by (ROA) and impairment loss recognition (IMP). Other controlling variables such as LEV; has a negatively insignificant relationship with IMP. This paper introduces necessary background and fundamentals to understand current practice of impairment recognition in Jordan. To urge Companies to use high standards of accounting quality in their financial statements according to IASs, this presentation would attract investors¡¯ attention and would further reinforce the credibility of their financial statements.

Suggested Citation

  • Mohammad Ebrahim Nawaiseh, 2016. "Can Impairment Recognition under IAS 36 Be Improved by Financial Performance?," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 8(12), pages 163-174, December.
    • Handle: RePEc:ibn:ijefaa:v:8:y:2016:i:12:p:163-174
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    References listed on IDEAS

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    More about this item

    Keywords

    Jordan; impairment recognition; IAS 36; value in use;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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