The report explains the findings of two journal articles related to the topic revaluation and impairment testing on non-current assets. It explains the similarities and differences in both the articles along with their implications on financial reporting of Australian companies.
The topic was related to revaluation and impairment testing of non-current assets. The journal articles chosen for the same are from Issues in Accounting Education and Asian Review Accounting. Following are the reasons for selecting the two journal articles:
Article 1: Snowy Ridge Ski Resort: Fair Value Measurement and the Impairment of Long-Term Assets
Reasons
Article 2: The value relevance and reliability of intangible assets: Evidence from Australia before and after adopting IFRS
Reasons
Article 1 is the case study of Snowy Ridge Ski Resort which was published in journal named Issues in Accounting Education in year 2010. The basic purpose of the article is to develop the understanding among the students in relation to the concept of long term asset impairment and measurement of fair value. Its objective is to explain how to apply basic valuations technique while estimating fair value of the assets. In addition, it also explains the manner in which the impairment is done for goodwill and other operating assets. Overall, the objective is to make students familiar with the concept of fair value and impairment testing. The research question sets out by the paper is to illustrate the interaction between measuring the fair value and impairment testing of long term assets. In order to pursue the same, the paper includes a case study of Ski Resort and has impaired its assets (Gore and Herz, 2010).
Article 2 is a paper that investigates the relevance and reliability of the value in respect of intangibles. It was published in Journal Asian Review of Accounting in year 2014. The objective of the paper is to examine the relevance of value of intangible assets in pre and post period of IFRS adoption. It also focuses on the concept of impairment of goodwill after the adoption of IFRS by the companies. Mainly, the paper is focused on proving the fact that the relevance of asset’s value is directly related to its reliability of the value. Additional objective of the paper is to investigate that whether the acceptance of IFRS enhances value relevance or not. The paper is focused on the fact that the impairment approach for goodwill is better than its amortization as it gives more fair and true valuation of the intangible asset. The research question explained in the paper is the changes in accounting practices after adopting IFRS and before IFRS (Xu-Dong and Lu, 2014).
Similarities in the finding of both the articles
Both the papers focus on the importance of impairment testing of intangible assets. The findings of articles reflected the increased knowledge about asset impairment and suggested that the adoption of IFRS will switch to approach of goodwill impairment instead of its amortization. The findings of article 1 states that students had positively respond to the case study. They have mentioned that the article has increased their knowledge about fair value measurement and impairment of assets including impairment testing on goodwill. Moreover, it is very important to estimate the fair value of the assets before applying impairment test on them. Similarly the article which was published in Asian Review of Accounting found out that in Australia, intangible assets are value relevant before and after IFRS. In addition, there is a positive connection between the relevance and reliability of asset’s value. The findings suggested that the application of IFRS standards will remove the concept of amortization and brings into the annual impairment of goodwill. Another similarity in both the articles is that they both are focused on non-current intangible asset goodwill and have talked about the impairment of the same. In addition, they have given priority to the concept of fair value of intangible assets inclusive of goodwill.
Differences in the findings
The major difference in the findings of both the articles is that both have adopted different methodologies in proving their respective research questions. Article 1 is mainly focused on improving the knowledge and practical approach of the students whereas Article 2 deals with association of value relevance and reliability of intangible assets for the both the periods. Although, both the articles lay impact on impairment of assets but their findings are different in a manner that one lay more emphasis on fair value and other focused more on acceptance of IFRS and value relevance of intangible assets.
Implications of the research findings of both the articles on the external reporting stakeholders are as follows:
Article 1
Shareholders are considered as the external users of financial reports and hold the complete right to have full information about company’s practices and policies.
Article 2
Conclusion
The report concludes that valuation and impairment of assets are associated with each other and companies must adopt the IFRS standards in their reporting. It will help them in making correct valuation of their assets and conducting impairment test on the assets as and when required.
References
Gore, R.A. and Herz, P.J. (2010). Snowy Ridge Ski Resort: Fair Value Measurement and the Impairment of Long-Term Assets. Issues in Accounting Education, vol. 25, no. 1, pp. 59-70.
Xu-Dong, J. and Lu, W. (2014). The value relevance and reliability of intangible assets. Asian Review of Accounting, vol. 22, no. 3, pp. 182-216.
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