'In company reporting, the measurement of the amount of impairment of Essay

'In company reporting, the measurement of the amount of impairment of many types of assets is so subjective as to be meaningless - Essay Example For that financial activity, they are totally free to judge, determine and allocate their impairment estimation. The International Financial Reporting Standards, which are commonly known as IFRS, are unable to provide any guidance for the purpose of having an authorised and agreed way of judging and assigning the level of fixed assets impairment. After determining and issuing the International Accounting Standards number 36, in short IAS 36, the management of IFRS has become satisfied that they have successfully played and performed their job in the most positive way. Unfortunately, this level of contribution from the management of IFRS has only increased the use of subjectivity for the purpose of determining and assigning impairment for fixed assets. A huge amount of possible implications cannot be avoided. Many companies use this type of freedom to determine and allocate that level of impairment that may only support the interests of management at the cost of real owners-the shareh olders. By determining the level of impairment for different types of assets, many companies become successful in engineering the type of financial statements that they want to show and declare in the public. Multiple impacts can be appeared on the financial statements. For example, for the statement of comprehensive income, the impact of impairment would be that it would show less net profit than it could have shown in case of no loss of impairment. Furthermore, this would directly and negatively show its effects on dividends of the company as well. Due to the occurrence of the impairment loss, the company is required to reduce the amount of profit. Consequently, less amount of dividend would be announced and given to the shareholders of the company. The shareholders could have given more dividends if the company had not shown the occurrence of the impairment loss. Additionally, if the amount of impairment is substantial and material, then undoubtedly, this would negatively impact on the valuation of the business of the company; aggregately, company may experience a reduced level of confidence by shareholders, individual and institutional investors as well. In the same context, the announcement of material impairment could impact on a share price of the company. And this impact would show its presence by forcing the share price to reduce its current level of price to the level of reduced amount. All in all, the use of subjectivity for the purpose of determining a particular amount of impairment has put a considerable amount of impact on the financial statements, share price, reduced amount of dividends, tax saving, and other short term and long term impacts. International Accounting Standard 36: Impairment of assets The main and fundamental aim of this standard is to ensure that the long term fixed assets are carried and incorporated into the financial statements at no more than their recoverable amount. Before going to further understand and analyse the conc ept and application of impairment, it is highly important to define and understand the meaning of assets which come directly under the ambit of impairment loss. International Accounting Standards Board has defined the concept of asset as â€Å" an asset of an entity is (a) cash held by the entity; (b) a present right of the entity to cash; or