Managing Corporate Management And How They Make Decisions Essay

1111 Words Apr 15th, 2015 null Page
Additionally, impairment charges also allow investors to be able to assess corporate management and how they make decisions. Companies that write off a lot of charges due to impairment have not made strategic investment decisions. On the other hand, managements that choose to take an all-encompassing charge should be viewed more favorably than companies that take recurring impairment charges-manipulating their position.
Recent research conducted by KPMG, indicated “impairment charges have the tendency to lag behind share performance by up to two years (KPMG, pg. 8).” Typically, impairment charge offs are delayed behind actual business developments. According to KPMG, results of the research were not entirely clear “ if this lag can be attributed to an inherent flaw in the model or to efficiencies in those markets being considered (KPMG, pg. 8). ” The research revealed that this delay however is not unexpected, because commercial developments occur first and accounting was not designed to be faster than the market. In short, impairment charges confirm value rather than predict value.
The level of estimation required in goodwill impairment testing has been noted as one of the difficulties in applying the model, and is believed by many users is what reduces its effectiveness. According to KPMG’s study, many of the respondents believed that “this difficulty could be attributed to human nature, rather than a problem with the actual model (KPMG, pg 8).” All in all, respondents…

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