Article 1: Snowy Ridge Ski Resort: Fair Value Measurement and the Impairment of Long-Term Assets

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

• The article reflects the use of new Fair Value Measurement Standard (SFAS No. 157) in relation to the ski resorts acquisition and impairment of the same.
• It focus on the measurement of the fair value of assets that include marketable securities; property, plant, and equipment; goodwill and real estate under development. After estimating the values, the goodwill and operating assets are tested for impairment. Therefore, it can be said that the case study explained in the article discusses the relationship between impairment testing and fair value measurement of non-current assets.
• Overall the article enhances the understanding of the student by clearing their terms and concepts related to the impairment testing of long term operating assets which includes goodwill impairment also. The article provides details about the advance accounting concepts and improves the practices of the student in calculating assets’ fair value and their impairment (Gore and Herz, 2010).

Article 2: The value relevance and reliability of intangible assets: Evidence from Australia before and after adopting IFRS

Reasons

• The article selected defines the relevance and importance of the intangible assets’ value along with their reliability. Also it highlights the fact that whether the IFRS affected the value relevance and reliability or not.
• The literature review of the article throw some light on the impairment of goodwill and it was mentioned that the amortization of goodwill is now prohibited and the annual impairment of the same are now in practice. In addition, the importance of impairment testing has been explained as a result of increased value relevance. The findings of Chalmers et al. (2008) suggested that the impairment testing of goodwill done on annual basis is completely associated with the increase in value relevance.
• The article also explains that adoption of IFRS instead of Australian GAAP is more favourable as it includes impairment approach which gives more accurate valuation of goodwill and other intangible assets. Overall, the importance of impairment is reflected from the article and therefore it has been selected (Xu-Dong and Lu, 2014).

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).

Article 2: The value relevance and reliability of intangible assets: Evidence from Australia before and after adopting IFRS

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

1. Accountants in Australian companies

• The paper will have a positive implication on the accountants in Australia as it will increase their knowledge about the new standard and impairment testing of long lived assets.
• The case study provides those insights about how to conduct the impairment test for the operating assets of real company and estimate the fair value of the assets. It also explains the manner in which the goodwill is annually impaired.

1. Accounting regulators

• The paper impacted the regulators in a way that it shows the importance of the new standard related to Fair Value Measurement. Furthermore, it gives insights into the assets impairment which is very much valuable for calculating and estimating the true and reliable value of non-current assets including goodwill.
• It forces the regulators to consider the new standard in the requirements of financial reporting so that the facts and figures can be reported at their fair value and represents the true image of the company.

1. Shareholders

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.

• The findings will let the stakeholders know about the reporting standards followed by the company and the disclosure of measurement will give them the whole information about company’s practices.
• The paper explains them how the impairment and fair value measurement is done for some particular assets of Ski Resort and the same is reported in the financial reports.

Article 2

1. Accountants in Australian companies

• The accountants will get to know that acceptance of IFRS has reduced the value relevance of intangibles.
• They will get aware about the fact that the firms having more information about intangibles have high value relevance.

1. Accounting regulators

• The impairment test should be conducted by every company as it gives more reliable and correct assessment of the goodwill. In turn it makes the data more value relevant.
• It reduces their dilemma in respect of regulating accounting policies for intangibles and for improving the value of the data about intangible assets.

1. Shareholders

• It clearly explains the difference in accounting of intangibles for the period before and after IFRS adoption.
• It provides insights to the shareholders that adoption of IFRS will focus on the approach of annual impairment testing rather than conducting the amortization of goodwill.

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.