Reversal of impairment losses, firm performance and reporting incentives: Evidence from Malaysia

Malaysian Financial Reporting Standard (FRS) No. 136, Impairment of Assets, was issued in 2005. The standard requires public listed companies to report their non-current assets at no more than their recoverable amount. When the value of impaired assets is recovered, or partly recovered, FRS 136 requires the impairment charges to be reversed to its new recoverable amount. This study tests whether the reversal of impairment losses by Malaysian firms is more closely associated with economic reasons or reporting incentives. The sample of this study consists of 182 public companies listed on Bursa Malaysia (formerly known as the Kuala Lumpur Stock Exchange) that reported reversals of their impairment charges during the period 2006-2009. These firms are matched with firms which do not reverse impairment on the basis of industrial classification and size. In the year of reversal, this study finds that the reversal firms are more profitable (before reversals) than their matched firms. On average, the Malaysian stock market values the reversals of impairment losses positively. These results suggest that the reversals generally reflect increases in the value of the previously impaired assets. After partitioning firms that are likely to manage earnings and those that are not, this study finds that there are some Malaysian firms which reverse the impairment charges to manage earnings. Their reversals are not value-relevant, and are negatively associated with future firm performance. On the other hand, the reversals of firms which are deemed not to be earnings managers are positively associated with both future firm performance and current stock price performance, and this is the dominant motivation for the reversal of impairment charges in Malaysia. In further analysis, this study provides evidence that the opportunistic reversals are also associated with other earnings management manifestations, namely abnormal working capital accruals and the motivation to avoid earnings declines. In general, the findings suggest that the fair value measurement in impairment standard provides useful information to the users of financial statements.

To what extent does the Health Professions Admission Test-Ireland predict performance in early undergraduate tests of communication and clinical skills? – An observational cohort study

Background: Internationally, tests of general mental ability are used in the selection of medical students. Examples include the Medical College Admission Test, Undergraduate Medicine and Health Sciences Admission Test and the UK Clinical Aptitude Test. The most widely used measure of their efficacy is predictive validity.A new tool, the Health Professions Admission Test- Ireland (HPAT-Ireland), was introduced in 2009. Traditionally, selection to Irish undergraduate medical schools relied on academic achievement. Since 2009, Irish and EU applicants are selected on a combination of their secondary school academic record (measured predominately by the Leaving Certificate Examination) and HPAT-Ireland score. This is the first study to report on the predictive validity of the HPAT-Ireland for early undergraduate assessments of communication and clinical skills. Method. Students enrolled at two Irish medical schools in 2009 were followed up for two years. Data collected were gender, HPAT-Ireland total and subsection scores; Leaving Certificate Examination plus HPAT-Ireland combined score, Year 1 Objective Structured Clinical Examination (OSCE) scores (Total score, communication and clinical subtest scores), Year 1 Multiple Choice Questions and Year 2 OSCE and subset scores. We report descriptive statistics, Pearson correlation coefficients and Multiple linear regression models. Results: Data were available for 312 students. In Year 1 none of the selection criteria were significantly related to student OSCE performance. The Leaving Certificate Examination and Leaving Certificate plus HPAT-Ireland combined scores correlated with MCQ marks.In Year 2 a series of significant correlations emerged between the HPAT-Ireland and subsections thereof with OSCE Communication Z-scores; OSCE Clinical Z-scores; and Total OSCE Z-scores. However on multiple regression only the relationship between Total OSCE Score and the Total HPAT-Ireland score remained significant; albeit the predictive power was modest. Conclusion: We found that none of our selection criteria strongly predict clinical and communication skills. The HPAT- Ireland appears to measures ability in domains different to those assessed by the Leaving Certificate Examination. While some significant associations did emerge in Year 2 between HPAT Ireland and total OSCE scores further evaluation is required to establish if this pattern continues during the senior years of the medical course.