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.

Reporting on data monitoring committees in neonatal randomised controlled trials is inconsistent

Aim: To evaluate the reported use of Data Monitoring Committees (DMCs), the frequency of interim analysis, pre-specified stopping rules and early trial termination in neonatal randomised controlled trials (RCTs). Methods: We reviewed neonatal RCTs published in four high impact general medical journals, specifically looking at safety issues including documented involvement of a DMC, stated interim analysis, stopping rules and early trial termination. We searched all journal issues over an 11-year period (2003-2013) and recorded predefined parameters on each item for RCTs meeting inclusion criteria. Results: Seventy neonatal trials were identified in four general medical journals: Lancet, New England Journal of Medicine (NEJM), British Medical Journal and Journal of American Medical Association (JAMA). 43 (61.4%) studies reported the presence of a DMC, 36 (51.4%) explicitly mentioned interim analysis; stopping rules were reported in 15 (21.4%) RCTs and 7 (10%) trials were terminated early. The NEJM most frequently reported these parameters compared to the other three journals reviewed. Conclusion: While the majority of neonatal RCTs report on DMC involvement and interim analysis there is still scope for improvement. Clear documentation of safety related issues should be a central component of reporting in neonatal trials involving newborn infants.