Open AccessAre Discount Rates In Disarray In The First Year Adoption Of International Financial Reporting Standards?
Author(s) -
Mạnh Dũng Trần,
Thu Thủy Nguyễn
Publication year - 2021
Publication title -
international journal of social science and economics invention
Language(s) - English
Resource type - Journals
ISSN - 2455-6289
DOI - 10.23958/ijssei/vol07-i04/296
Subject(s) - goodwill , cash flow , financial statement , discretion , transparency (behavior) , international financial reporting standards , discounting , economics , business , actuarial science , discounted cash flow , point (geometry) , finance , accounting , audit , geometry , mathematics , political science , law
In calculating recoverable amount of cash generating units (CGUs) under the implementation of value in use approach, discount rate selection represents a central point in deciding the magnitude of impairment charges under Hong Kong Financial Reporting Standards (HKFRSs). The selection of discretion discount rate in the discounted cash flow model (DCF) could be used opportunistically to misstate impairment losses for the benefit of financial statement preparers and causes the transparency of the financial reports. This study is conducted to provide evidence of opportunistic behaviours relating on goodwill impairment by reporting statement preparers. By comparing independently estimated risk adjusted discount rates and those subjectively presented by large listed Hong Kong firms in the first year adoption of HKFRSs, the results showed that discount rates were presented in disarray, in which discount rates were more overstated than understated in comparison with scientifically generated ones.