Abstract

The study seeks first to examine how companies implement impairment test as required by IAS 36.Secondly, to explore and evaluate factors which may explain the effect of specific financial indicators on impairment loss. Quantitative analysis of a panel data sample of (30) companies listed on the Amman Stock Exchange (ASE) over 2005-2008 was carried out. Despite the fact that sample of companies listed on the ASE supposed to implement IAS36; only (41.10%) of the sample recorded an impairment recognition loss (30 out of 73). We find that impairment loss ratio showed fluctuated trends. We also find that probability of an impairment loss is positively affected by company size (SIZE) and operating cash flows (OCF). Research also reported a positive significant relationship between financial leverage (LEV), return on assets (ROA) and return on equity (ROE) .This can be explained by most public companies utilize financial leverage heavily to increase (ROA) and (ROE). We confirm insignificant statistical positive relationship between profitability measured by (ROA) and impairment loss recognition (IMP). Other controlling variables such as LEV; has a negatively insignificant relationship with IMP. This paper introduces necessary background and fundamentals to understand current practice of impairment recognition in Jordan. To urge Companies to use high standards of accounting quality in their financial statements according to IASs, this presentation would attract investors’ attention and would further reinforce the credibility of their financial statements.

This work is licensed under a Creative Commons Attribution 4.0 License.