Meeting Today's Financial Challenges Impairment Reporting: Improving Stakeholders' Confidence - Ernst & Young Survey Results

Nicoleta Roman and Andreea Stanciu

The Valuation Journal, 2009, vol. 4, issue 2, 32-47

Abstract: Market confidence was severely impacted in virtually every area of the global economy. Scarcity of capital and increased risk aversion are driving investors and lenders to focus on the reliability of information used to make investment decisions. In our experience, valuing businesses and their underlying assets is more challenging today than at any other time in recent history and prolonged uncertainty will only continue to add complexity to valuation assumptions. Our discussions with representatives of companies, financial institutions, governments and regulators around the world indicate that, for many, this level of uncertainty will be part of the landscape for some years to come. Against this background we have asked those who use financial statements to tell us how they interpret impairment reporting, the information they find most valuable and their expectations for the next 18- 24 months. We surveyed 170 users of financial statements during September and October 2009, including investors, analysts and lenders in 32 countries. In addition, we sought regulators' views on certain aspects of impairment. These are the major findings from our survey: lenders were notably more pessimistic about the state of recovery than other stakeholders; most believe that the level of impairments to date are below expectations, and that the real estate, banking and capital markets, and automotive sectors are the most likely to experience further impairments; more than 90% indicated that forecasting cash-flows in the next 12- 18 months will be either challenging or very challenging; more than 90% use impairment information disclosed in notes at the financial statements in their investment or lending decision making process; the management of companies needs to place at least as much importance on the impact of the impairment on the future prospects of the business as it does on the size, magnitude and reason for the impairment. Variations in accounting standards and interpretation of International Financial Reporting Standards (IFRSs), particularly around financial instruments, add further complexity for users of financial statements. Although valuation standards exist in several countries, a globally-consistent set of valuation standards does not exist. To build confidence with investors, analysts, lenders and regulators, leading companies will need to adopt a robust and integrated impairment testing process.

JEL-codes: G32 M41 (search for similar items in EconPapers)
Date: 2009
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