Assessing the Influence of Fair Value Accounting on Asset Impairment Decisions: A Sectoral Analysis

Abstract

Fair value accounting is a commonly used accounting method for asset valuations. However, little is known about the impact of fair value accounting on asset impairment decisions across different sectors. This study aims to investigate how fair value measurements are applied in impairment assessments, exploring the potential impact of market conditions and asset characteristics on impairment decisions. The data analysis reveals a distinct pattern in asset impairments across the selected sectors, highlighting that the Energy sector has the highest level of impairments over the analyzed period. A regression analysis confirms a statistically significant relationship between fair value adjustments and impairment decisions (p  0.01). The findings highlight the need for adjustments in fair value practices to account for the limitations of market efficiency, particularly during periods of economic uncertainty. For auditors, the study underscores the importance of sector knowledge when assessing fair value measures, ensuring that impairment testing reflects the unique characteristics of each industry. The findings can inform policymakers in refining their valuation practices, ultimately leading to more reliable financial disclosures.