IMPACT OF EXOGENOUS FACTORS ON LOSS RECOGNITION AND FREQUENCY OF IMPAIRMENT TESTING IN BRAZILIAN COMPANIES

Abstract

The objective of this article is to analyze how exogenous factors influence the decision to perform an impairment test (frequency) and how they influence the amount to be recognized as a loss due to reduction in recoverable value (intensity). The theoretical-deductive method was adopted, based on the literature on impairment testing, its frequency (273 companies) and intensity (106 companies) to analyze the relationship with external variables: change in accounting standards, auditing firm, relationship between the accounting and market value of equity, sector, variation in GDP and interest rate. Data were obtained through secondary data using the Thomson Reuters database and the companies' financial statements. The logistic model and linear regression model for panel data were used. The results showed that in periods of crisis, when the auditing firm is a big four and in years when there are changes in accounting standards related to impairment, the chance of the company performing the test increases. However, the exogenous factors were not significant in estimating the intensity of recognition of impairment losses. It is concluded that the external factors studied increase the chance of predicting whether there will be an impairment test, but not how much will be recognized in accounting. For example, the variation in GDP may indicate the need to test whether the accounting value is above the possible recovery value, however, when measuring the recoverable value of an asset or cash-generating unit, the company is dependent on many other internal factors that will impact the recognition of the loss. This explains the fact that two companies in the same sector may have different losses and this is not due to external factors, but to internal factors related to the choices and strategy of each one.