The Characteristic of the Estimate on Allowance for Doubtful Accounts in China:Based on the Study on Implementation of CAS22(Revised)
This paper conducts research on the characteristics of the estimate on allowance for doubtful accounts in China by adopting a manual col-lection of accounting policies on accounts payable and allowance for doubtful accounts ratios.First,it is found that the credit impairment loss based on the expected credit loss(ECL)model is more predictive of future earnings.However,most listed companies in China have not actually adopted the ECL model,despite claiming to have done so.This results in a weaker earning prediction.Secondly,a quasi-experimental study was conducted utilizing the special institutional background that China's A+H shares implement CAS22(revised)before pure A shares.The DID test revealed that when estimating the allowance for doubtful accounts ratios,listed companies in China tend to converge to the industry level in order to avoid being inquired by China's se-curities regulators for deviating from the industry level,which supports the verifiability motivation hypothesis.The above trend has become more significant after the implementation of CAS22(revised),in the case of the companies that are not be inquired,in a less robust legal environment,using aggressive accounting estimates,and with a longer age of accounts receivable.This paper will provide empirical evidence on the post-implementation review of IFRS 9 and make recommendations for China's securities regulators and accounting standard setters to enhance the implementation of CAS22(revised).
Allowance for Doubtful AccountsAccounting EstimateExpected Credit Loss ModelVerifiability Motivation
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