A tough economy can force companies to reassess the value
that they had attached to their assets and businesses, and sometimes that
reassessment results in a write-off or an impairment.
But as the write-offs and impairments pile up, regulators
and investors must be extra vigilant against listed companies that claim an
irreversible loss on an asset's value but fail to properly explain why that
loss had to be incurred. In particular, social shopping network platform YuuZoo
Corp and investment services firm ISR Capital are two recent examples where
clarity from the companies is sorely needed.
The need for those explanations exists on a few levels. Most
fundamentally, when a company says that it is not actually worth what was
previously declared, shareholders need to understand why the discrepancy
existed. From a prudential perspective, shareholders also need to guard against
possible shenanigans, because write-offs and impairments could be the result of
over-aggressive revenue recog…