According to the accounting principles, when the recoverable amount of the invested entity is lower than its book value due to the deterioration of its operating conditions, impairment reserve should be accrued.

According to the current accounting system, eight assets, such as accounts receivable (including other receivables), inventories, short-term investments, long-term investments, entrusted loans, fixed assets, intangible assets, and construction in progress, should be set aside for impairment. Among them, the provision for bad debts of accounts receivable adopts the allowance method, and the provision for inventory depreciation adopts the lower method of cost and net realizable value, and the accrued amount is included in the subject of "management expenses"; Short-term investments are provided with impairment reserves according to the lower of cost and market price, while long-term investments, entrusted loans, fixed assets, intangible assets and construction in progress are provided with impairment reserves according to the lower of book value and estimated recoverable amount. The first three items of the accrued amount are deducted from the "investment income", and the last three items are included in the "non-operating expenses" account. The amount of the eight reserves directly affects the current profit, so the relevant system stipulates that secret reserves shall not be withdrawn.

The accounting system makes this arrangement in order to restore the true face of enterprise assets, squeeze out water from them and reveal potential risks. However, it is not excluded that individual enterprises use the system to make provision for impairment and conceal current profits.