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    Recasting FS

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    Capung Soleh
    This document discusses potential issues with financial statement classifications and how standardizing terminology and classifications could help address them. It notes that firms currently vary in how they report financial results and that some transactions make it difficult to assess economic ownership of assets. Standardizing classifications could help mitigate distortions that may arise from ambiguities around recording assets and liabilities.

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    Recasting FS

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    Capung Soleh
    113 views1 page
    This document discusses potential issues with financial statement classifications and how standardizing terminology and classifications could help address them. It notes that firms currently vary in how they report financial results and that some transactions make it difficult to assess economic ownership of assets. Standardizing classifications could help mitigate distortions that may arise from ambiguities around recording assets and liabilities.

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    Financial Statement Analysis - Recasting Financial Statement Mind Map

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    This document discusses potential issues with financial statement classifications and how standardizing terminology and classifications could help address them. It notes that firms currently vary in how they report financial results and that some transactions make it difficult to assess economic ownership of assets. Standardizing classifications could help mitigate distortions that may arise from ambiguities around recording assets and liabilities.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    113 views1 page

    Recasting FS

    Uploaded by

    Capung Soleh
    This document discusses potential issues with financial statement classifications and how standardizing terminology and classifications could help address them. It notes that firms currently vary in how they report financial results and that some transactions make it difficult to assess economic ownership of assets. Standardizing classifications could help mitigate distortions that may arise from ambiguities around recording assets and liabilities.

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    BS, IS, CF may be recast with standardized line-item descriptions and

    classifications
    Recasting financial statements into a template that uses
    standard terminology and classifications Firms vary in formats used to report financial results (e.g., nature vs
    function)

    Lease, Who control the assets? Lessor or Lesse?

    Mechanical rules may not capture economic ownership


    Some types of transactions make it difficult to assess who owns the
    The firm owns/controls the economic resource
    asset
    Or may induce managers to structure transactions to achieve an
    accounting outcome rather than reflect the economics of the
    transaction

    Benefits are hard to estimate, IFRS requires immediate expensing of


    such as research expenditures
    some expenditures that may have future economic benefits,
    Future economic benefits can be measured with reasonable certainty
    Judgment is required to assess the realisability of recorded assets, and the amount recorded,
    impairment amount, depreciation, useful life, may be misstated

    Fair values of assets Fair values of assets fall below their book values Technology impact

    Delay in writing down assets when expected benefits have declined


    Asset Distortions Distortions may generally arise from ambiguities about whether
    Underestimate provisions such as the provision for bad debts
    Overstated, Overstating assets can boost net assets,equity, and
    Accelerate recognition of revenues by recognising revenue and
    earnings
    accounts receivable before revenue is earned

    Underestimate rate of depreciation, overestimate useful life,


    overestimate residual value
    How assets might be misstated
    Overstate write-down of assets

    Overestimate provisions

    Understated, Understating assets can reduce net assets, equity, or Overstate depreciation
    earnings, but may boost ROE
    Do not record intangible assets

    Structure leases as operating leases that are off balance sheet


    financing

    An obligation has been incurred Joint Operation?

    The measurement of an obligation warranty?

    Incentives to overstate earnings

    Understated liabilities may arise from: Incentives to understate the amount of debt

    Difficulties in estimating the amount of future financial commitments


    Liability Distorsions Distortions may arise from ambiguities about whether:
    Record unearned revenue as revenue

    Remove accounts receivables from balance sheet when they have


    been sold with recourse (meaning the company will have to guarantee
    some funds if the customer fails to pay)
    How liabilities are misstated
    Leases structured as operating leases rather than financial lease so
    the asset/liability are off balance sheet

    Pension liabilities understated

    Distortions in assets and/or liabilities can distort equity


    Equity Distortions
    Effect of hybrid securities Convertible Bonds

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