The topic of own credit risk generates perhaps more strongly held views than any other accounting topic. For example, in around 2011, the IASB was developing a discussion paper on insurance contracts. Some of us visited one of the largest insurers in the world. They knew almost nothing about the project. But they had heard… Continue reading Own credit risk
There are many myths about what deferred tax is. As a result, many companies do not understand what information about deferred tax can tell investors. Thus, companies typically present that information in a technical way that investors find difficult to understand. Consequently, most investors dismiss that information as an uninteresting technicality and they ignore it.… Continue reading Myths about Deferred tax
To set good accounting standards, standard-setters need to understand deeply how users of financial statements use and process financial information. One very useful report on this topic area was an academic literature review The use of information by capital providers produced in 2013, by a team of 6 academics: Stefano Cascino, Mark Clatworthy, Beatriz García… Continue reading Finding out what users need
Paragraphs 1.2-1.4 of the IASB’s Conceptual Framework for Financial Reporting are written so densely that some people do not succeed in unpacking what they say. To make unpacking the meaning of those paragraphs easier, the IASB staff recommended in 2017 that the IASB should add a flowchart to the Conceptual Framework. This post summarises the… Continue reading Help for unpacking the objective of financial reporting
There has recently been turmoil in the world of cryptocurrencies and cryptocurrency exchanges. So, are companies disclosing enough about their holdings of cryptocurrencies and other crypto-assets? If they are not, should the IASB take any action? This post discusses the following: For brevity, in the rest of this post, I use the term cryptocurrencies to… Continue reading Tell investors about your crypto
Some academics and investors often talk about ‘the cash component of revenue’. I understand why they use this shorthand label, but it risks causing misunderstanding. In this post, I examine the following: what is the ‘cash component of revenue’? an accounting identity linking revenue and cash receipts judgement in measuring trade receivables the ‘cash component… Continue reading The ‘cash component of revenue’: a dangerous myth?
The additions in 2018 to the IASB’s Conceptual Framework for Financial Reporting included a table summarising what information various measurement basis provide. It seems that people have paid little attention to that table. In this post, I highlight that table, summarise its role and content, and explain why it is important. Role of table… Continue reading Selecting a measurement basis
When accounting standard-setters have to make decisions about recognition and measurement, they often face two competing claims: some people argue that investors will under-react if companies are forced to recognise something; but other people argue that investors will over-react if companies are forced to recognise that thing. Standard-setters would love to get evidence that would… Continue reading The hardest question in standard-setting?
Many companies will need to spend a lot of money reshaping their businesses to help save the planet. Some environmental campaigners say that companies should book all that spending as liabilities today. They argue that booking that spending today would make investors focus on that information and that investors would then put pressure on companies… Continue reading Putting the wrong kinds of numbers in P&L won’t help save the planet
A common question about discount rates is how to estimate a discount rate for assets and liabilities with very long maturities. Such a discount rate contains a term premium that cannot be based on evidence and can never be back-tested. As a result, that term premium is not really an estimate, it is just a… Continue reading Discount rates for very long maturities