Newspaper articles often say or imply that the national debt risks exploding if it exceeds 100% of Gross Domestic Product (GDP). Some such articles even say this more directly by talking about national debt becoming ‘larger than the economy’, by which they appear to mean ‘exceeding 100% of GDP’. Such articles rarely say why the… Continue reading Stocks, flows and national debt
Tag: Liability
Liability discount rates and liquidity
IFRS 17 Insurance Contracts requires the discount rate for insurance liabilities to reflect the characteristics of the insurance liabilities, including their liability characteristics. IFRS Accounting Standards dealing with other types of liability do not typically mention liquidity. This post explains why IFRS 17 addresses this topic. This post covers: This post discusses only the discount… Continue reading Liability discount rates and liquidity
Real options and intangible assets
When the IASB set its initial agenda in 2001, the IASB decided to do no further work on a project on discounting (or present value). The project had begun under the IASB’s predecessor (the International Accounting Standards Committee, IASC). In this post, I: What are real options? Many people are familiar with financial options: explicit… Continue reading Real options and intangible assets
Defining contingent liabilities
IAS 37 Provisions, Contingent Liabilities and Contingent Assets contains an unusual definition of contingent liabilities. The definition covers 3 different items that do not form a natural class, and it also differs from how people (other than people applying IAS 37) commonly think about contingent liabilities. This post explains how IAS 37 ended up having… Continue reading Defining contingent liabilities
Booking a provision does not ‘set money aside’
A story this morning in The Times commits a serious and misleading wording error that is surprisingly common in the UK. Here are the headline and the first two and a half paragraphs: Santander puts £295 million aside for car loan claimsThe brewing controversy over mis-sold car loans has forced Santander UK to set… Continue reading Booking a provision does not ‘set money aside’
Why has research on ‘conservatism’ told standard setters so little?
There is a vast and burgeoning academic literature on conservatism in accounting, and a slightly less flourishing literature on the somewhat related notion of accounting prudence. When I worked in standard setting, I didn’t find that literature as helpful as I had hoped. My impression is that my colleagues and other standard setters didn’t find… Continue reading Why has research on ‘conservatism’ told standard setters so little?
Pension accounting under IAS 19
IASC completed a major revision of its standard on pension costs in 1998, when it issued IAS 19 Employee Benefits. But although that was a major update to the Standard, the revision did not involve a thorough overhaul of every important aspect of the Standard. Scope limitations adopted by the IASC at the start of… Continue reading Pension accounting under IAS 19
Fair value of liabilities and of equity
IFRS 13 Fair Value Measurement contains requirements on how to estimate the fair value of liabilities (and of own equity instruments). Those requirements produce sensible and useful outcomes. The Standard presents those requirements as achieving an overall objective of estimating the price for a transaction. But that transaction is one that, typically, cannot occur. This… Continue reading Fair value of liabilities and of equity
‘Reserves’: things we don’t know how to account for?
The word ‘reserve’ has sometimes been used to describe two items on opposite sides of the balance sheet. The first item is oil or gas reserves, which are assets. The second item is insurance ‘reserves’, which are liabilities. Coincidentally, accounting standard setters have found both items hard to deal with. I think the label ‘reserve’… Continue reading ‘Reserves’: things we don’t know how to account for?
Liability or equity?
I have submitted a comment letter to the IASB on 2 aspects of its Exposure Draft Financial Instruments with Characteristics of Equity, available at IFRS – Exposure Draft and comment letters: Financial Instruments with Characteristics of Equity—Proposed amendments to IAS 32, IFRS 7 and IAS 1 The comment deadline is 26 March 2024. The text… Continue reading Liability or equity?