Tag: Uncertainty

Holding enough capital is short hand for holding enough assets

People often talk about how much capital a company ‘holds’ and about how much capital the company needs to ‘hold’. Talking about a company’s capital can be a convenient shorthand, but runs the risk of confusion. That risk arises because companies hold assets but do not ‘hold’ capital. Also, measures of capital are simplistic and… Continue reading Holding enough capital is short hand for holding enough assets

Recognising revenue from sales-based royalties

One type of transaction within the scope of IFRS 15 Revenue from Contracts with Customers is licensing intellectual property to a customer in return for a royalty based on the licensee’s (future) sales. IFRS 15 sometimes requires the licensor to recognise its royalty as revenue before the licensee recognises its own related revenue. Also, estimating… Continue reading Recognising revenue from sales-based royalties

Changing accounting policies: when retrospective is not best

Applying IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, changes in accounting policies are generally applied retrospectively—by restating information for prior years as if the new accounting policy had always been applied. That approach of (full) retrospective application is overridden: IAS 8 makes it look as though full retrospective application is the default… Continue reading Changing accounting policies: when retrospective is not best

We call too many things ‘intangible assets’

The definition of an intangible asset in IAS 38 Intangible Assets is too broad, in my view.  The assets it captures do not form a single natural class of assets that all have a common feature. As a result, IAS 38 may not provide the most useful information about every type of asset captured by… Continue reading We call too many things ‘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

Unexpected prediction

IFRS 15 Revenue from Contracts with Customers discusses 2 methods of estimating the amount of variable consideration. Those estimates are used in calculating the transaction price for contracts with customers. Unfortunately, the discussion is not totally clear because the wording is a compromise between proponents of the 2 methods. I discuss below: Estimating variable consideration… Continue reading Unexpected prediction