Economic Consequences of Fair Value Reclassifications of Financial Assets According to IAS 39 PDF Download
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Author: Meryem Önüt
Publisher: GRIN Verlag
ISBN: 3668549907
Category : Business & Economics
Languages : en
Pages : 112
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Book Description
Master's Thesis from the year 2015 in the subject Business economics - Accounting and Taxes, grade: 2,0, University of Hohenheim, language: English, abstract: The purpose of this thesis is to provide direct empirical evidence on the use of the Amendment according to IAS 39 regarding the reclassification of financial instruments. It therefore reviews what happened when the accounting policies were switched from fair value accounting to historical accounting during the financial crisis in 2008. Using a sample of manually collected data from Western European banks, the thesis empiri-cally examines which banks used this reclassification option to deal with problematic financial assets and how these reclassification activities are correlated with other firm characteristics. Furthermore, the thesis shows the influence of the amount of assets in each fair value level on the fair value hierarchy and the impact of the banks’ regulatory capital during the height of the financial crises on the use of the relaxation option. The final aim is to analyze the economic consequences of this option and to determine how beneficial it is for the global financial system, considering that banks will again make use of this sort of permission in other, future crises. After the development of the International Financial Reporting Standards (IFRS) by the International Accounting Standard Board (IASB) in 2001, the European Union (EU) decided to unify the jurisdictions for all listed corporations and therefore decreed a mandatory adoption of IFRS in the EU. The EU reasoned that common ac-counting standards improve capital market efficiency and reduce information processing and auditing costs. However, the decisive reason for the adoption of IFRS was that today’s global economy requires global standards to ensure transparency, accountability and comparability of financial accounts. IFRS was preferred because of its focus on a fair value-based method of accounting compared to historical cost accounting, and the EU claimed that adopting IFRS would bring financial stability while serving the interests of the public.
Author: Meryem Önüt
Publisher: GRIN Verlag
ISBN: 3668549907
Category : Business & Economics
Languages : en
Pages : 112
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Book Description
Master's Thesis from the year 2015 in the subject Business economics - Accounting and Taxes, grade: 2,0, University of Hohenheim, language: English, abstract: The purpose of this thesis is to provide direct empirical evidence on the use of the Amendment according to IAS 39 regarding the reclassification of financial instruments. It therefore reviews what happened when the accounting policies were switched from fair value accounting to historical accounting during the financial crisis in 2008. Using a sample of manually collected data from Western European banks, the thesis empiri-cally examines which banks used this reclassification option to deal with problematic financial assets and how these reclassification activities are correlated with other firm characteristics. Furthermore, the thesis shows the influence of the amount of assets in each fair value level on the fair value hierarchy and the impact of the banks’ regulatory capital during the height of the financial crises on the use of the relaxation option. The final aim is to analyze the economic consequences of this option and to determine how beneficial it is for the global financial system, considering that banks will again make use of this sort of permission in other, future crises. After the development of the International Financial Reporting Standards (IFRS) by the International Accounting Standard Board (IASB) in 2001, the European Union (EU) decided to unify the jurisdictions for all listed corporations and therefore decreed a mandatory adoption of IFRS in the EU. The EU reasoned that common ac-counting standards improve capital market efficiency and reduce information processing and auditing costs. However, the decisive reason for the adoption of IFRS was that today’s global economy requires global standards to ensure transparency, accountability and comparability of financial accounts. IFRS was preferred because of its focus on a fair value-based method of accounting compared to historical cost accounting, and the EU claimed that adopting IFRS would bring financial stability while serving the interests of the public.
Author: International Accounting Standards Committee
Publisher:
ISBN:
Category : Accounting
Languages : en
Pages : 22
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Book Description
Author: Kristina Kraljevic
Publisher: GRIN Verlag
ISBN: 3346214400
Category : Business & Economics
Languages : en
Pages : 113
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Book Description
Master's Thesis from the year 2019 in the subject Economics - Finance, grade: 1, University of Applied Sciences Wiener Neustadt (Austria), language: English, abstract: This paper examines the adaption of the International Financial Reporting Standards 9, effective as of 1 January 2018. The introduction outlines the reasons for the amendments and the objectives of IFRS 9 which are divided into three phases. The focus of this paper is the effect of IFRS 9 on financial liabilities. While the International Accounting Standards 39 for financial liabilities are still accurate, IFRS 9 lead to a change in the fair value option. As a result, changes in the fair value which are caused by the own credit risk are booked into the other comprehensive income. This paper aims to give an overview on the relevant changes regarding IFRS 9. However, the main focus is set at the liabilities side, the classification and the measurement of financial liabilities. Although the IASB intended to create a model in order to classify financial instruments of both the asset and the liabilities side, it had to prioritise the asset side owing to the financial crisis and the demand for new regulations in 2009. Therefore, the research context considers the adjustment of the fair value option (FVO) treatment. Due to the new regulation, changes in the own credit spread or rather the creditworthiness need to be captured under the position “other comprehensive income” (OCI), which affects the net income. Unless the financial liability is designated as FVO, the subsequent measurement of the liability follows amortised cost. However, choosing the FVO implies that once the change in the credit spread has been recorded under the OCI, the amount is not reclassified into the profit-and-loss account (P & L). In contrast to that, a reclassification is permitted within equity e.g. a financial liability designated at FVO that is derecognised. The reason for the new regulation is based on IAS 39 and the measurement of liabilities in regard to the credit spread. Although, the creditworthiness deteriorated during the financial crisis, financial institutions had to realise the increasing credit spread in the P & L as an earning and a decreasing fair value (FV) of the liability. This mixed-model approach is a reason for the volatility in P & L’s and has been revised in the course of the IFRS 9.
Author: Chee Yeow Lim
Publisher:
ISBN:
Category :
Languages : en
Pages : 32
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Book Description
In October 2008, the International Accounting Standards Board amended IAS 39 to allow banks to retroactively reclassify financial assets that previously were measured at fair value to amortized cost. By reclassifying financial assets, a bank can potentially avoid recognizing the unrealized fair value losses and thereby increase its income and regulatory capital during a market downturn. We examine the implications of the reclassification decision by banks for the properties of financial analyst earnings forecasts during 2008-2009, when economic conditions were highly volatile. We find that the reclassification choice during the financial crisis reduced analyst forecast accuracy and increased forecast dispersion. We also find that the observed decline in analyst forecasting ability is limited to the year of adoption when the economic environment was highly volatile.
Author: Thorsten Wenke
Publisher: GRIN Verlag
ISBN: 3640442547
Category : Business & Economics
Languages : en
Pages : 25
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Bachelor Thesis from the year 2009 in the subject Business economics - Banking, Stock Exchanges, Insurance, Accounting, grade: 1,3, University of Hull (Business School), course: Independent Study, language: English, abstract: Banks always played a superior role in business and especially in our today’s internationalised environment their position has become more crucial than ever before. Though, since summer 2007 these financially strong giants have been unhinged by their self-developed ‘financial crisis’ that originated from the US sub-prime market. Due to the instance that the today’s capital markets are interlinked worldwide, it was just a matter of months that the effects of this ‘banking crisis’ unbalanced the entire global economy. Actually large banks became illiquid and the governments had to shore them up, so that the whole financial network did not go to pieces. Among others, the reason for this disaster was a lack of trust between market participants, caused by enormous amounts of ‘toxic debts’, hidden in the balance sheets of almost every bank that cannot be reliably valued or seem to be worthless. For that reason the professional world and the accounting body IASB came under fire. Especially banks and politicians accused them of having provided inadequate and in-transparent accounting standards, which led to this disaster and amplified the downturn in the world economy. Hence, not only the accounting standard for financial instruments IAS 39 is in the centre of this discussion, especially the IASB's eminently respectable 'fair value' approach has been criticised of being useless in times when markets are absent. This paper will try finding answers if better accounting standards for financial instruments would have prevented us from this downturn in economy by analysing the origin of the financial crisis and showing the arisen problems. After highlighting its development, the central IFRS standards IAS 39 and the fair value approach will be analysed and evaluated with focus on banks. Finally the IASB’s attempts to manage the arisen problems within the credit crisis will be shown and annotated.
Author: Kenneth Born
Publisher: Anchor Academic Publishing
ISBN: 3960676050
Category : Business & Economics
Languages : en
Pages : 53
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Book Description
The broad consensus before the recent financial crisis was that the so called fair value accounting (FVA) improves transparency contrary to the historical cost model. Since 2008, the discussion has been on the root cause of the crisis, which lessons can be gleaned from it and how making the same mistakes again can be avoided. Basel III was implemented in order to improve the regulatory environment and was the response of regulators and politicians to public pressure and suspicions raised by the bail out programmes for banks. Consequently, an until then inconceivable number of new regulations and regulatory bodies were introduced. FVA was also blamed as part of the cause of the recent financial crisis. Available-for Sales (AfS) securities represent a major component of bank balance sheet asset. Gains and losses of AfS-positions are recorded within the Other Comprehensive Income (OCI). The OCI includes items which are not recognized (IAS 1.7) in income statements but increase or decrease a bank’s equity. The items also include income and expenses from Available-for-Sale positions (AfS) in accordance with IAS 39. On October 13th, 2008, an amendment to IAS 39 was published by IASB. This amendment did authorize the reclassification of assets. This amendment clearly demonstrates the influence of FVA on the value of assets of banks that apply IFRS. The main objective of this book is to verify the influence of OCI and whether the new regulations sufficiently capture this critical factor. Regulators should ensure that unrealized profits do not result in a capital drain. One way to assure this is to make OCI subject to a prudential filter and to deduct it from regulatory capital, which was the case until CRR became effective on January 1st, 2014 (CEBS guideline 2004). Basel III is even less strict than Basel II in that regard. Article 26(1) CRR clearly states that CET1 items must be recognized only in case they are really available to the financial institution for “unrestricted and immediate use to cover risks or losses as soon as these occur”. Nevertheless, with the introduction of the CRR, the prudential filter for positions that caused the financial crisis and led to poor capitalization of banks was not strengthened but actually removed. At present, CRR does not envisage any filter for unrealized gains parked in OCI.
Author:
Publisher:
ISBN: 9781907026478
Category : Assets (Accounting)
Languages : en
Pages : 37
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Author: Ellen Gaston
Publisher: International Monetary Fund
ISBN: 1484381122
Category : Business & Economics
Languages : en
Pages : 41
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Book Description
Countries implementing International Financial Reporting Standards (IFRS) for loan loss provisioning by banks have been guided by two different approaches: International Accounting Standards (IAS) 39 and Basel standards. This paper discusses the different accounting and regulatory approaches in loan loss provisioning, and the challenges supervisors face when there are different perspectives and lack of guidance from IFRS. It suggests actions that supervisors can take to help banks meet regulatory and capital requirements and, at the same time, comply with accounting principles.
Author: International Accounting Standards Board
Publisher:
ISBN:
Category : Accounting
Languages : en
Pages : 58
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Author:
Publisher:
ISBN: 9781911040927
Category :
Languages : en
Pages : 147
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