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Lecture 4: Accounting analysis (2) - Coggle Diagram
Lecture 4: Accounting analysis (2)
Meeting earnings benchmarks helps
Maintain/ increase stock price
Build credibility with the capital markets
External reputation of the management team
Failing to meet benchmarks
Outsiders think there are
previously unknown problems
It creates
uncertainty
about future prospects
Revenue recognition
accelerate the recognition of revenue =>
manage earnings upwards
revenue
: gross inflow of economic benefits during a period, arising in the course of
ordinary activities
gains that
do not arise
from ordinary activities =>
special items
in the income statement or directly in equity as
OCI
IFRS
: lacked sufficient details
US GAAP
: overly prescriptive and conflicting in certain areas
accounting changes
sometimes better reflects underlying economics of transactions
OCI analysis
OCI includes transactions that are
not yet completed or closed
(
unrealized gains/ losses from available- for- sale securities
)
FASB defines comprehensive income as a
change in equity
that occurs during a reporting period from transactions/ events from
non- owner sources
Non- owners sources
: CI
excludes
those changes in equity resulting from
investment by owners
and
distribution to owners
(new issues and repurchases)
OCI components
Available- for- sale securities
Unrealized holding gains and losses
Pensions and other post- retirement benefits
Actuarial gains or losses
Foreign currency transactions
gains and losses
translation adjustments
Clean surplus accounting
all gains and losses
are included in net income and go through
income statement
OCI = 0