Budget 2012: From Employee`s View point

Employee Benefit Accounting : IAS 18 Revised ( The rules for this game have changed !)

Finally employee Benefit accounting seems to be simplified. IAS 18 Revised have introduced some concrete and simple guidelines for accounting for employee benefit plans. Though the terminologies remain the same, new concept of Remeasurements (A broad term which includes actuarial gains and losses) is introduced. These are directly recognized in Other Comprehensive Income (Earlier options like Corridor method etc are no more available).  

Eco friendly ganesha

ONLY BAILOUT WILL NOT HELP

The European Union which came out with a common currency would never have imagined that their future will be so grim and euro zone will ever face such a downturn. Greek economy which is totally devastated and almost bankrupt with industrial production falling by 25% and fiscal deficit as high as 14% of GDP lead the European Union to this crises. Greek is an excellent example of fiscal mismanagement; exorbitant spending and hiding its actual deficit status have landed the whole EU into trouble. Developing investor’s confidence is an essential measure to be taken along with bail out.

 We shouldn’t expect that anything can be achieved through austerity measures, as stringent control over govt. expenditures will result in slowdown in economic activities thus adversely affecting the suffering economies. Bailout of about 1trillion dollars which is expected to help the European economy to come out of this storm will serve as a boomerang in long term if it is not supported by high economic growth. The fiscal deficit has affected adversely because it is not possible for the economies to service the debt and due to this investors have lost confidence in the economy which resulted in expectation of higher rate of interest and thus making the task of raising further funds even more difficult. Bailout will worsen the problem for other European economies specifically for PIIGS who are on the verge of collapse and this will result investors loosing confidence even in other economies and they will be entangled in the vicious circle of fiscal deficit. Thus, along with bailout building investor’s confidence will be a real challenge but an essential one to come out of this crisis. And definitely bailout should be supported by high level out economic growth.

IFRS 13 (Part – 2) Technical Issues

This is in continuation to my previous blog. In this blog I will be discussing about IFRS 13 in much more details. This blog covers some technical questions raised during recent webinar organised by IASB on 23^rd May, 2011. Some technical issues:

• When we talk about principal market does it means the market in which the entity normally trades or do we consider it to be market where market normally trades. As far as this question is concerned principal market means a market where the market often trades and not merely the entity.
• Distress market prices and inputs from distress markets are not to be considered for fair value calculation.
• The most important issue that needs attention is, IFRS 13 requires net risk position to be stated but IAS 32 requires gross presentation thus these two standards sound confusing, more clarification is required on this issue.
• Fair value determination in case of 1 Day transactions which are peculiar in case of banks still remains unaddressed, but IASB is working on this and shortly guidance on this issue will be made available.
• Another important point addressed is about cost as best estimate of fair value. Cost can no longer be the best estimate of fair value. Even if it is difficult to calculate fair value, using level 3 inputs fair value needs to be calculated.

FINANCIAL BHEL: IFRS 13- Fair value measurement (Part -1)

FINANCIAL BHEL: IFRS 13- Fair value measurement (Part -1): " Introduction: IFRS 13 specifies how the fair value is to be measured and not when it is to be measured. Even for the purpose of m..."

IFRS 13- Fair value measurement (Part -1)

  Introduction:

•  IFRS 13 specifies how the fair value is to be measured and not when it is to be measured. Even for the     purpose of measurement it specifies the hierarchy of inputs to be used for fair value measurement, it does not  specify the particular formula or method for calculation.
• It redefines the term fair value in order to make it more concrete and simple to interpret. 
• It provides inputs for fair value measurement where ever other IFRS requires fair value measurement.

            New Definition:

Definition: “Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.”

Features of this definition:

• Exit price: As per new definition fair value is defined as exit price, the wordings “price that would be received to sell an asset or paid to transfer a liability” specifies this.
• Current price: Fair value is the current price the term “at measurement date” specifies this.
• Normal transaction: The fair value is the value based on normal transaction and not on forced or distress sale the term “orderly transaction” specifies it.

 New terms: principal market and most advantageous market

• Principal Market: It can be explained as market with highest level of transactions or activities.
• Most advantageous Market:  This means the market in which highest returns can be earned for asset and lowest amount will be paid for liability.

             Fair value measurement:

IFRS 13 specifies the ranking for inputs based on which fair value is to be determined; it do not specifies the measurement technique as it will differ from circumstances. The hierarchies of inputs are to be followed in sequence.

• Level 1 Inputs: Quoted price for identical asset or liability, if this price is available use it for calculating fair value. Example: In case of listed shares.
• Level 2 inputs: If level 1 inputsare not available we need to consider level 2 inputs for fair value measurement. These inputs include observable inputs other than quoted prices. Example: In case of fixed income securities.
•  Level 3 inputs:  These inputs include non-observable inputs. This is the option of last resolve, if no inputs for level 1 or Level 2 are available level 3 inputs are to be used. Example: In case of Non-current assets (Not always).

The flowchart below explains the requirements of IFRS 13.