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Seminar 9 & 10_ Implementing accounting analysis -Six slides

Seminar 9 & 10_ Implementing accounting analysis -Six slides

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Implementing Accounting Analysis Implementing Accounting Analysis Two Steps 1. Recast Financial Statements Facilitates comparisons across firms and for the same firm over time 2. Identify Distortions Business strategy analysis helped us identify the firm’s key success factors and risks Implementing Accounting Analysis Cont’d Q. How do the firm’s accounting policies and estimates compare with those of other firms in the industry? Are there good reasons for differences? Or Do they result from management judgments or bias? Q. Are the accounting rules inadequate for measuring the underlying economic reality? Implementing Accounting Analysis Cont’d A. Asset Distortions Resources owned or controlled by the firm as a result of past transactions, which are expected to generate future economic benefits that can be measured with a reasonable degree of certainty Distortions arise because it is unclear whether Ownership is certain Measurement issues Implementing Accounting Analysis Cont’d B. Liability Distortions Economic obligations arising from receiving benefits in the past, and which have to be settled in the future and amount and timing is reasonably certain Distortions arise because it is unclear whether An obligation has been incurred The obligation can not be measured Changes in the value of debt Implementing Accounting Analysis Cont’d C. Equity Distortions Residual claim on firm’s assets, after paying liabilities Asset & Liabilities distortions cause equity distortions Two other forms of equity distortions Hybrid Securities Stock option expense
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A. Ownership What resources for a firm are excluded from its balance sheet because ownership of resulting benefits is uncertain?
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