Week 8_Financial Instrument

Week 8_Financial Instrument - Issues in Corporate Financial...

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1 Issues in Corporate Financial Reporting and Analysis (ACCT3563/3573) Accounting for Financial Instruments Introduction 2 Learning Objectives – Fin Instruments ± Understand what is a financial instrument, and how can they be categorised ± Accounting for a one particular type of financial instrument – a “ compound instrument ± Understand and become acquainted with, another type of financial instrument – a derivative
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3 ICAA – 27 February 2006 Australian businesses are experiencing difficulty with certain aspects of the new Australian International Financial Reporting Standards according to a survey of over 200 Australian businesses conducted by the Institute of Chartered Accountants. The survey of those businesses, which have been applying the new Australian International Financial Reporting Standards for the past six months, revealed concerns around the application of the standards on financial instruments (AASB 132/139), Income tax (AASB 112) and Impairment of assets (AASB 136). More than 60% of respondents identified financial instruments as the most difficult standards to adopt , 55% thought the standard on income tax was complicated and 50% said they had trouble applying the standard on impairment of assets. 4 Objective of AASB 132 AASB 132, “Financial Instruments: Disclosure and Presentation “ …….to enhance financial statement users’ understanding of the significance of financial instruments to an entity’s financial position, performance, and cash flows”
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5 Objective of AASB 139 AASB 139, “Financial Instruments: Recognition and Measurement “ …….to establish principles for recognising and measuring financial assets, financial liabilities, and some contracts to buy or sell non-financial items.” 6 What’s the big deal about financial instruments? ± Very controversial – and complex –standards ± More “rules” based and similar to FASBs ± European opposition – especially banks ± Much interpretation ± Measurement at “fair value” ± Determining whether an item is a liability or an equity item …….incentives??? ± Hedging …. .when it is permitted
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7 What’s the big deal about financial instruments? We’re going to focus just on some of the basics……… ……you could have a whole course just of financial instruments!! 8 What is a financial instrument? “…. .any contract that gives rise to a financial asset of one entity and a financial liability of another entity” (para. 11, AASB 132) Note: “Two-sided ” definition
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9 What is a financial asset? “…. .is any asset that is: ± Cash ± An equity instrument of another entity ± A contractual right ± To receive cash or another financial asset from another entity; or ± To exchange financial assets or financial liabilities with another entity under conditions that are potentially favourable to the entity; or 10 What is a financial asset? “…. .is any asset that is:
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This note was uploaded on 05/02/2010 for the course ACCT 3756 taught by Professor Leung during the Three '09 term at University of Sydney.

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Week 8_Financial Instrument - Issues in Corporate Financial...

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