Provisions, contingent liabilities
and contingent assets IAS 37
A Key points
Liabilities should be recognised as a cost and a liability.
Possible but remote liabilities (contingent liabilities) should be
Unnecessary provisions should not be
he United States has had plenty of company in the global economic crisis.
According to the International Monetary Fund (IMF), 2008 was a terrible year
globally. World output (measured by real GDP) averaged
Bonds, Bond Valuation,
and Interest Rates
lot of U.S. bonds have been issued, and we mean a lot! According to
the Federal Reserve, there are about $5.7 trillion of outstanding U.S.
Treasury securities, more than $2.6 trillion of municipal securi
Risk, Return, and the Capital
Asset Pricing Model
s sung by the Grateful Dead, What a long, strange trip its been!
The chart below provides some insights into the stock markets
risks and returns. The top portion shows the relative changes in
An Overview of Financial
Management and the
updates on the ranking.
In a global beauty contest for companies, the winner is Apple.
Or at least Apple is the most admired co
Answers to End-of-Chapter
We present here some intermediate steps and final answers to selected end-of-chapter problems. Please note
that your answer may differ slightly from ours because of rounding differences. Also, although we hope
Analysis of Financial
o guide or not to guide, that is the question. Or at least its the question
many companies are wrestling with regarding earnings forecasts.
Should a company provide earnings estimates to investors? In 2006,
Financial Statements, Cash
Flow, and Taxes
ven in todays era of financial crises, $14.6 billion is a lot of money. This
is the amount of cash flow that Hewlett-Packards (HP) operations
generated in 2008, up from $9.6 billion in 2007, despite t
and Corporate Governance
he year 2008 was a grim one for many companies, with the average
stock (as measured by the NYSE Composite Index) losing about 40%
of its value. There are only three possible
Time Value of Money
hen you graduate and go to work, either a defined benefit (DB) or a
defined contribution (DC) pension plan will almost certainly be part of
your compensation package. Under a DB plan, the company will put
funds into its pensi
The Basics of Capital
PL Group is a holding company that owns Florida Power & Light,
electric generating plants across the country, the nations largest fleet
of wind turbines, and major solar power facilities.
Capital Structure Decisions
hat is the difference between bankruptcy and a liquidity crisis? Although that
question may sound like the first line of a joke, the answer isnt very funny
for many companies. An economic bankruptcy means that the
The Cost of Capital
ortune magazine conducts annual surveys of business leaders to identify the
most-admired U.S. companies. Since the surveys began, General Electric has
consistently ranked either at or close to the top of the list. Although
Stocks, Stock Valuation, and
Stock Market Equilibrium
he opening chart in Chapter 6 showed General Electrics stock rising by
almost eight-fold from 1994 to 2000 but then, from 2000 to 2003,
experiencing a sickening fall, losing over half of it
ature companies with stable cash flows and limited growth
opportunities tend to return large amounts of their cash flows to
shareholders, either by paying dividends or by using the cash
Abrahamsen, E. B. and Aven, T. (2011). Safety oriented bubble diagrams in project
risk management. International Journal of Performability Engineering, 7(1),
Abrahamsen, E. B., Aven, T. and Red, W. (2010). Communication of costeffectivene
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QUANTITATIVE RISK ASSESSMENT
Quantitative risk assessments cannot eliminate risk, nor can they resolve tradeoffs. They can, however, guide principled risk management and reduction
if the quality of assessment is high an
Risk assessment when the objective
is accurate risk estimation
In this chapter we study the scientific platform of risk assessments when
the objective of these assessments is accurate risk estimation. We first summarise the key concepts, probability and
Towards a holistic scientific approach
to risk assessment
In Chapters 57 we have seen how risk assessments and risk management are
influenced by the risk perspectives. Now we would like to go one step further,
to provide guidance on what should be the p
Risk management and communication issues
As stressed in Chapter 2, risk assessments provide decision support on the
choice of measures and arrangements. Such decisions are risk-informed, not
risk-based. There is always a need for seeing beyond the resul
Risk assessment when the objective
is uncertainty descriptions
Next we will study the scientific platform of risk assessments when the
objective of these assessments is to describe uncertainties. We follow the same
structure as in the previous chapter.
In this book we have investigated to what extent risk assessments and in
particular quantitative risk assessments, meet the scientific quality requirements of reliability and validity. While reliability is concerned with the
consistency of t
Introduction to case studies
In this chapter we introduce the three case studies which will be pursued
through the rest of the book to illustrate concepts, principles and methods.
The first of these studies is related to the analysis of working accident
Introduction to probability theory
and statistical analysis
This appendix reviews some elementary probability theory and statistical
analysis. The presentation is based on Aven (2003, 2008a).
A.1 Probability theory
A.1.1 The meaning of a probab
Concepts and perspectives on risk
In this chapter we first review and discuss common definitions of risk
(Section 2.12.6). From this review and discussion we define the concepts
and perspectives of probability and risk that will be used as the basis for
Science and scientific requirements
In this chapter we present the announced requirements of reliability and
validity that will be used to verify that a risk assessment is scientific
(Section 3.3). But first in Section 3.1 we give some reflections about
Introduction to risk management and risk
This chapter provides a broad introduction to risk management and risk
asssessment, as a basis for the analyses and dicussions in the coming chapters.
The presentation highlights general f
This appendix summarises some risk analysis and management terminology
used in the book. Unless stated otherwise, the terminology is in line with the
international guideline ISO (2009a).
aleatory (stochastic) uncertainty: variation
Financial reporting of interests in
joint ventures IAS 31
A Key points
For good commercial reasons some investments are shared
and there is joint control.
No single entity controls and thus cannot consolidate.
The investors control and jointly so.