Use of Pension and Other Post-employment Benefit Disclosures to Assess a Company’s Assumptions and their Impact on the Financial Statements and Ratios
Assumptions and estimates made when calculating pension-related amounts can affect comparative financial analysis using some ratios based on financial statements. Assumptions Different companies make different assumptions, e.g., different discount rates, and this affects comparisons across companies. Recall that a company…
The Impact of Changes in Exchange Rates on the Translated Sales of the Subsidiary and the Parent Company
IFRS and US GAAP require parent companies to prepare consolidated financial statements. Further, IFRS and US GAAP require parent companies to add domestic and foreign subsidiaries operations to their operations. In most cases, a foreign subsidiary operates primarily in the…
Presentation Currency, Functional Currency, and Local Currency
A multinational corporation is a firm that has business operations located in at least one country besides its home country. It may engage in transactions that are denominated in foreign currency or invest in foreign subsidiaries that keep their financial…
Translation Effects of a Subsidiary’s Balance Sheet and Income Statement
Recall from the previous LOS that there are two translation methods: the current rate and the temporal methods. To demonstrate the translation effects of a subsidiary’s financial statements into the parent company’s presentation currency, we will look at the following…
Current Rate Method and Temporal Method of Translation
Translation refers to converting the functional currency into the parent’s presentation currency. The procedures specified by IFRS and US GAAP for translating foreign currency financial statements essentially require the use of either the current rate method or the temporal method. The…
Foreign Currency Transaction Exposure: Accounting for and Disclosures
Foreign currency transaction exposure is the risk of the exchange rate fluctuating before the payment obligation is fulfilled. If the foreign currency rises in value, it costs more in a company’s home currency. If a company imports or sells goods…
Interest Rates
After completing this reading, you should be able to: Calculate and interpret the impact of different compounding frequencies on a bond’s value. Define spot rate and compute spot rates given discount factors. Interpret the forward rate and compute forward rates…
Bond Yields and Return Calculations
After completing this reading, you should be able to: Distinguish between gross, and net realized returns and calculate the realized return for a bond over a holding period, including reinvestments. Define and interpret the spread of a bond and explain…
Machine Learning and Prediction
After completing this reading, you should be able to: Explain the role of linear regression and logistic regression in prediction. Evaluate the predictive performance of logistic regression models. Describe and apply methods used to encode categorical variables. Discuss why regularization…
Machine Learning Methods
After completing this reading, you should be able to: Discuss the philosophical and practical differences between machine learning techniques and classical econometrics. Compare and apply the two methods utilized for rescaling variables in data preparation. Explain the differences among the…
