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Classification, Measurement, and Disclosure under International Financial Reporting Standards (IFRS) for Intercorporate Investments

Intercorporate investments are investments in the debt and equity securities of other companies. Companies invest in other companies to: Diversify their asset base Increase profitability Enter new markets Gain competitive advantage Deploy excess cash An example of an intercorporate investment…

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Effect of Different Accounting Methods for Intercorporate Investments on the Financial Statements

Equity Method The equity method of accounting provides a more objective basis for reporting investment income. The investor is required to recognize income as earned rather than when dividends are received. Thus, an equity investment is reported as a single…

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Comparison between IFRS 17 and US GAAP

Fair Value Option A fair value option is an option to recognize an equity method investment at fair value at the time of initial recognition. Under IFRS, the fair value option is only available to venture capitalists and unit trusts….

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Study Notes for CFA® Level II – Financial Reporting and Analysis – offered by AnalystPrep

Study Session 5 Reading 9: Intercorporate Investment –a: Describe the classification, measurement, and disclosure under International Financial Reporting Standards (IFRS) for investments in financial assets, investments in associates, joint ventures, business combinations, and special purpose and variable interest entities; -b:…

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Issues Related to Balance Sheet Modifications, Earnings Normalization, and Cash Flow Statement Related Modifications on a Company’s Financial Condition

Earnings Quality and Cash Flow Analysis Earnings quality refers to the persistence and sustainability of a company’s earnings. High-quality earnings imply that a company’s accounting estimates are unbiased. Additionally, it means that the earnings are derived from sustainable rather than…

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Evaluating the Effects of Change in Accounting Standards, Methods or Assumptions on the Financial Statements and Ratios

Users of financial statements must be cognizant of proposed changes in accounting standards because of the impact they have on financial statements and a firm’s valuation. We anticipate significant changes in the accounting standards over the next few years as…

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Relevant Adjustments for Improving Quality and Comparability with Similar Companies

Off-Balance-Sheet Financing Off-balance-sheet financing is an accounting practice where companies exclude liabilities on their balance sheet and the associated interest expense on the P&L. Operating lease is a typical example of off-balance-sheet financing. It is an expense that is kept…

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Financial Reporting Choices and Bias that Affect the Quality and Comparability of a Company’s Financial Statements

Assume that our purpose for analysis is to identify and evaluate the drivers of financial success for ABC Ltd., a publicly held company in India, which is a leading car manufacturer. Further, we want to identify and understand the risks…

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Use of a Framework to Analyze a Firm’s Financial Statements

Financial analysis is crucial as it aids investors and other financial decision-makers to work out effective economic decisions. This ensures that the possibility of a successful outcome is on the decision maker’s side. A basic framework to aid in financial…

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Evaluation of Earnings Quality

We analyze companies’ earnings to understand the earnings quality, i.e., the persistence and sustainability of earnings. Many accounting policies demand estimations and rely on subjective decisions. Some managers take advantage of this and indulge in creative accounting to report misleading…

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