Accounting Of Financial Instruments Research Articles

IMPROVEMENT OF METHODOLOGICAL PROVISION OF ECONOMIC EXPERTISE OF ACCOUNTING PROCEDURES REGARDING FINANCIAL INSTRUMENTS

The article is devoted to the generalization of approaches and key aspects of economic expertise of accounting, assessment and taxation of transactions with financial instruments. Based on expert practice, the questions that are most often put before experts by the bodies of preliminary investigation and the court during the investigation are summarized, and the methodology for solving questions of the correctness of financial instruments in the accounting by economic expertise is summarized. Methodical approaches to the economic expertise of accounting issues and valuation of financial instruments have been determined, including identification and generalization of typical offences, standardization of the tools for checking the reliability of accounting data, and methods of expert verification of indicators of the fair value of financial instruments in accounting. The peculiarities of the application of the specified methods in the practice of expert activity have been revealed, which will allow optimizing expert research and contribute to strengthening the reliability of the cost presentation of financial instruments in reporting. The methods for resolving the issues of the correctness of reflection in the accounting of financial instruments by forensic economic expertise were developed to cover and disclose the key aspects of the expertise of accounting, valuation, and taxation of transactions with financial instruments. It presents methodical approaches to the forensic economic expertise of accounting and valuation of financial instruments, including identification and generalization of typical offences, standardization of tools for verifying the accuracy of accounting data, and methods of expert verification of the fair value of financial instruments in accounting. Its application in the practice of expert activities will optimize expert research in this area and will help strengthen the reliability of the value of financial instruments in the reporting.

Impact of the Coronavirus Pandemic on the Accounting for Financial Instruments

The study of financial instruments, based on international standards, showed us: That the role and importance of financial instruments is paramount to the proper functioning of a country's economy. Accordingly, commercial banks record financial instruments in accordance with international standards. With the transition from IAS 39 to IFRS 9, TBC Bank has changed its methods of recognizing and valuing financial instruments; As a result of adopting IFRS 9, TBC Bank reduced its credit loss as its valuation methods changed; TBC Bank, in accordance with international standards, always determines the expected credit loss. Constantly monitors loans and reclassifies them if necessary. The loan is assessed as modified. Differences caused by the modification are reflected in profit or loss. In 2020, the loss of net modification of financial instruments amounted to GEL 41.0 million. As a result of the transition to the new standard in TBC Bank, the total amount of reserves increased by 63,600 thousand GE. In the conditions of the pandemic, amendments were made to IFRS-9. Which is due to changes in benchmark interest rates such as LIBOR and other interbank offered rates. The Board of Directors also decided not to recommend a dividend On March 20, 2020, TBC Leasing, with the assistance of TBC Capital, placed secured bonds in the amount of GEL 58.4 million on the Georgian Stock Exchange. In our opinion, according to IFRS 9, special attention should be paid to forecast information when assessing credit risks. In particular, the assessment of expected credit losses should take into account expected trends in the macroeconomic and financial environment and local and global risks. This will facilitate the timely recording of credit risks and thus have a positive impact on financial stability.

International methods of accounting and giving financial reporting to banking institutions

The article analyzes the trends of annual increase in the number of countries that encourage the use of IFRS in their territories in different companies and in different spheres of activity. Developed system of IFRS implementation, their transparency and openness will further lead to a significant improvement in relations with investors and increase their confidence in banks. The comparison of the status of the IFRS use for organizations around the world has been conducted. The immediate connection between the effective activity of banking institutions in foreign countries and the introduction of IFRS has been demonstrated. The factors of proximity of countries to the political forces formed in IASB have been highlighted, and the indicators of probable national strategies of IFRS implementation in different countries of the world have been given. While Ukraine is one of the countries that has quite weak political influence on the management decisions of the IASC. It was found out that in Ukraine the process of harmonization of accounting with IFRS in the banking sector began in 1998, however they began to be considered as a subject of regulation only recently. Nowadays, IFRS is already the basis of UAS and other regulations, which indicates the effectiveness of the process of combining national characteristics of doing business in Ukraine with international ones. It has been established that an important factor in adjusting the Ukrainian banking accounting system is to provide real financial information about the true price of assets of the bank, their profitability, transparency of accounting activities, creating effective methodological and legal documents governing the accounting of financial instruments under international rules. The plans of bank accounts before and after the reform have been considered, their advantages and disadvantages have been outlined. In this research the general problems in banking institutions in the process of implementing international standards, as well as possible ways to solve them have been also analyzed. The process of monitoring the quality of financial reporting in banks is also important. The analysis of foreign systems of this process has shown that the most favorable for Ukrainian banks is the control structure used in Germany. Among the main risks of full implementation of IFRS in banking institutions of Ukraine, we have identified: 1) internal ‒ an increase in the number of users of financial information; content of corporate reporting (integrated, non-financial, management); corporate auditing policy; 2) external ‒ financial risks; the danger of rapid integration into international financial markets; interest rate risks. Key words: accounting, IFRS, banks, organization of accounting, chart of accounts, regulation of accounting standard, financial

Problems of the conceptual framework formation in accounting of financial instruments of organizations

Problems of the conceptual framework formation in accounting of financial instruments of organizations

Mandatory accounting change and debt covenant violation: Additional evidence from SFAS 150

This study examines whether managers, in response to the liability classification of mandatorily redeemable preferred stock (MRPS) under SFAS 150: Accounting for financial instruments with characte...

Forward-looking approach in the accounting of financial instruments: case study of Slovenian Pension Company

The replacement of IFRS standard for financial instruments has an impact on new definitions of business models, on new forward-looking approach for measurement of financial instruments, like equities or bonds and on new loss allowance provisions with lowering the figures. The comparison between IAS 39 and IFRS 9 is essential because of the disclosures of the compared figures in the annual reports. The replacement is actual in more than 140 countries, where the organisations do the accounting under IFRS. We expect the innovativeness in accounting in the sense of implementing future expectation not only in daily operations but also in strategic levels. The model of expected credit losses (ECLs) affects organisations' performance as we shown in the case study research. The contribution to the management accounting is in defining the approach of the replacement of the IAS 39 with IFRS 9 and calculating the effects on financial statements and shareholders' values.

Forward-looking approach in the accounting of financial instruments: case study of Slovenian Pension Company

Forward-looking approach in the accounting of financial instruments: case study of Slovenian Pension Company

ОСОБЛИВОСТІ БУХГАЛТЕРСЬКОГО ОБЛІКУ ОКРЕМИХ ФІНАНСОВИХ ІНСТРУМЕНТІВ НА ПРИКЛАДІ ФОРВАРДНИХ КОНТРАКТІВ

In modern business conditions, in particular, during the pandemic caused by the COVID-19 virus, companies are looking for financial instruments that will ensure their stable operation for a long period of their operation. One of the types of financial instruments used in the daily activities of grain traders is the conclusion of forward contracts. This in turn gives the buyer a guarantee that in the future he will be able to buy the product at a fixed price, which is specified in the forward contract, and the seller gives a guarantee that his product will be sold. The purpose of the article is to highlight the features of accounting for certain financial instruments, including forward contracts. The materials of the study are: 1) domestic legislation on the organization and methods of accounting for financial instruments, including forward contracts; 2) works of domestic authors conducting their scientific and practical research in the field of accounting for financial instruments, in particular forward contracts; 3) Scopus database for bibliometric analysis regarding the selection of the authors' publication activity on the accounting of financial instruments using VOSviewer software. During the research such methods as theoretical generalization, formalization and analysis, logical generalization of results were used. Practical recommendations are given on the choice of accounting policy as an element of it as a date of recognition of financial assets acquired as a result of systematic operations. Correspondence of accounts on reflection in the journal of the account of economic operations of the enterprise on display of performance of the forward contract with their corresponding documentation on a numerical example is offered. Further research is proposed to focus on the peculiarities of accounting for futures transactions, which are a type of financial instrument.

The IASB's Discussion Paper on Accounting for Dynamic Risk Management - Evaluation of Comment Letters

Accounting for financial instruments has been under discussion since more than 20 years. Especially the International Accounting Standards Board (IASB) and its predecessor has been seeking to develop an accounting solution that allows entities to better depict dynamic risk management in their financial statements, for example in the context of interest rate risk managed by a bank’s treasury department. Portfolios being hedged as open and dynamic groups for economic purposes are currently forced into closed and static hedges for accounting purposes. This leads to a periodical need for re-designations, thereby introducing complexity as well as ineffectiveness (cf. IFRS Foundation (ed.) (2010), p. 2). On April 17th 2014, the IASB published the Discussion Paper (DP) on Accounting for Dynamic Risk Management: a Portfolio Revaluation Approach to Macro Hedging as a next step in relation to its Dynamic Risk Management Project. The DP contains an entirely new accounting concept for dynamic risk management, namely the Portfolio Revaluation Approach (PRA). According to this concept, dynamically managed positions included in the PRA would be revalued for changes in the managed risk through profit and loss while risk management instruments would be measured at fair value through profit and loss (FVTPL). The net effect on profit and loss of both measurements would capture the overall success of an entity’s dynamic risk management. The DP also contains further significant elements, for example elements of behaviouralisation which are common practice in risk management but challenging to display within an accounting framework. From publication in April until October 17th 2014 the public was invited to submit comment letters and thereby answer up to 26 questions posted by the IASB. During this period 123 letters were submitted which are publicly available at the IASB’s website. Despite some publications summarizing commentators’ aggregated views as well as brief descriptions of reasoning regarding the important topics (on this see for example Hori, H./Ah Kun, A. (2015), there was not created sufficient transparency on the outcome of this comment period. This research paper aims to contribute to further transparency by analyzing all submitted comment letters with respect to the most significant questions. On the one hand, this analysis will be conducted quantitatively by stating clearly the outcome of these questions, thereby carving out respondents’ preponderant views. On the other hand, major arguments will comprehensively be discussed, especially where views differ.

Accounting for Financial Instruments: An Empirical Analysis of European Companies

Accounting for financial instruments according to international standards is one of the most sophisticated tasks for standard setters and preparers. Existing empirical research on this topic is rare and mainly concentrates on industry or national situations. Therefore, further research and especially empirical studies are needed to get a better understanding of the recognition, measurement and disclosure of financial instruments. This paper provides current evidence on the practical relevance of financial assets and liabilities in European publicly traded companies listed in the STOXX Europe 600 for the fiscal year 2015. A content analysis shows that financial assets have a stronger importance in the financial industry as in the non-financial industry. We can also demonstrate that a fair value measurement for financial assets and liabilities is only important for the financial industry, while the average usage in the non-financial industry is marginal. Moreover, the critical level 3 fair value, which is based on unobservable data, has only a very low importance in both industries. The often mentioned critique that fair values are not objective and not verifiable is, therefore, unfounded. Surprisingly, we identified substantial problems in the disclosure quality of financial assets and liabilities’ data in the notes which cannot be explained by company specific variables. Especially this finding demonstrates that the comparability of financial statements is not always given and does not improve the usefulness for the various stakeholders and their investment decisions. Researchers are invited to conduct additional studies for other periods and samples which can be helpful to gain further insights as well as to improve the current disclosure shortcomings.

Does Balance Sheet Classification Matter? Evidence from Trust Preferred Stock

The Financial Accounting Standards Board (FASB) continues to debate the accounting for financial instruments and the distinction between liabilities and equity. A trend toward shifting items to the liability category is ongoing; for example in 2003 FASB Statement No. 150 required several items, including mandatorily redeemable shares, to be re-classified as liabilities. The AAA Financial Accounting Standards Committee (2001) voiced its concern over the increasing heterogeneity of the liability category and called for quasi-equity categories to improve the representational faithfulness of individual categories. We address the question of whether financial statement categorization of trust preferred stock (TPS) influences its market valuation. We exploit FASB Statement No. 150 as an opportunity for quasi-experimentation. Statement No. 150 required TPS, a mandatorily redeemable financial instrument, to be re-classified from the mezzanine to the liability section of the balance sheet. We empirically test whether the balance sheet label affects market valuation of TPS. Using a sample of 105 firm-year observations from 2001-2004, we find that when TPS is re-classified as a liability the market values TPS more like a liability than when it was reported in the mezzanine. Our evidence adds support to the AAA Committee's contention that financial statement users depend on balances sheet categories, and that additional heterogeneity in the liability section may lead to confusion and miss-interpretation.

Financial instruments in non-financial firms: what do we know?

Accounting for financial instruments is one of the most controversial standard setting issues. Attempts by standard setters to expand the scope of fair value measurement provoked fierce opposition from preparers, in particular from the financial industry but also, albeit less frequently and less scathingly, from non-financial firms. Academic research could help to bring the discussion onto a more objective level. Most of the existing research focuses on the financial industry and uses US disclosure data from the 1990s. More recent papers use recognition and measurement data from IFRS financial statements, again primarily from the financial industry. This paper provides novel evidence on the relevance of financial instruments for non-financial firms of the STOXX Europe 600 Index. The results in particular refute the myths that fair value measurement of financial instruments is pervasive and that many fair value measurements are of the problematic ‘level 3’ quality. The empirical evidence forms the background for a survey of the small body of existing research on the effects of accounting standards relating to financial instruments on non-financial firms. This survey covers research on the effects on risk management, on the volatility of cash flows and earnings, on earnings management and on the effects on user decisions. Both in the empirical sections and in the survey sections, I identify a number of areas for further research to overcome the poor current state of knowledge.

Corporate Governance and Financial Crisis

Corporate governance represents a highly debated topic, taking significant part of the ink during the last decade. Many things have been said in the aftermath of the 2007– 2009 financial crisis; some even consider acknowledging that corporate governance represents a generally accepted consequence of the crisis. The OECD Steering Group has also issued a report upon the crisis concluding that, among its major contributors, we find corporate governance failures and weaknesses that allowed excessive risk taking. The report, suggestively entitled, “The Corporate Governance Lessons from the Financial Crisis,” also mentions a series of other significant contributors, such as limited transparency and lack thereof, prudential standards, risk management, accounting standards, and lending activities. In the context of a worldwide recession caused by excessive credit expansion, central elements of corporate governance, such as executive remuneration, internal control, risk management, the board of directors, independent non-executive directors, and shareholders’ role, are currently being reconsidered and closely analyzed (M. Walker, Accounting for varieties of capitalism: The case against a single set of global accounting standards, The British Accounting Review, No. 42, 2010, pp. 137–152). Using structured financial instruments, financial institutions are buying and reconstructing within an even more complicated structure. Afterwards, they sell them at a higher price to other financial institutions. The new buyers will follow the same recipe. Using this category of derivative financial instruments, banks now seem to be anxious to risk shareholders’ money in order to invest in complex structured instruments that they knew little about (C. Butler, Accounting for Financial Instruments, John Willey & Sons England, 2009). That is why investigators looking into such a serious financial crisis are now focusing their attention on those responsible for trading these instruments. More Int Adv Econ Res (2012) 18:122–123 DOI 10.1007/s11294-011-9332-1

Framework-Based Teaching of IFRS: The Case of Deutsche Bank

This case applies the teaching approach ‘from objective to concepts to principles and rules’ in analyzing the provisions of IFRS 1:First-time Adoption of International Financial Reporting Standards. The case of Deutsche Bank was chosen because banks were at the centre of the recent global financial crisis. Topics addressed in this paper are accounting issues emerging from the crisis. Some accounting standards in place during the crisis have been amended or replaced; others are currently subject to significant revisions by the standard setters. Students analyze accounting standards and proposed improvements to applicable standards in response to these events. The case reveals how adopting IFRS provides an unambiguous opportunity for companies to provide more transparent and relevant financial reporting. In terms of relative transparency, students examine the reconciling items of greatest consequence in Deutsche Bank's transition from US GAAP to IFRS, including key provisions related to consolidation policy and accounting for financial instruments. The important role of professional judgment is emphasized as students evaluate choices regarding selection and application of accounting principles under IFRS.

Fair Values: A Framework For Teaching The Standards On Accounting For Financial Instruments

This paper presents a conceptual framework for an integration of financial reporting objectives and principles related to financial instruments. We believe this integrated approach to be a superior strategy for discussing this diverse and challenging topic. In our experience, the typical piecemeal coverage of individual instruments scattered in financial accounting texts and other literature is not effective in providing students with a critical appreciation of the evolution in financial reporting requirements in this area. Our approach in this paper is to classify financial instruments into groups according to their special characteristics as a basis for understanding their relevant financial reporting attributes. Within this conceptual framework, we then present a synthesis of reporting objectives and existing FASB pronouncements on financial instruments. Using this framework as a roadmap, students should be able to study current and emerging pronouncements in a conceptually organized and integrated fashion.

Fair Value Accounting for Financial Instruments: An Historical Perspective

During the last 30 years, financial reporting faced the shifting of measurement bases from the traditional concept of historical costs towards a fair value concept. This research follows the path of financial instruments’ disclosure, measurement, and recognition back from 1988 until nowadays and analyses the regulations issued, both by United States and International Accounting Standards, through the point of view of the historical events which led to their appearance. This study brings its contribution to the complementing growing literature on the relevance of fair value, but focuses on the assessment of fair value as a measurement base for financial instruments. The objective of the paper is to link the regulations with the historical events which have guided them to their current shape and meaning. The main aim is to show how the experience of different countries has put its mark on the evolution of these regulations. There were briefly reviewed capital market studies that examine the usefulness of fair value accounting to investors. In doing so, several key issues which need to be analyzed were identified and through which we draw conclusions after a closer analysis for the case of the Romanian and Czech capital markets. In financial reporting, U.S. and International Accounting Standards have issued several disclosure, measurement, and recognition standards for financial instruments. We conclude the study by saying that all indications are both standard setters that mandate the recognition of financial instruments at fair Int Adv Econ Res (2009) 15:490–491 DOI 10.1007/s11294-009-9220-0

Implications for the Conceptual Framework Arising From Accounting for Financial Instruments

This article describes some of the issues faced by standard setters in developing guidance on accounting for financial instruments and the implications these issues have for the conceptual framework (CF). The objective is to outline issues, not necessarily to resolve them, and to consider the implications they have for further developing the conceptual framework.Given the current trend of harmonization and convergence of accounting practice towards international standards, it seems reasonable to assume that any policy implications will be most relevant to the CF inherited by the International Accounting Standards Board (IASB).1 Unless otherwise stated, references will be made to International Accounting Standards (IAS).

Reporting Fair Value Interest and Value Changes on Financial Instruments

AAA Financial Accounting Standards Committee INTRODUCTION The Joint Working Group of Standard Setters' (JWG 2000) Recommendations on Accounting for Financial Instruments and Similar Items (hereafter the Proposal) requires that all changes in the fair value of financial instruments be reported in the income statement, except those associated with certain foreign exchange transactions. The Proposal also requires that the interest and the gain or loss components of these changes in fair value be separately classified on the income statement, and it provides some guidance for calculating these components. Specifically, firms must record interest on a yield to maturity basis, with interest revenue (expense) on a financial asset (liability) being calculated as the current interest rate times the fair value of the instrument during the period. This approach differs from the current amortized cost accounting for interest. Assuming that the total changes in the fair value of financial instruments during the period are recognized in some fashion on the income statem ent, this difference in interest results in exactly the opposite difference in unrealized gains and losses. This commentary summarizes the position of the Financial Accounting Standards Committee of the American Accounting Association (hereafter the Committee) on the Proposal's fair value interest approach. (1) In particular, we compare the relative merits of the fair value and amortized cost approaches to interest. Our discussion assumes that the total changes in the fair value of financial instruments are recognized in some fashion on the income statement each period, so that the only issue is the classification of the components of those changes in fair value. The Committee is not aware of any empirical research that relates specifically to the relative desirability of the fair value and amortized cost approaches to measuring interest. However, empirical evidence supports the importance of reporting items separately with different sustainability and different certainty. By sustainability, we mean that an item persists over time, on average. A sustainable item could be uncertain, however, in that ex post its persistence may be higher or lower than expected. This evidence suggests that the preferred income statement reporting of the total periodic return to a financial instrument is to aggregate income components with similar sustainability and certainty. (2) Conceptually, the periodic returns to financial instruments can be separated into three components with distinct sustainability or certainty. The first two components- amortized cost interest and the difference between fair value interest and amortized cost interest--sum to fair value interest. It is useful to distinguish these two components of fair value interest because amortized cost interest is both sustainable and certain, whereas the difference between fair value interest and amortized cost interest is sustainable but uncertain. The difference between fair value interest and amortized cost interest is sustainable because unexpected changes in interest rates and the resulting unexpected changes in fair values affect fair value interest calculations throughout the remaining lives of financial instruments. For example, an unexpected gain on a financial asset due to a decrease in interest rates in the current period reduces expected fair value interest revenue on the asset throughout its remaining life. T he third component of the periodic returns to financial instruments is the unexpected change in their fair values during the period. Unexpected changes in the fair values of financial instruments are both unsustainable and uncertain. (3) The amortized cost interest method separately reports the first component--amortized cost interest--but combines the second and third components-the difference between fair value interest and amortized cost interest and the unexpected gain or loss. …