4. FRA Flashcards
Impairment (IFRS)
1 step
- Carrying Unit > Recoverable Amount (FV net id)
Impair to recoverable
Impairment (U.S. Gaap)
2 step
- Carrying Unit + Goodwill > FV Reporting Unit
- Check and Impair Goodwill (Balance Sheet) c/ Goodwill implied (FV - FV net id)
Impair to FV
Full / Partial Goodwill
IFRS: Both (Partial / Full)
Gaap: Full only
Full Goodwill
(Purchase Price 100% Company - FV 100% company)
Partial Goodwill
(Price Paid 80% - FV 80% only)
Equity Method
- Significant influence but no control (20-50%)
One line investment in the Balance Sheet - NI booked by % of owned company
- Dividends reduce Investment line
Goodwill (Formula)
Excess = Purchase Price - Book Value Excess = Fair Value + Goodwill
Equity Income (Formula)
Equity Income = NI % - (Amortizável/Years)
Business Combinations
- Purchase Method (BV A + FV B)
- Pooling of Interest (BV A + BV B)
- Acquisition (Report both balances)
Acquisition Method (Balance Sheet)
- Book by BV A + FV B
- Subtract Cash from Current Assets
- Keep ORIGINAL Common Stock and Retained Earnings
- Sum Non Controlling Interest (NCI)
Acquisition Method (Income Statement)
- Sum Revenues and Expenses
- Discount Minority Interest
Non Controlling Interest (Full Goodwill)
NCI Full = % Not Owned * Fair Value Acquired Company
Non Controlling Interest (Patial Goodwill)
NCI Full = % Not Owned * Fair Value Net Identifiable Assets
ROE (Equity Method v. Acquisition)
Equity: ↑
Acquisition: ↓
Net Income (Equity Method v. Acquisition)
Equal
Defined Contribution (DC)
Employee’s contribution = Pension Expense
Defined Benefit (DB)
Fair Value from current contribution depends on asset performances. It produces imbalances.
Funding Status
Funding = (Assets - Liabilities)
Obligations hierarchy
Vested VBO < Vested+Unvested ABO < Projected PBO
Costs: Service (1) - IFRS x Gaap
IFRS: Current and Past @ P&L
Gaap: Current @ P&L and Past @ OCI
Costs: Net Interest Income (2) - IFRS x Gaap
IFRS: @ P&L
Gaap: Int Expense - Return of Assets @ P&L separated in 2 lines
Remeasurements
IFRS: G&L @ OCI
Gaap: G&L @OCI but sometimes in corridor
Total Periodic Pension Costs (TPPC Formula)
TPPV = Current Service Cost + Interest Cost - Actual Return + Prior Service Cost - Perdas + Ganhos Atuariais
Interest Cost (IFRS x Gaap Formula)
IFRS: Net [(Begin Funding Status * %) - Prior Cost]
Gaap: [(Begin PBO * %) + Prior]
Periodic Pension Cost (IFRS x Gaap Formula)
IFRS: Current Service + Past Service Cost + Net Interest
Gaap: Current Service + Interest Cost - ER(A)
Corridor Approach (Gaap)
- If Services / Int Expenses variam muito, você pode amortizar em Y anos na DRE.
Amortize: Excesso above [ 10% Higher (PBO; FV Assets) - Unrecognized já existente]
Além disso, some Ganho Atuarial, Subtraia Perda Atuarial
PPC (Funding Formula)
PPC = Δ Funding Status - Contributions
CSOP v. ESOP (concept)
ESOP = Employee Stock Option Plan (charge to Equity accounts) CSOP = Compensatory (charge to I/S)
CSOP
- FV is calculated on the date stocks are granted
- No further adjustments
- Costs allocated to service period (between grant date and vesting date)
Stock Grants
- Outright grant (FV = Price on the grant date)
SAR (Concept)
- Stock Appreciation Rights
- Avoid dilution
- Compensation tied to Δ% Price of the Shares
- FV @ Grant Date, allocated over service period
Current Method
Functional Currency Subsidiary ≠ Functional Currency Parent
Temporal Method
Functional Currency Subsidiary = Functional Currency Parent
Current Method (FX rates)
- IS FIRST*
- TRANSLATION ADJ @ BALANCE SHEET*
- Balance Sheet @ End-of-Period FX
- Equity Accounts @ Historical FX
- I/S @ Average FX Current Year
- Find I/S Retained Earnings FIRST and put in B/S
Temporal Method (FX rates)
- B/S FIRST*
- TRANSLATION ADJ @ INCOME STATEMENT*
- Monetary Balance Sheet @ End-of-Period FX
- Fixed Assets / Inventory @ Historical
- Equity Accounts @ Historical FX
- I/S @ Average FX Current Year
- I/S COGS and Dep @ Historical FX
- Find I/S FIRST in the Balance Sheet and bring into I/S
FX Overall Exposure (Current v. Temporal)
Current: Net Equity
Temporal: Net Monetary Assets
Hyperinflation (IFRS v. Gaap)
IFRS: Restate for IPCA and then use Current Method
- B/S @ Full IPCA
- G/L Cash / A Receber @ Full IPCA
- G/L Revenue / Int Expense @ Full IPCA divided by Avg IPCA
Gaap: DON’T RESTATE FOR IPCA. Just use Temporal.
Criteria: (1 + inflation)^3 > 100
Basel Requirements
CET1: 4,5% (Common Stock, Retained Earnings, OCI)
AT1: 1,5% (Preferred Perpetual; Optional Dividend)
Total Capital: 8% (Preferred > 5 y; Optional Dividend)
CAMELS
- Capital
- Asset Quality
- Management
- Earnings
- Liquidity
- Sensitivity
NSFR (Formula)
NSRF = Actual Stable Funding / Mín Stable Funding
LCR (Formula)
LCR = Liquid Assets 30 days / Mín Estimated
Loss Expense Ratio (Insurance Formula)
Loss Ratio = (Loss Expenses / Net Premiums Earned)
Operacional (Existing Business)
Underwriting Expense Ratio (Insurance Formula)
Underwriting Expense = (Underwriting Expenses / Net Premiums Written)
Comercial (New Business)
Combined Expense Ratio (Insurance Formula)
Combined Ratio = Loss Expense Ratio + Underwriting Expense Ratio
Soft Pricing (Insurance)
High ROE = New Entrants = Prices to Fall
Hard Pricing (Insurance)
Low ROE = Players leave = Prices to Increase
Beneish Model
M-Score to predict Earnings Mgmt
- Higher than -1,78 is BAD (>3,8% probability)
- Accruals are important
Altman Model
Z-Score to predict BANKRUPTCY
- The higher the better
- Lower than +1,81 is BANKRUPT
- Higher > 3 is GOOD credit
- Between = Inconclusive
