Conceptual framework Flashcards
Comprehensive income includes
DENT
Derivative cash flow hedges
Excess adjustment of Pension PBO and FV at year end
Net unrealized gain/loss on available-for-sale securities
Translation adjustments for foreign currency
Required to be recognized at fair value
Investments in trading or available-for-sale
Impairment losses
All derivatives
Market participant
Independent of the entity
Reasonable knowledgeable about the asset/liability
In a position to acquire the asset/liab
Voluntarily willing to acquire it
How are assets measured?
At their “higher and best use” (fair value)
Fair value measurement
1) identify asset/liab
2) define principal/most advantageous market (highest and best use)
3) determine the valuation premise (in use or exchange)
4) determine appropriate valuation technique (MIC)
5) obtain inputs for valuation (Level 1,2,3)
6) Calculate fair value
Principal market
Market in which asset/loan would be most frequently traded
Most advantageous market
Used when there is no principal market
Valuation techniques
MIC
Market
Income
Cost
Market approach
Looking at identical/comparable assets/liabs
Income approach
Involves analyzing future amounts in the form of revenues, cost savings, earnings, or some other item
Cost approach
Involves measuring the cost that would be incurred to replace the benefit derived from an asset
Level 1 of inputs
Most reliable; involves use of observable data from actual market transactions for identical assets/liabs
Level 2
Also involves use of observable data from actual market transactions either:
The transaction did not occur in an active market
Or
The transactions relate to similar, but not identical, assets/liabs
Level 3
Involves the use of unobservable data and are largely based on managements judgement
Four areas of disclosure
Nature of operations
Use of estimates
Certain significant estimates
Current vulnerability associated with certain concentrations (company not diversified)
