Finance and Banking

Question 1

Accounting Standard - IFRS & GAAP

Answer 1

• International Financial Reporting Standards (IFRS): Championed in EU and across the world;
• more principles based system. Allows for more flexibility and can make it easier to interpret financial statements from different companies
• Generally Accepted Accounting Principles (GAAP) - championed by the US. More prescriptive set of standards, which means that it provides more detailed guidance on how financial statements should be prepared. Easier for companies to follow GAAP, but it can also make it more difficult to interpret financial statements from different companies

e.g.
*Inventory valuation - GAAP: FIFO or WAC (Weighted average Cost); IFRS: WAC only;
*Revenue Recognition - GAAP: Realized or earned or probable economic benefits will flow from trxn.; IFRS - only the last part

Question 2

Repo rate and reverse repo rate

Answer 2

Repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) lends money to commercial banks in the event of any shortfall of funds. Reverse repo rate is the rate at which commercial banks lend money to the central bank.

For a bank:
Repo funds are liability; Reverse Repo funds are assets