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Fair Value
In accounting and in most schools of economic thought, fair value is a rational and unbiased estimate of the potential market price of a good, service, or asset. The derivation takes into account such objective factors as the costs associated with production or replacement, market conditions and matters of supply and demand. Subjective factors may also be considered such as the risk characteristics, the cost of and return on capital, and individually perceived utility. Economic understanding Vs market price There are two schools of thought about the relation between the market price and fair value in any form of market, but especially with regard to tradable assets: * The efficient-market hypothesis asserts that, in a well organized, reasonably transparent market, the market price is generally equal to or close to the fair value, as investors react quickly to incorporate new information about relative scarcity, utility, or potential returns in their bids; see also Rational pri ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Historical Cost
In accounting, an economic item's historical cost is the original nominal monetary value of that item. Historical cost accounting involves reporting assets and liabilities at their historical costs, which are not updated for changes in the items' values. Consequently, the amounts reported for these balance sheet items often differ from their current economic or market values. While use of historical cost measurement is criticised for its lack of timely reporting of value changes, it remains in use in most accounting systems during periods of low and high inflation and deflation. During hyperinflation, International Financial Reporting Standards (IFRS) require financial capital maintenance in units of constant purchasing power in terms of the monthly CPI as set out in IAS 29, Financial Reporting in Hyperinflationary Economies. Various adjustments to historical cost are used, many of which require the use of management judgment and may be difficult to verify. The trend in most acco ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
FASB
The Financial Accounting Standards Board (FASB) is a private standard-setting body whose primary purpose is to establish and improve Generally Accepted Accounting Principles (GAAP) within the United States in the public's interest. The Securities and Exchange Commission (SEC) designated the FASB as the organization responsible for setting accounting standards for public companies in the US. The FASB replaced the American Institute of Certified Public Accountants' (AICPA) Accounting Principles Board (APB) on July 1, 1973. The FASB is run by the nonprofit Financial Accounting Foundation. FASB accounting standards are accepted as authoritative by many organizations, including state Boards of Accountancy and the American Institute of CPAs (AICPA). Structure The FASB is based in Norwalk, Connecticut, and is led by seven full-time Board members,Spiceland, David; Sepe, James; Nelson, Mark; & Tomassini, Lawrence (2009). ''Intermediate Accounting'' (5th Edition). McGraw-Hill/ ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Hedge Accounting
Hedge accounting is an accountancy practice, the aim of which is to provide an offset to the mark-to-market movement of the derivative in the profit and loss account. There are two types of hedge recognized. For a fair value hedge, the offset is achieved either by marking-to-market an asset or a liability which offsets the P&L movement of the derivative. For a cash flow hedge, some of the derivative volatility is placed into a separate component of the entity's equity called the cash flow hedge reserve. Where a hedge relationship is effective (meets the 80%–125% rule), most of the mark-to-market derivative volatility will be offset in the profit and loss account. Hedge accounting entails much compliance - involving documenting the hedge relationship and both prospectively and retrospectively proving that the hedge relationship is effective. Why is hedge accounting necessary? All entities are exposed to some form of market risk. For example, gold mines are exposed to the ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Fair Value Accounting
Mark-to-market (MTM or M2M) or fair value accounting is accounting for the "fair value" of an asset or liability based on the current market price, or the price for similar assets and liabilities, or based on another objectively assessed "fair" value. Fair value accounting has been a part of Generally Accepted Accounting Principles (GAAP) in the United States since the early 1990s, and is now regarded as the "gold standard" in some circles. Failure to use it is viewed as the cause of the Orange County Bankruptcy, even though its use is considered to be one of the reasons for the Enron scandal and the eventual bankruptcy of the company, as well as the closure of the accounting firm Arthur Andersen. Mark-to-market accounting can change values on the balance sheet as market conditions change. In contrast, historical cost accounting, based on the past transactions, is simpler, more stable, and easier to perform, but does not represent current market value. It summarizes past tr ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Deprival Value
Deprival value is a concept used in accounting theory to determine the appropriate measurement basis for assets. It is an alternative to historical cost and fair value or mark to market accounting. Some writers prefer terms such as 'value to the owner' or 'value to the firm'. Deprival value is also sometimes advocated for liabilities, in which case another term such as 'Relief value' may be used. The deprival value of an asset is the extent to which the entity is "better off" because it holds the asset. This may be thought of as the answer to the following questions, all of which are equivalent: - What amount would just compensate the entity for the loss of the asset? - What loss would the entity sustain if deprived of the asset? - How much would the entity rationally pay to acquire the asset (if it did not already hold it)? Deprival value explained Deprival value is based on the premise that the value of an asset is equivalent to the loss that the owner of an asset would sus ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Ernst & Young
Ernst & Young Global Limited, trade name EY, is a multinational professional services partnership headquartered in London, England. EY is one of the largest professional services networks in the world. Along with Deloitte, KPMG and PricewaterhouseCoopers (PwC), it is considered one of the Big Four accounting firms. It primarily provides assurance (which includes financial audit), tax, consulting and advisory services to its clients. Like many of the larger accounting firms in recent years, EY has expanded into markets adjacent to accounting, including strategy, operations, HR, technology, and financial services consulting. EY operates as a network of member firms which are structured as separate legal entities in a partnership, which has 312,250 employees in over 700 offices in more than 150 countries around the world. The firm's current partnership was formed in 1989 by a merger of two accounting firms; Ernst & Whinney and Arthur Young & Co. It was named Ernst & Young ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Derivative (finance)
In finance, a derivative is a contract that ''derives'' its value from the performance of an underlying entity. This underlying entity can be an asset, index, or interest rate, and is often simply called the "underlying". Derivatives can be used for a number of purposes, including insuring against price movements ( hedging), increasing exposure to price movements for speculation, or getting access to otherwise hard-to-trade assets or markets. Some of the more common derivatives include forwards, futures, options, swaps, and variations of these such as synthetic collateralized debt obligations and credit default swaps. Most derivatives are traded over-the-counter (off-exchange) or on an exchange such as the Chicago Mercantile Exchange, while most insurance contracts have developed into a separate industry. In the United States, after the financial crisis of 2007–2009, there has been increased pressure to move derivatives to trade on exchanges. Derivatives are one of the ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Credit Valuation Adjustment
Credit valuation adjustments (CVAs) are accounting adjustments made to reserve a portion of profits on uncollateralized financial derivatives. They are charged by a bank to a risky (capable of default) counterparty to compensate the bank for taking on the credit risk of the counterparty during the life of the transaction. These most common transaction types are interest rate derivatives, foreign exchange derivatives, and combinations thereof. The reserved profits can be viewed mathematically as the net present value of the credit risk embedded in the transaction. In financial mathematics one defines CVA as the difference between the risk-free portfolio value and the true portfolio value that takes into account the possibility of a counterparty's default. In other words, CVA is the market value of counterparty credit risk. This price depends on counterparty credit spreads as well as on the market risk factors that drive derivatives' values and, therefore, exposure. CVA is one of a f ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Credit Risk
A credit risk is risk of default on a debt that may arise from a borrower failing to make required payments. In the first resort, the risk is that of the lender and includes lost principal and interest, disruption to cash flows, and increased collection costs. The loss may be complete or partial. In an efficient market, higher levels of credit risk will be associated with higher borrowing costs. Because of this, measures of borrowing costs such as yield spreads can be used to infer credit risk levels based on assessments by market participants. Losses can arise in a number of circumstances, for example: * A consumer may fail to make a payment due on a mortgage loan, credit card, line of credit, or other loan. * A company is unable to repay asset-secured fixed or floating charge debt. * A business or consumer does not pay a trade invoice when due. * A business does not pay an employee's earned wages when due. * A business or government bond issuer does not make a payment o ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Duff & Phelps
Kroll, LLC, formerly Duff & Phelps LLC, is an American multinational financial consultancy firm based in New York City. It was founded as Duff & Phelps in 1932 by William Duff and George Phelps. Since then, the firm has added more than 30 complementary companies to its portfolio, including the acquisition of Kroll Inc. in 2018. Duff & Phelps decided to start rebranding itself using the Kroll name in 2021, and it completed the renaming process in February 2022. History Early days Duff & Phelps was founded in 1932 by William Duff and George Phelps in Chicago to provide investment research. Since that time, the firm expanded into corporate finance and investment management, as well as credit rating. In 1979, Duff & Phelps expanded into investment management, creating what would become Duff & Phelps Investment Management Co. (DPIMC), which was spun off into its own company in 2009 and was no longer part of the main Duff & Phelps firm. In 1984, the company was nearly acquired by ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
International Accounting Standards Board
The International Accounting Standards Board (IASB) is the independent accounting standard-setting body of the IFRS Foundation. The IASB was founded on April 1, 2001, as the successor to the International Accounting Standards Committee (IASC). It is responsible for developing International Financial Reporting Standards (IFRS) and for promoting their use and application."About the IASB" IFRS Foundation, 2018. Background and semantics The (IASC) had been established in 1973 and had issued a number of standards known as International Accounting Standards (IAS). As the ...[...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Implied Volatility
In financial mathematics, the implied volatility (IV) of an option contract is that value of the volatility of the underlying instrument which, when input in an option pricing model (such as Black–Scholes), will return a theoretical value equal to the current market price of said option. A non-option financial instrument that has embedded optionality, such as an interest rate cap, can also have an implied volatility. Implied volatility, a forward-looking and subjective measure, differs from historical volatility because the latter is calculated from known past returns of a security. To understand where implied volatility stands in terms of the underlying, implied volatility rank is used to understand its implied volatility from a one-year high and low IV. Motivation An option pricing model, such as Black–Scholes, uses a variety of inputs to derive a theoretical value for an option. Inputs to pricing models vary depending on the type of option being priced and the pricing ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
