Accounting For Investments » US GAAP

What is Credit Value Adjustment (CVA) in Accounting?

R. Venkata Subramani — Wed, 16 Feb 2011 16:45:44 +0000

Counterparty credit risk (CVA) is the risk that the counterparty to a financial contract will default prior to the expiration of the contract and will not make all the payments required by the contract. Obviously exchange-traded derivatives are not subject to counterparty risk as the respective exchange guarantees the settlement of cash flows as per the derivative contract. CVA is a measure that adjusts the risk-free value of an instrument to incorporate counterparty credit risk. CVA can be positive or negative depending on which of the two counterparties is most likely to default and the relative balances due or receivable to each other.

There were some concerns expressed in certain quarters as to whether the Debit Value Adjustment (DVA) should be considered in determining the fair value. Now based on the recent exposure draft announced jointly by IASB and FASB on 28th January 2011 on Offsetting Financial Assets and Financial Liabilities it is amply clear that the DVA also should be recognized along with CVA.

Wiley GAAP for Governments 2011: Interpretation and Application of Generally Accepted Accounting Principles for State and Local Governments

R. Venkata Subramani — Wed, 16 Feb 2011 03:18:48 +0000

Product Description

Full coverage of authoritative accounting standards
Extremely useful and user-friendly examples, illustrations, and helpful practice hints
A comprehensive guide to the accounting and financial reporting principles used by state and local governments as well as other governmental entities
Provides a look ahead to the status of current and future Governmental Accounting Standards Board standards and projects
Offers information on the very latest in standard-setting activities
Also by Warren Ruppel: Governmental Accounting Made Easy

Wiley GAAP for Governments 2011 is a thorough, reliable reference financial professionals will consistently keep on their desks rather than on their bookshelves.

From the Back Cover

The most practical, authoritativeguide to governmental GAAPWiley GAAP for Governments 2011 is a comprehensive guide to the accounting and financial reporting principles used by state and local governments as well as other governmental entities. Financial statement preparers, attestors, and readers will find its full coverage of authoritative accounting standards coupled with many examples, illustrations, and helpful practice hints extremely useful and user-friendly. Designed with the needs of the user in mind, a “New Developments” chapter keeps you informed of all the important developments in governmental GAAP during the past year. A look ahead at the status of current and future Governmental Accounting Standards Board standards and projects provides information on the very latest in standard-setting activities and covers:

GASB Statement No. 51 Accounting and Financial Reporting for Intangible Assets
GASB Statement No. 52 Land and Other Real Estate Held as Investments by Endowments
GASB Statement No. 53 Accounting and Financial Reporting for Derivatives
GASB Statement No. 54 Fund Balance Reporting and Governmental Fund Type Devinitions
GASB Statement No. 55 The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments
GASB Statement No. 56 Codification of Accounting and Financial Reporting Guidance Contained in AICPA Statements on Auditing Standards
GASB Statement No. 57 OPEB Measurements by Agent Employers and Agent Multi-Employer Plans
GASB Statement No. 58 Accounting and Financial Reporting for Chapter 9 Bankruptcies
Exposure Draft Accounting and Financial Reporting for Service Concession Arrangements
Exposure Draft Financial Instruments Omnibus
Exposure Draft Pension Accounting and Financial Reporting
Latest on GASB Technical Plan

Wiley GAAP for Governments 2011 strives to be a thorough, reliable reference that you’ll use constantly. It’s designed to be kept on your desk rather than on your bookshelf.

Product Details

Paperback: 600 pages
Publisher: Wiley; Revised edition edition (March 1, 2011)
Language: English
ISBN-10: 0470554460
ISBN-13: 978-0470554463

Cash Flow Hedge for a Foreign Currency debt

R. Venkata Subramani — Wed, 09 Jun 2010 10:19:42 +0000

As per US GAAP, Cash flow hedge accounting for a foreign currency debt is permissible using a FX forward contract to cover the Foreign Exchange risk . Section 815-20-25-28 is quoted below:

“If the hedged item is denominated in a foreign currency, an entity may designate any of the following types of hedges of foreign currency exposure:
a. A fair value hedge of an unrecognized firm commitment or a recognized asset or liability (including an available-for-sale security)
b. A cash flow hedge of any of the following:
1. A forecasted transaction
2. An unrecognized firm commitment
3. The forecasted functional-currency-equivalent cash flows associated with a recognized asset or liability
4. A forecasted intra-entity transaction.
c. A hedge of a net investment in a foreign operation.”

Such a cash flow hedge is specifically permitted by virtue of Section 815-20-25-29 which is quoted below:

“The recognition in earnings of the foreign currency transaction gain or loss on a foreign-currency-denominated asset or liability based on changes in the foreign currency spot rate is not considered to be the remeasurement of that asset or liability with changes in fair value attributable to foreign exchange risk recognized in earnings, which is discussed in the criteria in paragraphs 815-20-25-15(d) and 815-20-25-43(c).

Thus, those criteria are not impediments to either of the following:
a. A foreign currency fair value or cash flow hedge of such a foreign-currency- denominated asset or liability
b. A foreign currency cash flow hedge of the forecasted acquisition or incurrence of a foreign currency-denominated asset or liability whose carrying amount will be remeasured at spot exchange rates under paragraph 830-20-35-1.

Is this type of a transaction eligible as a Cash Flow hedge under IAS 39 of IFRS? …read more on Forum

The Ultimate Accountants’ Reference Including GAAP, IRS & SEC Regulations, Leases, and More

R. Venkata Subramani — Fri, 02 Apr 2010 00:55:52 +0000

Product Description

A wide-ranging source of information for the practicing accountant, The Ultimate Accountants’ Reference, Third Edition covers accounting regulations for all aspects of financial statements, accounting management reports, and management of the accounting department, including best practices, control systems, and the fast close. It also addresses financing options, pension plans, and taxation options. The perfect daily answer book, accountants and accounting managers will turn to The Ultimate Accountants’ Reference, Third Edition time and again for answers to the largest possible number of accounting issues that are likely to arise.

From the Back Cover

The Ultimate Accountants’ Reference offers a single-source tool of best practices and control systems related to accounting regulations for all aspects of financial statements, accounting management reports, and management of the accounting department. The perfect daily answer book for the practicing accountant, it also addresses financing options, risk management, mergers and acquisitions, and taxation topics.

This revised and updated edition of Accounting Reference Desktop offers a concentrated, everyday reference manual to help financial professionals become much more efficient in researching accounting topics. New features of this improved resource tool include:

Up-to-date information on GAAP, IRS regulations, and new SEC regulations
New material on leases and options
More examples than the previous edition
The latest coverage of control systems, including twice as many controls as the previous edition
Double the amount of journal entries as the previous edition

Accountants, accounting managers, and finance personnel will turn to The Ultimate Accountants’ Reference time and again for quick, reliable answers to everyday issues. –This text refers to an out of print or unavailable edition of this title.

Product Details

Hardcover: 816 pages
Publisher: Wiley; 3 edition (March 8, 2010)
Language: English
ISBN-10: 047057254X
ISBN-13: 978-0470572542
Product Dimensions: 10 x 7.1 x 1.7 inches

No decision taken about the timing of a possible conversion to IFRS

R. Venkata Subramani — Fri, 26 Feb 2010 05:17:34 +0000

While the SEC approved a statement supporting the adoption of global accounting standards for U.S. companies, the Chairman Mary Schapiro cautioned that, “Incorporating International Financial Reporting Standards (IFRS) into our financial reporting system would involve a significant undertaking. We must carefully consider and deliberate whether such a change is in the best interest of U.S. investors and markets.

“The Commission also voted to approve a Work Plan developed by SEC staff that would gather information to aid the Commission as it evaluates the impact that the use of IFRS by U.S. companies would have on our securities market,” Schapiro said. The Work Plan will be completed in 2011, the target date set by the 2008 Proposed Roadmap.

Schapiro said, however, that no decision had been made about the timing of a possible conversion to IFRS. “We must still determine what this means for U.S. companies and markets; should we incorporate IFRS into our reporting system and, if so, when and how?

Source: http://www.accountingweb.com/topic/cfo/sec-approves-work-plan-assess-us-adoption-global-accounting-standards

Accounting for Investments – Equities, Futures & Options – Part-1 Video

R. Venkata Subramani — Tue, 20 Oct 2009 09:18:27 +0000

• Accounting for Investments – Equities, Futures & Options - is the first volume in this series published by John Wiley & Sons. This video gives an overview of the contents of this book. This is the first part of a series of videos that would cover the contents all the chapters in great detail.

I would appreciate if you could leave your feedback.

R. Venkata Subramani

US GAAP – codified topics

R. Venkata Subramani — Wed, 12 Aug 2009 09:02:06 +0000

1	105 – Generally Accepted Accounting Principles
2	205 – Presentation of Financial Statements
3	210 – Balance Sheet
4	215 – Statement of Shareholder Equity
5	220 – Comprehensive Income
6	225 – Income Statement
7	230 – Statement of Cash Flows
8	235 – Notes to Financial Statements
9	250 – Accounting Changes and Error Corrections
10	255 – Changing Prices
11	260 – Earnings Per Share
12	270 – Interim Reporting
13	272 – Limited Liability Entities
14	274 – Personal Financial Statements
15	275 – Risks and Uncertainties
16	280 – Segment Reporting
17	305 – Cash and Cash Equivalents
18	310 – Receivables
19	320 – Investments—Debt and Equity Securities
20	323 – Investments—Equity Method and Joint Ventures
21	325 – Investments—Other
22	330 – Inventory
23	340 – Other Assets and Deferred Costs
24	350 – Intangibles—Goodwill and Other
25	360 – Property, Plant, and Equipment
26	405 – Liabilities
27	410 – Asset Retirement and Environmental Obligations
28	420 – Exit or Disposal Cost Obligations
29	430 – Deferred Revenue
30	440 – Commitments
31	450 – Contingencies
32	460 – Guarantees
33	470 – Debt
34	480 – Distinguishing Liabilities from Equity
35	505 – Equity
36	605 – Revenue Recognition
37	705 – Cost of Sales and Services
38	710 – Compensation—General
39	712 – Compensation—Nonretirement Postemployment Benefits
40	715 – Compensation—Retirement Benefits
41	718 – Compensation—Stock Compensation
42	720 – Other Expenses
43	730 – Research and Development
44	740 – Income Taxes
45	805 – Business Combinations
46	808 – Collaborative Arrangements
47	810 – Consolidation
48	815 – Derivatives and Hedging
49	820 – Fair Value Measurements and Disclosures
50	825 – Financial Instruments
51	830 – Foreign Currency Matters
52	835 – Interest
53	840 – Leases
54	845 – Nonmonetary Transactions
55	850 – Related Party Disclosures
56	852 – Reorganizations
57	855 – Subsequent Events
58	860 – Transfers and Servicing
59	905 – Agriculture
60	908 – Airlines
61	910 – Contractors—Construction
62	912 – Contractors—Federal Government
63	915 – Development Stage Entities
64	920 – Entertainment – Broadcasters
65	922 – Entertainment – Cable Television
66	924 – Entertainment – Casinos
67	926 – Entertainment – Films
68	928 – Entertainment – Music
69	930 – Extractive Activities – Mining
70	932 – Extractive Activities – Oil & Gas
71	940 – Financial Services—Broker and Dealers
72	942 – Financial Services—Depository and Lending
73	944 – Financial Services—Insurance
74	946 – Financial Services—Investment Companies
75	948 – Financial Services—Mortgage Banking
76	950 – Financial Services—Title Plant
77	952 – Franchisors
78	954 – Health Care Entities
79	958 – Not-for-Profit Entities
80	960 – Plan Accounting—Defined Benefit Pension Plans
81	962 – Plan Accounting—Defined Contribution Pension Plans
82	965 – Plan Accounting—Health and Welfare Benefit Plans
83	970 – Real Estate – General
84	972 – Real Estate – Common Interest Realty Association
85	974 – Real Estate – Real Estate Investment Trusts
86	976 – Real Estate – Retail Land
87	978 – Real Estate – Time Sharing Activities
88	980 – Regulated Operations
89	985 – Software
90	995 – U.S. Steamship Entities

Online Courses on Accounting for Investments, Financial Instruments, Accounting Standards

R. Venkata Subramani — Sat, 04 Jul 2009 11:46:00 +0000

We have now started the online resources for Accounting Studies.

Visit: Online Courses on Accounting Studies

What topics are covered here?

Online courses are available on several topics of professional interest in the Accounting and Finance area
- Accounting Standards as per US GAAP, IFRS, etc.
- Financial Instruments like equity derivatives, Interest Rate Derivatives, Credit Derivatives, Foreign Exchange Instruments,
- Hedge Accounting

How much does it cost me?

Online courses provided here are absolutely free.

Amendments to reporting of Credit Default Swaps (CDS) – US GAAP FAS 161

R. Venkata Subramani — Tue, 03 Feb 2009 08:52:20 +0000

FASB has come up with a list of new disclosures to be effective in financial statements for fiscal years that end after Nov. 15, 2008, in order to help investors get a grip on the financial implications for companies that have sold credit default swaps,

Credit Default swaps are derivative contracts in which one counter party (the buyer of protection) pays a premium to a second party (the seller of protection) for taking credit risk of an issuer or a security (the reference issuer). The second party makes no payments unless a specified credit event occurs like failure to pay, bankruptcy or debt restructuring for a specified reference asset. If the Reference Issuer suffers a “credit event,” then the seller of protection pays the loss on the Reference Security to the buyer, to the extent of the notional amount of the CDS and the swap then terminates.

The new standard introduced by FASB eliminates an odd inconsistency between two existing accounting standards. One of those rules, Interpretation 45, covers financial guarantees, which hold the same risks and rewards as credit derivatives. It requires extensive disclosure of contracts in which the buyer of the insurance owns the underlying instrument it is protecting.

But if the guaranteed party does not own the asset or instrument that is insured, the protection is classified as a derivative and falls under another accounting standard viz., FAS 133, requiring no disclosure.
This weird dichotomy is sought to be eliminated by the introduction of FAS 161. The risks of financial guarantee and a credit derivative being undertaken by a firm under either of these kinds of instruments are the same.

The FASB new standard would cover sellers of CDS instruments, namely the entities that act as insurers. They would have to disclose such details as the nature and term of the credit derivative, the reason it was entered into and the current status of its payment and performance risk.

In addition, the seller would provide the amount of future payments it might be required to make, the fair value of the derivative and whether there are provisions that would allow the seller to recover money or assets from third parties to pay for the insurance coverage it has written.