Hi All, Lets start the thread for final revision points in one place. I am starting off with few gems from revisor. Rest of all who are far ahead in prep please lend a hand in building this… Thanks /**** Impairment ************/ http://www.analystforum.com/phorums/read.php?12,1148411,1148411#msg-1148411 Impairment - IFRS HTM - Recognized in P/L (could be reversed) AFS - Cumulative loss in I/S (cannot be reversed) (Only in AFS debt securities it could be reversed) Cumulative loss = Acquisition cost (net of principal payments and amortization) - cusrrent fair value - any impairment loss GAAP HTM - Income statement AFS - Income statement /***************Other Compherensive Income**************/ Under both IFRS and US GAAP, gains and losses on hedges classified as ‘Cash Flow’ hedges go to Other Comprehensive Income. Both of these adjustments will violate clean surplus accounting and require adjustment when doing RI valuation. Under the all current translation method the currency gains or losses hit the BS in equity. In OCI or as a seperate line item in equity?? In OCI. Following is a list of most things that will hit OCI- (1) Gains/Losses on available for sale securities (2) Gains/losses on derivatives qualifying as cash flow hedges (3) Changes in the funded status of pension plans (4) F/X translation adjustments resulting from the all-current method 1. Under IFRS, any forex g/l for AFS debt is recognized in the IS. IFRS forex g/l for equity, as well as GAAP’s treatment of both debt and equity, is recognized in OCI on the Equity Statement. 2. These derivatives recognise THE EFFECTIVE PORTION of g/l in OCI in Equity: Cashflow Hedge, and Net investment in foreign subsidiary. Fair Value Hedge and speculative derivatives are recog. in the IS. ***The portion of the derivative hedge that is not effective for CF and Net Invest in Foreign Sub are recog. in the IS. (Essentially, if the value of your foreign subsid drops $500 and your derivative appreciates $700, 500 in OCI and 200 in the IS) 3. F/X translation from the All-current (aka Translation) method for IFRS during hyperinflationary times is considered a purchasing power parity gain/loss and goes in the IS. This is a SPECIAL CASE of the All-Current Method, normally the CTA is in OCI in Equity. 4. You know how GAAP reports the funded status as the net pension asset, and IFRS includes a bunch of unamortized items (prior service costs, transition liability, and actuarial loss)? Well, GAAP recognizes those too, but in OCI in Equity. 5. What does the clean surplus relation mean? It means this should follow: Retained Earnings at opening + NI - DIV = Retained Earnings at closing. If this doesn’t hold, RI ain’t fun. 6. i am sure there are more… /**********************/
- You know how GAAP reports the funded status as the net pension asset, and IFRS includes a bunch of unamortized items (prior service costs, transition liability, and actuarial loss)? Well, GAAP recognizes those too, but in OCI in Equity. “GAAP recognizes those too, but in OCI in Equity.”??? First time I heard this, can’t someone confirm please?
freakingout where else will they go? They are unamortized, so they will be in equity (only place available is the OCI), and slowly make their way to the Income statement as they amortize over time. Remember Peter Olinto’s PUFE mnemonic - this is the P part of that mnemonic. Pension related liabilities…
#4 is newer to GAAP b/c of the adoption of IAS 18-something( maybe 187, I’m not positive on the #, but the # is not important.) This moved the unamortized amounts from the Financial stmt notes to the equity section under OCI. This also had an affect of increasing the liabilities on the GAAP balance sheet. This is something I need to firm up, so can anyone confirm with more detail?
Few things i need to go back and review. Options valuation binomial tree. Risk neutral probabilities = ((1+rfr)-(1-down %))/((1+up %)-(1-down%)). this is the prob of an up move. 1-this prob is prob of a down movement value. Use these as weightings of option value and then discount. Hedge ratio = (option value in up move - option value in down move)/(stock price in up move-stock price in down move). Gives the number of options needed to hedge for 1 share of stock?
@CPK: wats PUFE??? never heard of it…enlighten…
Pensions Unrealized gains/losses on AFS Securities Foreign exchange Gains/losses (Current Rate Method issues) Effective portion of Cash Flow Hedge
Hedge ratio = (option value in up move - option value in down move)/(stock price in up move-stock price in down move). Gives the number of options needed to hedge for 1 share of stock it is number of stocks for 1 option for atm around 0.5
thanks for correcting pfcfaataf… Can any of you smart guys post a refresher on using delta to compute number of options to create delta neutral?? Own 1000 shares, want to neutralize delta portfolio, put delta is -0.6, so 1/.6 = 1.66, so buy 1666 puts? short 1000 shares, want to neutralize, call delta is .6, so buy 1666 calls?
Private Equity Distribution Waterfall: 1. Mgt fee = %*PIC 2. Carried interest = %*(NAV Before Distrib - Committed Capital) 3. NAV Before = NAV After(t-1) + Called down - Mgt fees + Op results 4. NAV after = NAV Before - Carried Interest - Distributions 5. DPI = Cum distrib / Cum PIC 6. RVPI = NAV after / Cum PIC 7. TVPI = DPI + RVPI