Sign Up Now
Get instant access to over 1 million+ study documents
OR
Already registered? click here to login
By creating your account, you agree to our terms of service, privacy policy and student honor code.
. Introduction
Accounting is the language of business. It helps key stakeholder groups to better access the financial position of a company they are looking to engage with. This is critical as it relates to vendors, suppliers, customers, investors, governments, communities. For one, all of these stakeholders must trust that the organization will keep its promises and commitments. They must also protect their own downside risk as it relates to their ability and wherewithal to do business with the organization. Accounting standards help to answer a variety of questions including the investment worthiness of a company, the ability to determine if the company is worthy of a government contract, or to determine if a company is over leveraged. All of these circumstances are used to help mitigate risk, make better investment decisions. To do so however, the user of this financial information must have an understanding of generally accepted accounting principles and their impact on the financial statements presented by organizations
Unfortunately, creators of financial statements data understand the importance placed on them by third part users. As a result, they often use assumptions that are much more optimistic in order to indicate a much more favorable operating environment than the one that is prevailing. Likewise, in a particularly bad quarter management man optimistically take impairment charges to make the next few quarters look much more favorable. In addition, management can change assumptions related to pension returns, loan loss provisions, allowances for doubtful account, and many other line items in an effort to make consensus estimates or other financial data forecasts. This ultimately undermines the data being presented and causes confusion for unsophisticated financial statement users. As a result, it is critical to understand the differences between GAAP and IFRS standards in order to help lower the likelihood of making poor investment and financial decisions.
The standards discussed is this assignment will be that of the cash flow statement and how different classifications can only impact financial ratios but also discounted cash flow models. These standards is therefore important as it directly impacts the inputs used in valuations models by investors throughout the world (Ashbaugh, 2002).
2. Summary of the GAAP and IFRS standard
With intangible assets, under US GAAP intangibles are recorded at their cost. IFRS allows a business to utilize the fair value treatment. This created more variability with IFRS reporting as intangible assets can increase of decrease overtime depending on their value. This could potentially have a negative impact on earning particularly if the decline due to fair value accounting is steep.
Other IFRS standards provide companies with much more flexibility but also much more...…investing or financing. This flexibility heavily impacts the manner in which invests value businesses. For one, operating cash flow (OCF) is a critical input to free cash flow models. By being selective in the manner in which they classify items, OCF can be obscured and mislead investors (Barth, 1999).
4. Relate each standard to the relevant topic you learned in class
The cash flow standards are relevant to the efficient functioning of the markets as discussed in class. In order for markets to be efficient, confidence is needed in the both the system and financial data being presented. If trust is lost or there is a lack of confidence in the information being provided, then stock valuations may diverge from economic reality. As a result, investors must know and understand the various cash flow standards and how they can impact perspective returns and valuations.
5. Conclusion
Cash flow is one of the most important elements within a business. Being unprofitable but generating high levels of cash flow can be very helpful towards the long-term success of a business. As a result, understanding the various standards and how they impact cash flow is critical. This paper discussed various standard related to liabilities, assets, leases, property plant and equipment, and even revenue recognition. Each of these elements impact the larger standard of cash flow. As a result,…
References
1. Ashbaugh, H. S., & Olsson, P. (2002). An exploratory study of the valuation properties of cross-listed firms’ IAS and US-GAAP earnings and book values. The Accounting Review, 77(1), 107–126.
2. Badertscher, B. A., Collins, D. W., & Lys, T. Z. (2012). Discretionary accounting choices and the predictive ability of accruals with respect to future cash flows. Journal of Accounting and Economics, 53(1), 330–352.
3. Barth, M. E., Beaver, W. H., Hand, J. R., & Landsman, W. R. (1999). Accruals, cash flows, and equity values. Review of Accounting Studies, 4(3–4), 205–229.
This enables the company to better match its inflows and outflows. However, this also means that much of what constitutes earnings is not a direct, immediate cash flow. There are a number of items that will appear on an income statement that are either flows that have already occurred, or are flows that have not yet occurred. However, because the transaction was based in that quarter or year, it
Each section of the cash flow statement tells a different part of the firm's story. For example, it may be understood by management that significant amounts of their profits went into new buildings and equipment. What the cash flow statement does is isolates that information. Management and shareholders alike can extrapolate that data from the balance sheet, noting changes in fixed assets, but the presentation of the cash flow statement
863 billion, then decreased it in 2007 by $603 million. Last year, with the stronger flows from operations and decreased stock retirement, they increased their cash position by $4.288 billion. As with Microsoft, Sony has seen a strong increase in cash flows from operations over the past three years. They have increased 89.4% from ¥399 billion to ¥757 billion. This improvement is only partly attributable to top line improvement, as Sony's
Cash Flow The different authors use a number of quantitative approaches to understanding firm performance. Paunovic (2013) discusses the pricing and valuation of swaps. The author seeks to "demystify the structure of these financial derivatives (swaps) by presenting their valuation methods and by showing how they are used in practice." Thus, the author is presenting textbook explanations of swaps to her audience. Swaps are priced at par at the present time.
Cash Flow Analysis Discuss Cash Flow And Its Analysis Financial Leverage Financial leverage refers to the use of a company's assets and liabilities targeting to earn profits upon balancing the risks associated. Financial leverage follows the argument in physics of lever where little force is used to lift heavy objects. Financial leverage uses debts and stock (Preferred stock) to increase earning. Leverage is a significant measure that financial institutions use to increase benefits
A second challenge organizations face with cash flow management is being realistic with the amount of time it will take for them to receive revenues. This negatively affects cash flow projections that Sprague illustrates as being very important to a company's success. Companies are become slower and slower to pay their vendors, with 45 to 60 days becoming more the norm than the traditional 30 days, according to Feldman,