Determinants Of Systematic Risk Exposures -Myassignmenthelp.Com

Question: Discuss About The Determinants Of Systematic Risk Exposures? Answer: Introducation The main aim of this report is to focus on the disorder benchmark as well as the assumptions, which have been implemented by the given company called, Campbell Brothers Limited. It is a testing service providing company. At first, it was named as Campbell Brothers and later they changed it to ALS Limited. The company is based in Australia and the company is a soap and chemical manufacturing company that is listed under the Australian Stock exchange (Alsglobal.com 2018). The company has its main operations in 4 major divisions, ranging from the Industrials, Energy, Life Sciences and Minerals. It is one of the largest testing and analytical groups of companies around the world. While accounting for a company, the financial asset of a company is assessed at a given reporting period in order to give evidence in case the asset is impaired. In accounting terms, an asset is considered impaired or disordered during the time when the evidences that have been earlier collected expresses that several events that have taken place in the course of business is negatively influencing the cash flow values for the future. In such cases, definite impairment charges are required to be taken and the loss needs are to be calculated (AmirALSani, Iatridis and Pope 2013). An impairment loss is with respect to the financial or non-financial assets that is measured at an amortized cost. The amortized cost is the contrast in between the present value of the asset that is reckoned, and the carrying cost. However, there are certain assets that are impaired individually, and certain assets are impaired in groups. Assets that are tested for impairment As witnessed from the annual reports of the company for the year ended as on 31 March 2016. Goodwill as well as the other non-financial assets are tested for the impairment cases and such kind of tests could take place for more than a year in case of occurrence of few events that specify certain circumstances for which the impairment may have to be taken place (AmirALSani, Iatridis and Pope 2013). Other tangible assets- Tangible assets such as the Trade receivables are also taken into the consideration for the test of impairment. Plant and equipment- Plants and equipments were also taken into account for the same test. Ways of conducting impairment test As it is discussed earlier, the intangible assets and goodwill are generally undertaken for an impairment test when an event takes place in a firm, which may demonstrate that the carrying amount of the asset is not recoverable. In other circumstances, there are certain assets that are tested for impairment case more than once in a year if there exists a circumstance, which may suggest so. After this, the goodwill and other assets are assigned to the unit that is cash generating for the test (Andrews 2012). The method that is followed is extremely simple. The assets belonging to the lower class are grouped together for which cash flows can be recognized separately and for the assets, which are not based on these, are grouped different. Except goodwill, all other assets that have undergone the impairment have the chance of reversal as according to the date at which the reporting is done. Impairment expenditures Following is the impairment expenses of the company for the year ended 31 March 2016- The intensive assets as well as the goodwill- According to the given report during the yearly period the total cost on goodwill rise up to 265 million dollars. Plant property and equipment- For plant and equipment 11.1 million dollars were the impairment charges (Carlin and Finch 2010). Other intangible assets- The cost for the other tangible assets was 41.5 million dollars. Therefore, the total cost was 317.9 million dollars. Assumptions and estimates that are used by the company for conducting impairment tests The ALS Global makes various assumptions and estimates, because it is very concerned about its financial statements as well as its future. This outcome which might be gained by the estimates need to be equal with the actual outcomes of the organization`s results. The taken estimates and assumptions have considerable number of risks that can affect the profitability of the organization and lead to several problems in the material adjustments. The given estimates need to be discloses through notes in the accounts. For the sensitivity of the market, the recoverable amount for the assets like goodwill needs to be taken into account for the calculation of the future cash flows as well (Carlin, Finch and Laili 2009). The recoverable amount is deliberated for the assets value in use. The estimates need to be made based upon the various policies and are revised on a daily basis. The important assumptions that are made for the calculation are : The Compound average growth rate, and, The Pre-tax discount rate Subjectivity that is involved in the process of impairment testing As per the rule of IAS 36 on the Impairment of assets, it is concluded that it is a classic standard in the IFRS. Nevertheless, it is subject to interpretation and it may differ as per the managerial requirement, and could give rise to creativity (Rennekamp, Rupar and Seybert 2014). The annual report of the Campbell brothers consists of certain amount of relativity and subjectivity in a way in which the impairment test is conducted in the organization (Cotter 2012). The management team had the opportunity to exploit their discretion and they carried the test for impairment for several assets depending on their opportunities. This fact can be proved with the help of the factors, which the particular allocation of goodwill and other assets. Interesting, surprising, difficult or confusing part to understand impairment testing It could be said after analyzing the annual reports of ALS Global that the most confusing part in this process is the initiation and the induction of impairment. As stated previously the induction of impairment depends on the internal as well as external situations and events and with the same, on the frequency of the test is depending completely on the discretion of the management (Fit, Moya and Orgaz 2013). Due to this fact, in the discretion of the management, there might be the chances that the impairment that are generally undertaken, is either subjective or many depend on the choice of the management. Hence, as stated above there exists chances that the management might carry out the test depending on these opportunities that are available and utilized the impairment option when there is a slump in the value of the given asset. New insights concerning conducting of the impairment tests The impairment loss can be referred to as the difference between carrying amount of the given asset and recoverable amount of the asset. When the recoverable amount of the asset in cases where the value in use comes into picture, is higher than it may be in the case where the value of the asset is decreased to the disposable cost (Lee and Hooy 2013). The fair value of an asset is determined through the sales agreement or the value of the asset that has been taken from the market where the particular asset is usual, traded. In other cases, the value as per the rule of IAS 36, can be described as the present value of the cash flows that might take place in future from the asset. Fair value measurement According to the new IFRS 13, the fair value of an asset is determined through- The sales agreement. The value of the asset in the market where it is traded (Ifrs.org. 2018) The reason why the former accounting standards does not reflect the economic reality It is believed that about every one out of two companies that make the use of US GAAP or IFRS in its business have been affected by the various different changes and alterations, which have taken place in a given year. According to todays scenario, the companies who are registered under US GAAP or IFRS have near about 3.3 trillion dollars worth leased assets and other commitments. Out of these, near about two-third of the total data is not reported in the balance sheet. This is due to the fact that, they are often treated as operating leases (Jennings and Marques 2013). In order to compensate such loss the investors normally include those estimates that are just a prediction. These are incomparable and inaccurate computations. Therefore, it is often reflected that the accounting standards that were used before, did not reflect the economic reality. Reasons why under the previous accounting standards the lease liabilities of the reporting entities in the balance sheet were 66 times more than the reported debts under the balance sheet When the previous accounting standard was in use nearly 85 percent of the companies put their leases amount under the operating leases instead of balance sheet. While these operating leases were not recorded under the given balance sheet, they were able to create liabilities, which were true (loans, retirement and education 2018). Hence, when financial crises will occur, there were certain companies that were not able to adapt to the new systems and hence they went on a bankrupt. For this reason, the lease liabilities of the reporting entities in the balance sheet were 66 times greater than the reported debts that are under the balance sheet Reasons behind why the Chairperson of IASB is in the view that under the previous accounting standard no level playing field was there among some airline entities The main problem with the earlier accounting systems was related to comparability. For the airline industries, most of the leases are treated as the operating leases and therefore they are not recorded in the balance sheet. Hence, due to this reason, it is often said that the level of playing field does not exist among the given airline companies. When the new given standards will be introduced, it is supposed that such types of problems will not be there as all the given eases will be taken as assets and the given leases will account as the liabilities. Reasons why the Chairperson is in the view that the new standard will not be popular with everyone Any new change that takes place in the firm has an impact on the overall business of the company. Hence, the given companies need to be careful enough and be prepared to make the given accounting changes in their given income statement and also to the balance sheets. Apart from the visible impacts, it is also believed that there will be certain contractual arrangements as well as banking policies associated with the statements of the country (Md Khokan , Rahman and Mollik 2014). These are normally related with the aspects of human resource and may change the overall structure of the bonus payment and the other relevant ratios. Possibilities that the new visibility with regard to all the leases will result into better informed decision for investment as well as the company The blessing in disguise in terms of the new accounting standard is that the companies all over the world will provide more transparency in their accounting statements after this implementation. This transparency shall result in better information for the investors who plan to invest their savings in the different shares of the company (Ramanna and Watts 2012). With the earlier accounting standard that are in use, the companies used to keep their operating leases under their income statement and this has made it impossible for the investors to compare. Therefore, when the new standard will upgrade to the rule of IFRS 16, the investors will then be able to take better decisions for their respective company. References Alsglobal.com ,2018.ALS. [online] Alsglobal.com. 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