FinAcc1 - Chapter 3

5 defining properties of big data

volume: amount of data

velocity: speed of data

variety: types of data

variability: changes in data flows

veracity: quality of data

3 steps in the framework for analysis and decision-making

1. understand financial reporting environment

2. identify and analyze reporting issues using tools

3. make a recommendation/decision and communicate to stakeholders

4 types of analytics and define each one

descriptive: what happened

diagnostic: why did it happen

predictive: what will happen

prescriptive: what do we do

3 measurement categorizations

cost based, current value, hybrid

cost based measures - 3 events to use?

PPE at cost or NBV

financial instruments at cost or AC (money market)

inventory using WA and FIFO

current value measures - 3 events to use?

financial instruments at fv (stocks)

biological assets

investment properties

hybrid measures - 3 events to use?

impaired PPE measured at recoverable amount

inventory measured at lower of cost and NRV

impaired NR measured using best estimates

2 common types of valuation techniques, define them, which one will we use most?

income models (use this most) - convert future amounts to current amounts

market models - use prices from market transactions involving similar transactions

2 approaches to discounted cash flow model

traditional discounted cash flow approach, expected cash flow approach

traditional discounted cash flow approach

when is this best used for? (2)

discount rate adjusted to reflect all risks

use when cash flows are fairly certain, and cash flows are specified in contract (fixed interest and principal)

expected cash flow approach

when is this useful? (1)

risk free discount rate used to discount cash flows that have been adjusted for uncertainty

useful where element being measured has variable cash flows

what are value in use measurements

entity specific measure, so the value is based on how the company plans to use them

2 steps to determine value in use

1. estimate future cash flows

2. calculate present value of cash flows

to measure fair value, what 4 things must an entity determine?

1. particular asset being measured

2. how the item would/could be used

3. the market the item would be bought and sold in

4. if model is used to measure fair value, which model it is

what is the fair value hierarchy, and what does it consist of?

it is a model that categorizes inputs to valuation methods using the quality of info

level 1, 2, 3 inputs

level 1 inputs: what is it

example

least subjective

observable inputs that reflect quoted prices for identical assets or liabilities in active markets

ex: measuring fv of share on TSX, input is price of exact class of share

level 2 inputs: what is it

example

subjective

inputs other than quotes prices included in level 1 that are observable for the asset or liability either directly or through corroboration with observable data

ex: measuring fv of new issue of bonds, input is int rate observable in market

level 3 inputs: what is it

example

most subjective

unobservable inputs

ex: measuring fv of manufacturing division for impairment, inputs are estimated cash flows