CFA Mind Maps Level 1

All CFA Insti tute members and candid ates are required to comply with the Code and Standards The CFA Institute Bylaws Basic structure structure for enforcing the Code and Standards

primary principles principles Based on two

Fair process to member and candidate Confidentiality of proceedings

Rules of Procedure

Maintains oversight and responsibility The CFA Institute Institute Board of Governors

Structu Structure re of the CFA Institute Institute Professiona Professionall Conduct Program

Professional Conduct program (PCP)

Through Through the Disciplin Disciplinary ary Review Committee (DRC)

The CFA Designated Designated Officer

Is respon responsi sibl ble e for for the enforceme enforcement nt of the Code and Standards

Directs professional conduct staff 

Conducts professional conduct inquiries

Selfdisclosure An inquir inquiry y canbe prompt prompted ed by several circumstances

a.

Written complaints Evidence of misconduct Report by a CFA exam proctor

The Professional Professional Conduct Conduct staff staff conduct conducts s an investigat investigation ion that may include

Requesting a written explanation from the member or candidate The member or candidate Interviewing

Complaining parties Third parties

Collecting documents and records in support of its investigation

1. Code Of Ethics And Standards Of  Professional Conduct

Process Process for the enforcem enforcement ent of the Code and Standards

When When an inquiry inquiry is initiated

Conclude the inquiry with no disciplinary sanction Uponreviewing Uponreviewing the material material obtained obtained during during the investigation, the Designated Officer may

Issue a cautionary letter

Continue proceedings to discipline the member or candidate

Act with integrity, competence, competence, diligence, respect and in an ethical manner Integrity of investment profession profession &  interest of clients a bove personal interest

Six compone component nts s of  the Code of Ethics

Care & judgment Practice ethics & encourage others to practice Integrity & rules of capital markets Professional competence

b,c.

Professionalism Integrity of Capital markets Duties of Clients

Seven Seven Standa Standards rds of  Professional Conduct

Duties to Employers Investment analysis, Recommendations & Actions Conflict of interest Responsib Responsibili ilitie ties s as a CFA Institute Institute member or CFA Candidate

If findi finding ng that that a violat violatio ion n of  theCode and Standa Standard rds s occurred occurred,, the Designate Designated d Officer Officer propose proposes sa disciplinary sanction

Accepted by member

Rejected by member

The matter is referred to a hearing by a panel of CFA Institute members

Understand and comply with applicable laws and regulations Code and Standards vs. Local law

Follow stricter law and regulation

Responsible for violations in which they knowingly participate or assist Dissocia Dissociate te from from illegal, illegal, unethical activities

Guidance

Leave employers (in extreme case)

Attemp Attemptt to stopthe behavio behaviorr by bringi bringingit ngit to theattenti theattention on of  employer through a supervisor or compliance department Participation or association association with violations by others

Intermediate steps

May consider directly confronting the involved individuals If notsuccess notsuccessful ful,--> ,--> step step away away and dissociate from the activity by

Removing their name from written reports Asking for a different assignment

Inaction with continued association may be construed as knowing participation

A. Knowledge of the law

Not required reporting violations violations to government, CFAI, but advisable in some cases or required by laws in others Stay informed Review procedures Members Members and candidates

Maintain current files When in doub t, seek advice of  compliance personnel or legal counsel When dissociating from violations, --> Document any violations and urge firm firms s to stop them

Recommended procedures for compliance (RPC)

Develop and/or adopt a code of ethics Firms

Make available to employees info that highlights applicable laws and regulations Establish written procedures for reporting suspected violation of laws, regulations regulations or company company policies

Application Maintain independence and objectivity in professional activities

External pressures

By benefits

Gifts, Invitations to lavish functions,Tickets functions,Tickets,, Favors, Favors, Job referrals referrals,, Allocation of shares in oversubscribed oversubscribed IPOs...

From public companies From Buyside Buyside clients clients From their own firms

Internal pressures Howto cope cope with with exter externaland naland internal pressures

To issue favorable reports May try to pressure pressure sellside sellside analysts analysts

e.g. to issue f avorable research reports/ recommendations for certain companies

Investmentbanking relationships

to issue issue favor favorabl able e resea researc rch h on curre current nt or prospective investmentbanking clients Conflicts of interest

Modest gifts and entertainment are acceptable but special care must be taken

must disclose to employers

Best practice: reject any offer of gifts, threatening independence and objectivity

Guidance

convey true opinions -->

B. In dependence dependence and objectivity

Recommendations Recommendations must

free of bias from pressures be stated in clear and unambiguous language

its significant impact to the price of security if it is disclosed

Definiti Definition on of "Material "Material nonpublic information"

The reliability of the information Non-public until

Guidance

Reasonable investors would like Reasonable to know for making decision

Material information

disseminated to the market place and effficient time for investors to react

Must Must be partic particula ularl rly y aware aware of info info selectively disclosed by corporations Analysis of Public info + nonmaterial nonpublic nonpublic info --> Investment Investment conclusi conclusion on Mosaic Theory

Analysts are free to act on this collection of info without risking violation Analysts should save and document all their research

A. Material no n-public information (MNI)

Make Make reasona reasonabl ble e effort efforts s to achiev achieve e public dissemination of material info If public public disseminat dissemination ion is not possible,

Must communic communicat ate e the info info only only to the designa designate ted d supervisory and compliance personnel within the firm Must not take investment action on the basis of the info

Must Must not knowing knowingly ly engage engage in conduct conduct inducing insiders to privately disclose MNI

2.2 Standard II INTEGRITY OF CAPITAL MARKETS

adopt compliance compliance procedures procedures preventing misuse of MNI

RPC Encourage firms to

develop develop & follow follow disclos disclosur ure e polici policies es to ensure proper dissemination use "firewall"

Prohib Prohibit ition ion of all proprie proprietar tary y tradi trading ng while while firm firm is in possession of MNI may be inappropriate Distort prices or artificially inflate trading volume with the intent to mislead market participants

Definition Transaction Transactions s that artificia artificially lly distort prices or volume

transactions that deceive deceive market participants

B. Market manipulation

Securi Securing ng a control controllin ling, g, dominan dominantt positi position on in a financ financial ial instrum instrumen entt to exploi exploitt and manipul manipulat ate e price of a related derivative/or underlying asset

can be related to disseminati dissemination on of false or misleading info

including spreading spreading false rumors rumors to induce trading by others

prohibit legitimate trading strategies

Standard II(B) not meant to

prohibit transactions done for tax purposes

The The inte intent nt of actio action n is criti critica call to deter determi mini ning ng whether it is a violation of this Standard

The financial markets and investment management industry are becoming increasingly global

a1. Why were the GIPS Standards created? Only i nvestment management firms that actually manage assets

a2. Who can claim compliance? Note: GIPS standards are printed in their entirety in the readings, but the Level I candidate is required only to know the material through the end of Section II.0 "Fundamental of Compliance."

Fundamentals and Compliance Consistency of input data is critical to effective compliance with GIPS and establish a foundation for full, fair and comparable performance presentations

Prospect clients and investment management firms

a3. Who benefit from Compliance? A composite is an aggregation of discretionary portfolios into a single group that represents a particular investment objectives or strategy A composite must include all actual, fee-paying discretionary portfolios managed in accordance with the same investment objective or strategy

Input data Uniformity in methods used to calculate returns to achieve comparability among firms

Introduction Introduction to Global Investment Performance Standards Standards (GIPS)

Calculation methodology composite return is the asset-weighted average of all the portfolios' performance results

b. Construction & purpose of Composites

Firms may set minimum asset levels for inclusion in a portfolio, but changes to a composite-specific minimum asset level are not permitted retroactively.

Composite construction allow firms to elaborate on the raw numbers and give the end user the proper context to understand

Terminated portfolios must be included in the historical returns of appropriate composites

No "negative assurance" is needed for non-applicable disclosures

Disclosures

Presentation and reporting

increase the level of confidence that a firm claiming GIPS compliance did adhere to GIPS

Major Major sectionsof  sectionsof  GIPS standards

Improve a firm's internal policies and procedures wi th regard to all aspects of complying with the GIPS standards.

Real estate

Firms are encouraged but not required to undertake the verification process

Refers to investments in non-public companies that are in various stages of  development and venture investing, buyout investing and mezzanie financing

c. Verification Private equity

A single verification report is issued for the entire firm. Verification cannot be carried out for a single composite Firms that have been verified are encouraged to add a disclosure to composite presentations or  advertisements stating they have been verified: "[name of firm] has been verified for the periods [insert dates] by [name of verifier]. A copy of the verification report is available upon request."

Wrap fees are a type of bundle fee and are specific to a particular investment product is charged by a wrap fee sponsor for investment management services and included trading expenses that cannot be separately identified can be all-inclusive, asset-based fees and may include a combination of investment management fees, trading expenses, custody fees and/or administration fees

Composites must include new portfolios on a timely and consistent basis after the portfolio comes under management

To obtain glo bal acceptance of calculation and presentation standards in a fair, comparable format with full disclosure

Wrap Fee/ Separately Managed Account (SMA) portfolios.

To ensure co nsistence, accurate investment performance data

3+4 GIPS

A wrap fee portfolio is sometimes referred to as a "separately managed account (SMA) or "managed account"

GIPS Objectives

To promote fair competition among investment management firms To promote global "self regulation" To claim GIPS, investment management firms must define its "firm"

Comply with local law or regulation conflicts with GIPS Make full disclosure of the conflict Note: this differs from Standards of  Professional Conduct in which the stricter of local laws or Standards of  Professional Conduct prevails

If local/country specific law or regulation conflicts with GIPS

Require Firms to include all actual fee paying, discretionary portfolios in composites defined according to similarstrategy/investmentobjectives

How are GIPS standard standards s implement implemented ed in countri countries es withexisting withexisting standard standards s for performance reporting

Rely on integrity of input data

Key characteristics

If an investment firm applies GIPS in a performance situation that is not addressed specifically by GIPS/ is open to inte rpretation, disclosures other than those required by GIPS may be necessary GIPS do not address every aspect of performance measurement, valuation, attribution or cover all asset classes

Firms from any country may come into compliance with GIPS GIPS must be applied on the firm-wide basis. Firm must be defined as an investment firm, subsidiary, or division held out to clients as a distinct business entity Total firm assets must be the aggregate of the market value of  all discretionary and non-discretionary assets under management. This includes both fee-paying and non-fee-paying assets

Firms must meet full compliance to claim GIPS

Investment firm definition

Key features of the GIPS standard standards s &  fundamentals of  compliance

Firms must initially show GIPS compliant history for a minimum of 5 years, or since inception if the firm has been in existence for less than 5 years. After 5-year compliant history has been achieved, firms must add an additional year of performance each year until 10-year performance record is established, at a minimum only GIPS compliant performance is presented for periods after 1 Jan. 2000; and Firm discloses non-compliance period and explain how it is not in compliance with GIPS

A firm may link non-GIPS compliant performance to its compliant history as long as

The scope of the GIPS

Compliance cannot be achieved on a single product, portfolio, or composite

The effective date of the revised Standards is 1 Jan 2011. Presentations that include performance results for periods after 31 Dec. 2005 must meet all the requirements of the revised GIPS. Performance presentations that include results through 31 Dec. 2005 maybe prepared in compliance with the 1999 version of GIPS.

Effective date Firms must document, in writing, their polices and procedures used in establishing and maintaining compliance with all requirements of GIPS

Documents policies and procedures Historical performance record

Once a firm has meet all the required requirements of GIPS , use this statement to declare: "[Insert name of firm] has prepared and presented this report in compliance with the Global Investment Performance Standards (GIPS)." If not meet all the requirements, cannot state:"...in compliance with GIPS except for..."

Firms previously claiming compliance with an Investment Performance Council-endorsed Country Version of GIPS are granted reciprocity to claim compliance with GIPS for historical periods prior to 1 Jan. 2006

Claims of compliance

Statements referring to the calculation methodology used in a composite presentation as being "in accordance [or compliance] with the Global Investment Performance Standards" are prohibited. prohibited. Statements referring to the performance of a single, existing client as being "calculated in accordance with the Global Investment Performance Standards" are prohibited except when a GIPS complaint firm reports the performance of an individual account to the existing client

provide a compliant presentation to all prospect cli ents, cannot choose to whom they want to present compliant performance

Firm fundamental responsibilities

provide a complete list and description of all of the firms' composites to any cli ent that makes such a request

must list discontinued composites on the firms' list of composites for at least 5 years after discontinuation

to solve many types of time value of money problems equilibrium interest rate for a particular investment

Find PMT Find N Find I/Y

Required rate of return

Loan payment and Amortization

a. Interest rate, considered as

Amortization table

f1. Use time line

Rate of compound growth Number of periods for specific growth Funding a future obligation

Opportunity cost

Other applications

the sum of the present values of the cash Rows is the present value of the series. The sum of the future values (at some future time = n) of a series of  cash flows is the future value of that series of cash flows. The c a s h f l o w a d d i t i v i t y   principle refers to the fact that present value of any stream of cash flows equals the sum of the present values of the cash flows

for calculating the present value of  future cash flows

Discount rate

Nominal risk-free rate = real risk-free rate + expected inflation rate Connection between PV, FV & series of CF

default risk

b. Interest rate

5. TIME VALUE OF MONEY

Future value

Several risks of securities

Present value

maturity risk

a series of equal cash flo ws that occurs at evenly spaced intervals over time. occur at the end ofeach time period. o d.

a borrower will not make the promised payments in timely manner receiving less than fair value if an investment must be sold for cash quickly Longer-term bonds have more risk than shorter-term bonds

-->The required rate of return on a security = real risk-free rate + expected inflation rate + default risk premium + liquidity premium + maturity risk premium

Ordinary Annuity

FV of Annuity Due = FV of Ordinary Annuity x (1+ I/Y) PV of Annuity Due = PV of Ordinary Annuity x (1+ I/Y)

liquidity risk

real risk-free rate is a theoretical rate on a single-period loan when there is no expectation of inflation.

Annuity occur atthe beginning of eachtime period. o d.

represents the annual rate of return actually being earned after  adjustments have been made for different compounding periods

e. CF calculations

Where: Periodic rate = stated annual rate/m m = the number of compounding periods per year

Annuity Due

c,d. EAR 

PV of a Perpetuity Discount each individual cash flows Use CF function in Calculator

Uneven CF

Non-annual time value of  money problems

divide the stated annual interest rate by the number of compounding periods per year, m, and multiply the number of years by the number of compounding periods per year

the PV of the cash flows less the initial (time = 0) outlay where: CFt = the expected net cash flow at time t  N = t he estimated life of the investment r = the discount rare (opportunity cosr of capital)

NPV

Convert among these yields

Accept projects with with a positive NPV NPV Reject projects with a negative NPV

Decision rules

Two mutually exclusive projects: accept higher positive NPV is the discount rate that make the NPV of a project equal to zero 1. Based on face value, not price 2. Use 360-day

Calculate, Interpret, Decision rule

Not much meaningful

3. Use simple interest, ignore reinvestment of interest

Conflict with NPV due to

Problems Where: rBD = the annualized yield on a bank discount basis D = the dollar discount, which is equal to the difference difference between the face value of the bill and the purchase price F = the face value (par value) value) of the bill t = number of days remaining until maturity 360 = bank convention of number of days in a year

Differen timing of cash flows

Multiple IRR or No IRR

When CFA pattern is unconventional

IRR

Bank discount yield

6. DISCOUNTED CASH FLOW APPLICATIONS

Unrealistic assumptions

IRR method: project cash flows are assumed to reinvest at IRR while with NPV it is assumed to reinvest at market rate

--> at the bottom lines: use NPV

Accept projects with an IRR > the firm's (investor's) required rate of return. Decision rules

Yields of T-bills Where: Po = initial price of the the instrument P1 = price received for instrument at maturity D1 = interest payment (distribution)

Different project size: the smaller projects may have higher IRR but their contribution to the firm value may be smaller compared to the larger projects

Reject projects with an IRR < the firm's (investor's) required rate of return.

For single project, IRR and NPV lead to exactly the same decision

Holding period yield

HPR 

is the percentage change in an investment over the period of holding

defined as the IRR

Money Weighted

Effective annual yield

rMM = HPY x (360/t)

measures compound growth

Money market yield

BEY = 2 x

More appropriate if manager has complete control over cash in/out

semi annual discount rate Bond equivalent yield

Not affected by cash in/out

Portfolio rate of return

Preferred method Value the investment immediately after any withdrawals or deposits, divide the overall investment horizon into subperiods

Time weighted (chain-link) 3 steps

Calculate HPR for each subpediod Compute the geometric mean

Statistics is used to refer to data and to the methods we use to analyze date to summarized the important characteristics cs of large data sets

Descriptivestatistics

Statistical methods Inferential statistics

pertain to the procedures used to make forecasts, estimates, or  judgement about a large set of data

A population is defined as the set of all possible members of a stated group

Populationparameters Samplestatistics

A sample is defined as a subset o f  the populations of interest

Population vs. Sample

a. Excess kurtosis = sample kurtosis - 3

l. Kurtosis

Leptokurtic: more peaked, fatter tails (excess kurtosis > 0) --> more risk Platykurtic: less peaked (excess kurtosis < 0) Mesokurtic: identical (excess kurtosis = 0)

mean (measures of central tendency) which addresses return

The most frequently concerned

Calculate

Nominal scales

Compared with normaldistribution Ordinal scales

Var (measures of variation around center) which addresses risk

Classify or count observations with no particular or ranking Specified characteristics are used to categorize observations band involve ranking no information on the difference among categories Like ordinal scales + the differences between scale values are equal -> scale values can be added and subtracted

Types of measurement scales Interval scales

Symmetrical

Ratio scales

No true zero point

cannot build meaningful ratios

Provide ranking, equal differences between scale values and true zero point

mean=median=mode A parameter is a measure used to describe a characteristic of a population

the frequency of experiencing ng losses and gains are the same

A sample statistic is used to measure a characteristic of a sample

Parameter vs. Sample statistic

b.

Definition

A tabular presentation of st atistical data that aids the analysis of large data sets

 j,k. Shape of distribution

1. Define interval

Frequencydistribution

Construction of a frequencydistribution

3 steps

2. Tally the observations 3. Count the observations and then calculate

Positively skewed (Sk>0)

Types

Absolute frequency

Nonsymmetrical (Skewness) (because of outliers)

calculated by dividing the absolute frequency of each return interval by the total number of observations.

Relativefrequency

c.

summing the absolute frequencies starting at the lowest interval and progressing through the highest.

Cumulativeabsolute frequency

Negatively skewed (Sk more risk

summing the relative frequencies es starting at the lowest interval and progressing through the highest.

7. Statistical Concepts and Market Returns

Cumulative relative frequency bar chart

d.

CV (Coefficient of Variation)

i. Relative dispersion Negative Sharpe ratio

Limitations

Histogram line chart

Frequency polygon

Sharpe Ratio / Reward-to-Variability ratio

Not suitable with asymmetric return distribution

Population mean For any distribution with finite variance, the percentage of observations lie within k standard deviation of the mean is at least 1-1/(k^2)

Sample mean

36%: +/-1.25k 56%: +/-1.50k

h. Chebyshev's inequality

the measure of central tendency for which the sum of the deviations from the mean is zero

75%: +/-2k Arithmetic mean

89%: +/-3k 94%: +/-4k

Mean

Easy to compute affected by extreme value

Range = Max - Min

Weighted mean (portfolio return) Geometric mean

(compound growth)

no info on how data is distributed (return data set)

e. Measures of  central tendency

better than range

Use of arithmetic or geometric mean when determining investment returns

less sophisticated than Var and Sd

Harmonic mean (cost of shares)

g. Dispersion (measure of risk)

Population

Harmonic < geometric < arithmetic

Variance & Standard deviation

value of middle item in a set of sorted items Sample

Median

not affected by extreme value but more difficult to find out No mode

Semivariance and semideviation

Mode

Unimodal, bimodal, trimodal --> the only measure can be used with nominal scale Model interval --> for continuous distribution

value at or below which a portion o f the data distribution lies into quarters

Quartiles into fifths

f. Quantile

Quintile into tenths

Decile Ly =(n+1) xy /100

Percentile (100)

F.Stm

Element

Additional disclosures required by regulatory Any commentary by management

FR

Roles of FR & FSA

Financial position

Useful to a wide range of users in making economic decisions

Firm's performance

Role of FR

Changes in financial position

Use info i n a company's Fin Statements

Roles of FSA

Use other relevant info

> To evaluate past, current, and prospective performance performance & fin position > To make economic decisions

Revenues

Income Statement

Expenses Gains and Losses Assets

Role of key FS

Balance Sheet (A=L+OE)

Liabilities Owners' equity

CFO CF statement

CFI CFF

Statement of changes in Owners' equity disclose the basis of preparation for FS (e.g: accounting methods, assumptions,...)

acquisitions or disposals legal actions employee benefit plans

FS notes (footnotes)

Additional items:

contingencies and commitments significant customers sales to related parties segments of firm

are audited not audited operating income or sales by region or business segments

Supplementary Supplementary schedules

reserves for an oil and gas company info about hedging activities and financial i nstrument

Operating activity: activities that are part of the day-to-day business function of an entity

Classification

Investing activity: activities associated with acquisition & disposal of long-term asset Financing activity: activities related to obtaining or repaying capital from shareholders or creditors Assets Liabilities Elements

Equity Revenue

FS elements & accounts

Expense

Account & financial statement

Accounts

Chart of accounts : set forth the actual accounts used in a company's accounting system Contra account: offset or deducted from other accounts Liabilities Assets

Accounting equation

23. Financial reporting mechanics

Owners' equity

Contributed capital Retained earning

Expanding: A = L + Contributed capital + BGN Retained earnings + Rev - Exp - Dividend

Unearned (Deffered) revenue

Cash movement movement prior to Acct. recognition

Accruals & Valuation adjustment

Accruals Cash movement after Acct. recognition

Prepaid expense Unbilled (Accrued) revenue

(when billing, Un.Rev decrease & Receivables increase)

Accrued expense

Valuation adjustment: made to company's A or L so that account records current market value (not 1. Journal entries & Adjusting entries (record=time) 2. General ledger & T-accounts

Accounting system

Flow of information

3. Trial balance

(record=order) (list account balances at a particular point in time)

4. Fin. statement statement

Debit & Credit

Using fin. statement in security analysis

Analyst uses FS to judge the fin. health of the company Analyst can use his understanding to detect misrepresentation

Historical cost)

Overview FRS

Objective of FR: provide fin. info about the reporting entity Importance of reporting standards in security analysis and valuation

Standard-setting bodies (establishing standards)

IASB (International Accounting Standards Board) US FASB (Financial Accounting Standards Board) IOSCO (international):

Standard setting &  Regulatory bodies

not a regulatory, but its members regulate significant portion portion

FSA (in UK) Regulatory authorities (enforcing standards)

1. Protect investors

SEC (in USA)

2. Ensure: market is fair, efficient, transparent 3. Reduce systematic risk

Status of global convergence of accounting standards

c.

disagree

Barriers to developing one universally accepted set of financial reporting standards

standard setting bodies regulatory authorities

political pressures from business groups and others

Understandability Verifiability

Relevance Qualitative characteristics

Enhancing

Faithful presentation

Trade off across Enhancing characteristics Constraints

Comparability

( consistent consistent among firms and time periods)

Timeliness

(complete, (complete, neutral, free from error)

(reliability and relevance: timely)

Cost Non-quantifiable info: omitted Measurements

IFRS framework Assumptions

of Financial position: A, L, E of performance: Income, Expense Accrual basis Going concern

Recognition principal Elements of FS

Cost can be reliable measured Probably future economic benefit will flow to entity Historical cost : amount originally paid for the asset Current cost : would have to pay today for the same asset

Measurement bases

Realizable value: amount for which firm could sell the asset Present value : discounted future cash flows Fair value : 2 parties in an arm's length transaction would exchange the asset BS, IS, CFS, OE, Explanatory notes (inclu. accounting policies)

Def: represent Financial performance performance Expenses

Overview IS

Elements

Income

Expense (ordinary) Loss (Invest, Finance) Revenues (ordinary) Gain (Invest, Finance)

Multi-steps (include: Gross Profit)

Formats

Single-step

Accrual accounting 1. seller can collect the price 2. evidence of transfer ownership

IASB

3. cost can be reliably measured

General principles

Revenue recognition

1. evidence of arrangement btw buyer and seller 2. product delivered or service rendered

SEC

3. price is determined or determinable 4. seller reasonably sure of collecting money

%-of-completion method

1. Long term contracts

Revenue recognition

Completed-contract Completed-contract method

IFRS

(reliably measures outcome) US GAAP: no income 'til completing IFRS: rev=exp (profit=0)

Revenue includes: 1. Sale price: at the date of sales 2. Interest income: recognise over time

2. Installment sales

Installment method: recognise profit according to cash receipt in relation to selling price US GAAP

Cost recovery: no profit 'til cash receipt > cost Sale basis:

Special cases 3. Barter transactions (no cash changes)

IFRS

1. Revenue: is based on FV of a non-barter transaction with unrelated parties 2. Other cases: no revenue; net off Rev & Exp

US GAAP

1. Rev: record if a company has transaction with cash payment for such services 2. Otherwise, Rev=Carrying amount of asset surrendered

4. Gross revenue reporting (vs. net revenue reporting) US GAAP

Uses Gross Rev when: 1. Primary obligator 2. Bear inventory & credit risk 3. Ability to choose supplier 4. Reasonable latitude to establish prices

Inventories

Matching principle (report expense when have Rev)

Depreciation Long-lived assets

Depletion Amortization

Corporations Sovereign national government Non-sovereign Gov

Bond issuer

Quasi-government entity Supranational entity Time remaining til maturity: Term To Maturity

Basic features

Maturity date

Bonds have no maturity: Perpetual Bonds

Price>Par: Premium Bond

Par value

Price