GAAP: The rules for monetary reporting

Risk:

Risk by default has tow components; uncertainty and exposure. If both are not present, there is no risk. Definition of Risk as per Guidelines on Risk Management issued by State Bank of Pakistan is, "Financial risk in a banking organization is possibility that the outcome of an action or event could bring up adverse impacts. Credit Risk

Market Risk

Liquidity Risk

Operational Risk

Country Risk

Legal Risks

Compliance Risk

Reputational Risk

Broadly speaking there are four risks as per Risk Management Guidelines which surround Financial Sector i.e. Credit Risk, Market Risk, Liquidity Risk and Operational Risk. These risk are elaborated here under:

i. Credit Risk

This risk is associated with financing transactions i.e.:

Market Risk

This risk involves interest rate risk in all of its components: equity risk, exchange risk and commodity risk.

Liquidity Risk

Operational Risk

Need for Risk Management and Monitoring:

Risk monitoring in financial sector is very crucial and an inevitable part of risk management. Risk Monitoring is important in the financial sector due to the following reasons:

Bankruptcy of Barings Bank due to short selling / long position that is market risk.

Appetite of a financial institution to take risk is related with the capital base of the institute so it caries a huge risk of over exposure.

Components of Risk Management Frame Work

Risk Management Frame Work has five components.

The International Organization for Standardization (ISO) has defined risk management as the identification, analysis, evaluation, treatment (control), monitoring, review and communication of risk.

Structure of Risk Management

Depending upon the structure and operations of organization, financial risk management can be implemented in different ways. Risk management structure defines the different layers of an organization at which risk is identified and managed.

Risk Management

Corporate level Policies

Risk management strategy

Well-defined policies and procedures by senior management

Independent Risk review function

A bank can reduce its credit risk by getting to know its borrowers.

Functionally, there are four aspects of financial risk management.

No one can manage risk if they are not prepared to take risk. A positive risk culture is one which promotes individual responsibility and is supportive of risk taking.

Used correctly, procedures are powerful tool of risk management.

The primary role technology plays in risk management is risk assessment and communication.

D. Independence or risk management professionals

To get the desired outcome from risk management, risk managers must be independent of risk taking functions within the organization. Enron's experience with risk management is instructive. The firm maintained a risk management function staffed with capable employees.

Internal Controls

The system of internal controls includes financial, operational and compliance controls."

 Internal control is a process.

 Internal control is effected by people.

Internal control should assist and never impede management and staff from achieving their objectives. Senior management should set a good example about control compliance.

Components of Internal Controls

Risk Assessments,

Control Activities,

Tools for Monitoring of Risk

Management Information System

Asset-Liability Management Committee (ALCO)

Duties pertaining to key elements of the risk management process should be adequately separated to avoid potential conflicts of interest - in other words, a financial institution's risk monitoring and control functions should be sufficiently independent from its risk-taking functions.

c) A strong financial risk management function (independent of business lines), adequate internal control systems (including internal and external audit functions), and functional process design with the necessary checks and balances.

I. Credit Risk

Market

Financial Institutions should also have an adequate system of internal controls to oversee the interest rate risk management process. The institution's board of directors has ultimate responsibility for the management of interest rate risk. The board approves the business strategies that determine the degree of exposure to risk and provides guidance on the level of interest rate risk that is acceptable to the institution, on the policies that limit risk exposure, and on the procedures, lines of authority, and accountability related to risk management. The board also should systematically review risk, in such a way as to fully understand the level of risk exposure and to assess the performance of management in monitoring and controlling risks in compliance with board policies.

Risk Management and Risk Budgets

Once an annual risk budget has been established, a system of risk limits needs to be put in place to guard against actual or potential losses exceeding the risk budget. Stop-loss limits are set relative to the overall risk budget. Liquidity Risk

The ALCO has responsibility for setting and monitoring liquidity risk limits.

Risk-weighted Assets + (Market Risk Capital Charge x 12.5)

Operational Risk

To manage this risk documented policies and procedures are established.

Managing Risk in Financial Sector

In extra generally accepted accounting principles (GAAP) is a set of rules, conventions, standards and procedures, established by the financial accounting standards board for recording and reporting financial information.

Generally accepted accounting principles (GAAP) is implemented through measurement principles and revelation principles.

ACCA - DipIFR (Diploma in International Financial Reporting) is a new qualification, provided by ACCA.

ACCA tasks and goals

• understand and explain the structure of international professional and conceptual framework of accounting; • apply appropriate accounting standards for key elements of accountability; • know and be able to apply requirements for disclosure of information in financial statements and notes thereto; • be able to prepare financial statements of individual companies and address key elements in accordance with International Financial Reporting Standards and their interpretations; • prepare financial statements (except for consolidated statements of cash flow), including subsidiaries, associates and joint ventures;

ACCA - DipIFR (Diploma in International Financial Reporting)

The examines documents which support figures within the financial statements, assesses the overall accounting principles used, and evaluates the overall financial statement presentation. A qualified opinion indicates that the CPA is not in agreement with aspects of the financial statements and/or methods used to prepare their financial documents.

Sarbanes-Oxley Act: A Legislative Law to Win Public Trust in American Financial Industry

The PCAOB has established auditing, quality control, ethics, and independence standards to be used by registered public accounting firms in the preparation of audited financial statements for publicly traded companies, as required by the Sarbanes-Oxley Act of 2002 and the rules of the Securities and Exchange Commission (SEC).

The Sarbanes-Oxley Act of 2002 requires the PCAOB to: register accounting firms that audit publicly companies,; inspect registered accounting firms and their associated Certified Public Accountants (CPA's) annually for those whom annually audit over 100 public companies and a minimum of once every three years for those that audit under 100, assess the degree to which the firms comply with the act, the rules of the PCAOB and the SEC, professional standards in connection with the performance and issuance of audited financial statements and attest services; related matters involving public companies, and investigate and discipline any accounting firms and related accountants who are in violation of specific laws or standards. There are currently over 2,000 public accounting firms registered with the PCAOB, with more pending registration.

The Public Company Accounting Oversight Board's goal is to improve the quality of audited financial statements, reduce the risk of auditing failures, and increase public trust in financial reporting processes and of the auditing profession. To do this the PCAOB regularly issues reports detailing its inspections of public company audits.

What is the PCAOB For Audited Financial Statements?

Known as the Public Company Accounting Reform and Investor Protection Act of 2002 the Act was authored by Senator Paul Sarbanes and Representative Michael G. Oxley in response to the series of scandals concerning corporate financial agencies.The Sarbanes-Oxley Act is a legislative law designed and implemented to help enhance the policies and standards of U.S. public corporate and financial establishment firms.

Loan Modification Financial Hardship Letters - An Helpful Way to Plead Your Case

"Directors of every company (whether subject to audit or not) are responsible for ensuring that the company maintains proper accounting records and for preparing financial statements, which give a true and fair view in accordance with Generally Accepted Accounting Practice in Ireland including the accounting standards issued by the Accounting Standards Board and the Companies Acts, 1963 to 2006".

the discussions below deal specifically with common Financial Reporting disclosure issues, which arise in the Directors Report. Part B of this publication will deal with disclosure issues arising in the Auditors/Accountants Report while Part C will deal with disclosure issues arising in the Notes to the financial statements.

Risks ; Uncertainties

Section 13 of the Companies (Amendment) Act, 1986 (amended for Statutory Instrument No 116 of 2005) requires the directors of a company to identify the risks and uncertainties it's company faces and to disclose these in the Directors Report accompanying the company's financial statements.

Interests of Director's ; Secretary

Section 63 requires disclosure that no such interests were held if that is the case for a particular company.

Confusion often arises with regard to where in the Financial Statements such disclosures should be made. There are two options; as a paragraph in the Directors Report or alternatively in the Notes to the Financial statements.

Common Financial Reporting Disclosure Issues - (Part 1) Directors Report

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America’s Economic Oligarchy Remains Unchallenged

The specialized field that handles accounting for business is called financial accounting and provides individuals who are externally linked to that business with information on a company´s financial performance and position.

It organizes the transactions of a company by writing down those transactions and creating a financial statement or financial report that summarizes the data in a balance sheet or income statement. If the company is publicly traded, these financial statements will circulate wider, to customers, competitors and employees as well.

The FASB, or Financial Accounting Standards Board, is responsible for creating a standardized system of rules called accounting standards for financial accounting in the United States. These standards are important for financial accounting statements because so many people use these statements in so many different ways. Keeping track of this data helps a company to assess the value of their management and the resources they have allotted them to make their company run better, and financial statements help to determine the effectiveness of management for that company.

Why Financial Accounting is Important

America's financial oligarchy is still in control and, as such, the long-term consequences will be dire!

That certainly is the case with the powerful elites - the financial oligarchy - in America. ;In the case of the U.S. economic and financial crisis, global investors, afraid that the country or its financial sector wouldn't be able to pay off mountainous debt, suddenly stopped lending.

Financial Industry has Gained Political Power

The American financial industry gained political power over the years by amassing a kind of cultural capital, a belief system in which Washington insiders believe that large financial institutions and free-flowing capital markets are crucial to America's position in the world … and always and utterly convinced that whatever the banks said was true.

America's Oligarchs and the Financial Crisis

This velvet-glove approach is inadequate to change the behavior of a financial sector accustomed to doing business on its own terms, at a time when that behavior must change.

The second is a political balance of power that gives the financial sector a veto over public policy, even as that sector loses popular support.

The financial oligarchy's lobby group, the American Bankers Association, was successful in having political pressure brought to bear, by legislators from both parties, against the Financial Accounting Standards Board to do their bidding which now gives banks more discretion in reporting the value of mortgage securities. America's financial oligarchy is firmly in control and, as such, the long-term consequences will be dire!

ANALYSIS OF Financial STATEMENTS-SELECTIVE TOOLS

Subtopics include financial accounting, cost accounting, management accounting, internal auditing external auditing, international accounting, governmental and not-for-profit accounting and taxes. The most common means of conveying information to users is through the preparation of financial statements: 1. the income statement, 2. the balance sheet, 3. the statement of cash flows, and 4. the statement of shareholders' equity.

The income statement presents the profitability of company over a period of time.

Generally accepted accounting principles (GAAP) are a set of standards, methods, procedures, and guidelines companies follow in measuring and reporting financial information in the financial statements. The current accounting professional body that sets standards is known as the Financial Accounting Standards Board (FASB). The FASB issues standards called Statements of Financial Accounting Standards (SFAS).

Introduction to Financial Accounting and GAAP

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Financial statements for two companies under these circumstances are not wholly comparable.

A financial analyst can adopt the following tools for analysis of the financial statements.; These are also termed as methods of financial analysis.

1.; Comparative Financial Statements:-

;Comparative Financial statements are those statements which have been designed in a way so as to provide time perspective to the consideration of various elements of financial position embodied in such statements. In these statements figures for two or more periods are placed side by side to facilitate comparison.; Both the Income statements and Balance Sheet can be prepared in the form of Comparative Financial Statements.

;Comparative Income Statements:-

Comparative Balance Sheet:-

;2.Common-size Financial Statements:-Common-size Financial Statements are those in which figures reported are converted into percentages to some common base.; In the income statements the sale figure is assumed to be 100 and all figures are expressed as a percentage of sales.; Similarly in the balance sheet the total of assets or liabilities is taken us 100 and all the figures are expressed as a percentage of this total.

Bonus Shares Vs Stock Splits In Economic Management from HelpwithAssignment.com

Subtopics include financial accounting, cost accounting, management accounting, internal auditing external auditing, international accounting, governmental and not-for-profit accounting and taxes. The statement of shareholders' equity shows how the shareholders' equity changed over the period.

The current accounting professional body that sets standards is known as the Financial Accounting Standards Board (FASB). The FASB issues standards called Statements of Financial Accounting Standards (SFAS).

Introduction to Financial Accounting and GAAP

Definition: Bonus Shares are those shares which are issued to shareholders' by a healthy company without any cost.

<!--[if !supportLists]-->· <!--[endif]-->In this case the Shareholders' proportional ownership remains unchanged.

<!--[if !supportLists]-->· <!--[endif]-->The book value per share, the earnings per share and the market price per share decrease but the number of shares increased.

Part A: Equity Portion before Bonus Issue

Paid-up Share Capital

Paid-up Share Capital

<!--[if !supportLists]-->· <!--[endif]-->The Bonus issue may likely to bring the market price per share within a more popular range.

Part A: Equity Portion Before Stock Split

Paid-up Share Capital

Paid-up Share Capital

Comparison of Bonus Shares and Stock Splits:

Bonus Issue

The book value per share, earnings per share and the market price per share decline.