ADMS 3330 Study Guide - Basel Committee On Banking Supervision, Effective Interest Rate, Ias 39
16 Jun 2014
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Chapter 7, exercise 5: relevant information provides investors, or all of the stakeholders, with information about organization"s future economic prospects. Under ias 39 the loans are valued at their amortized cost, which takes into consideration discounted future cash flows but not credit losses. The latter is recognized when the loans become impaired. As such, the delay in recognition reduces the relevance of the information to almost a nil as it represents the occurred event rather than prediction or warning of the future. Second proposed policy recommended including writedowns amounts in determining effective interest rate and expected credit losses over the life of the loan. This information is relevant as it takes into consideration the organization"s future economic prospects. As such, this policy is the most relevant: reliable information represents a high degree of faithfulness that represents what is intended. However, amortized cost accounting remains the same over time.
