Calculating lifetime expected loss for IFRS 9: which formula is measuring what?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Bernd Engelmann
Keyword(s):  
Design Methodology ◽  
Cash Flows ◽  
Management Systems ◽  
Expected Loss ◽  
Loan Loss ◽  
Fixed Rate ◽  
Content Type ◽  
Mathematical Proofs ◽  
Ifrs 9 ◽  
Practical Implications

PurposeThe purpose of this article is to derive formulas for lifetime expected credit loss of loans that are required for the calculation of loan loss reserves under IFRS 9. This is done both for fixed-rate and floating rate loans under different assumptions on LGD modeling, prepayment, and discount rates.Design/methodology/approachThis study provides exact formulas for lifetime expected credit loss derived analytically together with the mathematical proofs of each expression.FindingsThis articles shows that the formula most commonly applied in the literature for calculating lifetime expected credit loss is inconsistent with measuring expected loss based on expected discounted cash flows. Formulas based on discounted cash flows always lead to more conservative numbers.Practical implicationsFor banks reporting under IFRS 9, the implication of this research is a better understanding of the different approaches used for computing lifetime expected loss, how they are connected, and what assumptions are underlying each approach. This may lead to corrections in existing frameworks to make applications of risk management systems more consistent.Originality/valueWhile there is a lot of literature explaining IFRS 9 and evaluating its impact, none of the existing research has systematically analyzed the calculation of lifetime expected credit loss for this purpose and how the formula changes under different modeling assumptions. This gap is filled by this study.

scholarly journals Bringing the national interlending system into the local document supply process – a Swedish case study

2015 ◽  
Vol 43 (2) ◽  
pp. 104-109
Author(s):  
Ylva Gavel
Keyword(s):  
System Integration ◽  
Management System ◽  
Design Methodology ◽  
Management Systems ◽  
Local Management ◽  
Content Type ◽  
Practical Implications

Purpose – The purpose of this paper is to describe how systems automating the local document supply process (such as integrated library systems and ILL management systems) can be integrated with systems automating regional document requesting (interlending). This is illustrated with a case study of DocFlow, an ILL management system developed in-house at Karolinska Institutet and its integration with Libris, the national interlending system in Sweden. Design/methodology/approach – The present paper describes how system integration between Libris and DocFlow was accomplished in practice. It also discusses various aspects of integration between systems offering automation of document supply. Findings – Integration between local document supply workflows and regional document request flows may involve techniques such as import of outgoing and incoming interlending requests, synchronization of status values between systems, exchange of messages between systems and quick links to the native interfaces of external systems. Practical implications – The paper brings up various aspects to consider when developing or procuring a system for the local management of ILL workflows. Originality/value – The paper may provide a deeper understanding of system integration, as it applies to the document supply process.

Performance measurement and management systems as IT artefacts

2018 ◽  
Vol 67 (7) ◽  
pp. 1214-1233 ◽  
Author(s):  
Marie Marchand ◽  
Louis Raymond
Keyword(s):  
Performance Measurement ◽  
Design Methodology ◽  
Business Value ◽  
Management Systems ◽  
Nomological Network ◽  
Content Type ◽  
It Business Value ◽  
Effective Use ◽  
Practical Implications ◽  
And Task

Purpose Considering performance measurement and management systems (PMMS) to be “mission-critical” information systems for many business organisations, calls have been made for researchers to shift from studying the use of such systems to studying their “effective” use, and in so doing to focus on their characterisation as information technology (IT) artefacts. The paper aims to discuss this issue. Design/methodology/approach In seeking to answer these calls, the authors apply Burton-Jones and Grange’s theoretical framework to study the dimensions, contextual drivers and benefits of the effective use of PMMS. This is done through a field study of 16 PMMS artefacts as used in small- and medium-sized enterprises (SMEs). Findings In characterising, contextualising and valuing the effective use of PMMS, this study provides answers to the following questions: What constitutes the effective use of PMMS? What are the user, artefactual and task-related drivers of such use? And what are the benefits for SMEs of using performance measurement and management (PMM) systems effectively? Practical implications With regard to the design of a PMMS artefact, the findings imply that one should concentrate on those artefactual attributes that most enable informed action on the part of owner-managers, as it is these actions have the greater consequences for the realisation of IT business value in SMEs. Moreover, the nomological network resulting from this research provides the theoretical and methodological underpinnings of a diagnostic tool meant to develop the PMM function in SMEs. Originality/value This study provides further empirical grounding and understanding. This study provides further empirical grounding and understanding of the concept of effective use, as well as further applicability and actionability to this concept and to the nomological network of its dimensions, contextual drivers and benefits in the case of PMMS and in the context of SMEs.

A conceptual framework for integrated performance management systems

2019 ◽  
Vol 31 (3) ◽  
pp. 309-324 ◽  
Author(s):  
Ulf Johanson ◽  
Roland Almqvist ◽  
Matti Skoog
Keyword(s):  
Conceptual Framework ◽  
Performance Management ◽  
Design Methodology ◽  
Present Form ◽  
Management Systems ◽  
Content Type ◽  
Performance Management Systems ◽  
Integrated Performance ◽  
Further Development ◽  
Practical Implications

Purpose The purpose of this paper is to further develop a conceptual framework for analysing performance management systems (PMS). The framework aims to be useful for a rich understanding of a specific organisation’s PMS. At the same time, it should preferable be simple so that it could be used even in practice. The framework adds to earlier work by Malmi and Brown (2008), Ferreira and Otley (2009), Broadbent and Laughlin (2009), Bedford and Malmi (2015) and Johanson et al. (2001). Design/methodology/approach The paper is theoretical but has also been applied to a Swedish municipality. The purpose of the latter was to understand if the framework is feasible so far. Findings The authors hold that the framework in its present form is useful to use as an analytical tool even if it needs to be subjected to further development. Research limitations/implications The paper addresses an issue that is continuously changing. This means that the suggested framework may suffer from theoretical weaknesses in some respects. To balance between a theoretically deep and exhaustive framework and a framework that is simple enough to use is a tricky question that needs further investigation. Practical implications The ambition with the framework is that it shall be useful even in practice. Originality/value The need for further research in the PMS area has been emphasised by the above researcher but also by, e.g., Van Helden and Reichard (2016). They hold that the authors need rich European cases to improve the understanding of how PMS works. The authors hold that the present framework has the potential to meet the demands from Van Helden and Reichard.

scholarly journals The internal rate of return (IRR): projections, benchmarks and pitfalls

2016 ◽  
Vol 34 (6) ◽  
pp. 664-669 ◽  
Author(s):  
Michael Patrick ◽  
Nick French
Keyword(s):  
Design Methodology ◽  
Capital Budgeting ◽  
Cash Flows ◽  
Rate Of Return ◽  
Internal Rate Of Return ◽  
Content Type ◽  
Principal Measure ◽  
Internal Rate ◽  
Measure Of Performance ◽  
Practical Implications

Purpose The purpose of this paper is to discuss the use of the internal rate of return (IRR) as a principal measure of performance of investments and to highlight some of the weaknesses of the IRR in evaluating investments in this way. Design/methodology/approach This Education Briefing is an overview of the limitations of the IRR in making capital budgeting decisions. It is illustrated with a number of counter-intuitive examples. Findings The advantage of the IRR is that it is, on the surface, a wonderfully simple benchmark. One figure that tells a story. But, the disadvantage is that if used in isolation the IRR can give misleading results when used to assess investment proposals. Practical implications The IRR should be used in conjunction with other analyses to appraise projects, so that the user can determine its veracity in the context of other benchmarks. This context is particularly important when assessing investments with unusual cash flows. Originality/value This is a review of existing models.

Corporate investment in social responsibility versus dividends?

2012 ◽  
Vol 8 (2) ◽  
pp. 199-207 ◽  
Author(s):  
Michel T.J. Rakotomavo
Keyword(s):  
Corporate Social Responsibility ◽  
Social Responsibility ◽  
Design Methodology ◽  
Corporate Investment ◽  
Cash Flows ◽  
Cost Of Equity ◽  
Content Type ◽  
Corporate Social ◽  
The Cost ◽  
Practical Implications

PurposeThe paper aims to examine whether corporate investment in social responsibility takes away from expected dividends.Design/methodology/approachThe article builds two hypotheses that are tested empirically through the analysis of 17,670 US firm‐year observations covering the period 1991‐2007. The tests are conducted in both univariate and multivariate settings.FindingsThe evidence supports the hypothesis that mature firms tend to invest more in corporate social responsibility (CSR). Specifically, firms investing highly in CSR tend to be larger, more profitable, and with greater earned (rather than contributed) equity. The evidence also supports the hypothesis that CSR investment does not subtract from dividends. Instead, CSR effort and dividend tend to increase together. Thus, CSR investment tends to be effected by companies who can afford it, and it does not lower value by lowering investors' expected payout.Practical implicationsThese results imply that spending resources on CSR does not lower the cash flows paid out to investors. When combined with the finding that CSR lowers the cost of equity, they also mean that CSR increases the value of a company's stock.Originality/valueThis is the first study that explicitly links CSR to the dividend flow.

Protecting cash flows during a major crisis

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Keyword(s):  
Crisis Management ◽  
Cash Flow ◽  
Design Methodology ◽  
Reading Time ◽  
Business Processes ◽  
Cash Flows ◽  
Marketing Strategies ◽  
Content Type ◽  
Pertinent Information ◽  
Practical Implications

Purpose This paper aims to review the latest management developments across the globe and pinpoint practical implications from cutting-edge research and case studies. Design/methodology/approach This briefing is prepared by an independent writer who adds their own impartial comments and places the articles in context. Findings Major crises like the Covid-19 pandemic can negatively impact on cash flow of small B2B firms. But SMEs affected can address the issue by implementing relevant marketing strategies associated with three key business processes to enhance their crisis management. Originality/value The briefing saves busy executives and researchers hours of reading time by selecting only the very best, most pertinent information and presenting it in a condensed and easy-to-digest format.

Auditors’ judgment subordination and the theory of planned behavior

2020 ◽  
Vol 35 (8) ◽  
pp. 1189-1211
Author(s):  
Dominic Cyr ◽  
Sylvie Héroux ◽  
Richard Fontaine
Keyword(s):  
Theory Of Planned Behavior ◽  
Planned Behavior ◽  
Design Methodology ◽  
Cash Flows ◽  
Content Type ◽  
Audit Firm ◽  
Factors Associated ◽  
Big 4 ◽  
Audit Firms ◽  
Practical Implications

Purpose The purpose of this paper is to examine circumstances under which auditors subordinate their judgment. More specifically, the authors investigate factors associated with auditors’ propensity to accept client-preferred accounting methods that conform to accounting standards but do not faithfully represent the entity’s financial position, financial performance and cash flows. Design/methodology/approach Based on the theory of planned behavior (TPB), the authors developed a survey that was sent to auditors at a non-Big 4 audit firm. Findings Main results suggest that auditors tend to agree with a client’s preferred accounting method when they anticipate little fallout from this decision, they believe they can easily justify the method, and they perceive that colleagues, shareholders and creditors would also agree with the decision. Practical implications Results benefit auditing standard setters and regulators and are relevant for accounting institutes and audit firms because practitioners can learn about circumstances under which auditors subordinate their judgment. Originality/value This study contributes to the audit literature by using the TPB to identify factors associated with auditors’ judgment subordination. In addition, it applies the TPB in a context where a client-preferred accounting method is considered acceptable but is not the most appropriate in light of the audited entity’s specific circumstances.

Multilayer document model for semantic document management services

2017 ◽  
Vol 73 (5) ◽  
pp. 803-824 ◽  
Author(s):  
Goran Sladić ◽  
Igor Cverdelj-Fogaraši ◽  
Stevan Gostojić ◽  
Goran Savić ◽  
Milan Segedinac ◽  
...  
Keyword(s):  
Design Methodology ◽  
General Purpose ◽  
Document Management ◽  
Management Systems ◽  
Content Type ◽  
Domain Specific ◽  
Proposed Model ◽  
Scope Of Application ◽  
High Degree ◽  
Practical Implications

Purpose The purpose of this paper is to identify the benefits of an approach in which document management systems (DMSs) are based on a formal and explicit document model, primarily in terms of facilitating domain-specific customization. Design/methodology/approach Within this paper, a generic document model is proposed. The model consists of two layers. A general purpose layer, which represents common features of the documents, and a domain-specific layer, modeling properties particular to application domain. The general purpose layer is based on ISO 82045, providing high degree of interoperability with other systems developed with respect to this set of standard. Findings Splitting document model into the layers enables DMSs to be tailored for each particular domain of application, depending on the general purpose layer. The existence of domain-specific layer allows documents to be interpreted differently in different domains of application. Practical implications In order to enable customization of DMS for a particular domain, the implementation of domain-specific document layer is required. Also, the proposed model does not explicitly deal with document dynamics. Originality/value The proposed document ontology is general enough to provide the representation of documents not depending on a specific scope of application, yet flexible enough to enable extensions through which domain-specific document features can be expressed. The separation of document model enables development of core DMS offering services relying explicitly on the general purpose layer on one hand, as well as domain-specific customization of DMS on the other.

Improving US real estate returns with cost segregation

2019 ◽  
Vol 37 (4) ◽  
pp. 334-344
Author(s):  
Ivan C. Roten ◽  
Jarrod G. Johnston
Keyword(s):  
Real Estate ◽  
Design Methodology ◽  
Cash Flows ◽  
Content Type ◽  
Real Estate Investments ◽  
Accelerated Depreciation ◽  
Investor Returns ◽  
The Impact ◽  
Practical Implications

Purpose US taxing authorities allow property investment to be separated into components. The purpose of this paper is to demonstrate how the classification of property affects the amount and timing of depreciation. Increased and accelerated depreciation increases after-tax cash flows and investor returns. Design/methodology/approach This paper explains traditional methods to analyze real estate investments and introduces modified methods that include the effect of taxes to improve the estimate of the potential return to the investor. Commonly used property classification methods are evaluated and projections are used to demonstrate the impact on investor returns. Findings Modified methods may improve return estimates and appropriately classifying property improves investor returns. Practical implications After-tax cash flows should be used to analyze potential real estate investments and properties should be accurately classified to maximize returns. Originality/value This paper demonstrates how to analyze real estate investments and maximize returns.

The incremental value relevance of cash flows and earnings affected by their extremity

2016 ◽  
Vol 39 (7) ◽  
pp. 742-767
Author(s):  
Wael Mostafa
Keyword(s):  
Design Methodology ◽  
Value Relevance ◽  
Statistical Significance ◽  
Cash Flows ◽  
Firm Valuation ◽  
Content Type ◽  
Earnings Information ◽  
Unexpected Earnings ◽  
Incremental Value ◽  
Practical Implications

Purpose In contrast to earlier studies, the most recent studies on the incremental value relevance of earnings and cash flows from operations find that both earnings and cash flows have incremental value relevance beyond each other. An interesting question that follows is whether these findings hold after controlling the extremity of earnings and cash flows. This study, therefore, aims to examine the incremental value relevance of earnings and cash flows in the following four cases: moderate earnings and moderate cash flows, moderate earnings and extreme cash flows, extreme earnings and moderate cash flows and extreme earnings and extreme cash flows. Design/methodology/approach To evaluate the incremental value relevance (information content) of earnings and cash flows for each of the four cases mentioned above, we examine the statistical significance of the slope coefficients for regression of returns on both unexpected earnings and unexpected cash flows from operations. Findings The results show that (i) both moderate and extreme earnings have incremental value relevance beyond both moderate and extreme cash flows, (ii) moderate cash flows have incremental value relevance beyond both moderate and extreme earnings and (iii) extreme cash flows lack incremental value relevance beyond moderate earnings; however, they (extreme cash flows) have incremental value relevance beyond extreme earnings. These results suggest that earnings and cash flows have incremental value relevance. However, only in cases when cash flows are extreme and earnings are moderate, cash flows do not possess incremental value relevance. In further analysis, we find that the value relevance for cash flows and earnings decreases when they are extreme and transitory. Moreover, the value relevance for cash flows increases when they are moderate (not extreme) and the other competing measure (earnings) is transitory and extreme. Practical implications The results support the idea that earnings and cash flows from operations complement each other in explaining variation in returns. However, when cash flows are extreme and less informative, investors rely more on earnings in firm valuation, especially when earnings are moderate. Because earnings are unlikely to persist to be permanent across the years, these results can be interpreted as indicating that cash flows and earnings information are used jointly by investors. Originality/value In contrast to previous studies, we control for the extremity of earnings and cash flows when evaluating the incremental value relevance of earnings and cash flows from operations.

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