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nd standards from a valuation perspective: some examples
Accounting analysis and predicting future performance
Accounting valuation models are based on future estimated abnormal profits
Accounting analysis is concerned with reviewing  financial statement data to reduce impact of inappropriate accounting policies and / or accounting manipulation on predictions of future fundamental performance
We will look at some widely implemented accounting practices and assess their strengths and limitations from a valuation perspective
Reported dirty surplus items
Dirty surplus items are gains and losses which are not passed through profit and loss account
Typical examples of dirty surplus items are:
Foreign currency translation gains/losses
Fixed asset revaluations
Actuarial gains / losses related to pension fund liabilities
Is there a rationale for omitting these items from the profit and loss account when predicting future performance?
Accounting policies and standards
Analyst needs to ask whether a company’s policies in a
wide range of areas are appropriate:
Working capital (net current assets) items and short-term accruals, for example:
Inventory valuation methods
Accounts receivable / trade debtors – impact of doubtful debt provisions
Non-current assets
Depreciation policies for tangible assets
Recognition and impairment of intangible assets 由英语论文网www.51lunwen.org整理提供 such as Goodwill, R&D and brands
Other accounting policy issues (cont.)
Accounting for leases
Finance and operating leases
Asset and liability shown for finance leases but not operating leases
Depreciation and interest expenses for finance leases

Pensions

While companies must include estimates of the value of net pension asset / liability, IFRS allows some flexibility in recognition of value changes
Up-to-date valuation is important for company valuation

Summary

Financial statements need to be reformulated to provide information consistent with the main valuation models
Accounting analysis requires making judgements about the usefulness of accounting policies for valuation analysis
Reformulated financial statements are usually closely based on information from the published financial statements but sometimes adjustments of reported figures are necessary

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