...Structural Risk Management (Asset/Liability Management) (ALM) Section Topic Page 7000 Executive Summary…………………………………………… 7-2 7100 Legislative Summary………………………………………….. 7-3 7200 Policy……………………………………………………………. 7-5 7201 Asset/Liability Management Philosophy…………………….. 7-6 7202 Balance Sheet Mix…………………………………………….. 7-7 7203 Managing Liabilities…………………………………………… 7-9 7204 Managing Assets………………………………………………. 7-13 7205 Pricing…………………………………………………………… 7-14 7206 Terms……………………………………………………………. 7-15 7207 Interest Rate Risk……………………………………………… 7-16 7208 Matching Maturities……………………………………………. 7-17 7209 Foreign Currency Risk………………………………………… 7-18 7210 Financial Derivatives…………………………………………... 7-19 7300 Planning………………………………………………………… 7-21 7400 Risk Measurement and Board Reporting…………………… 7-22 7401 Mix and Yields…………………………………………………. 7-25 7402 Growth………………………………………………………….. 7-26 7403 Financial Margin……………………………………………….. 7-27 7404 Interest Rate Risk Measurement…………………………….. 7-28 7405 Monitoring Derivatives………………………………………… 7-35 7500 Risk Management……………………………………………… 7-36 7501 Reliance on Qualified and Competent Staff and Volunteers 7-37 7502 Managing Interest Rate Risk… ……………………………… 7-38 Executive Summary The goal of asset/liability management (ALM) is to properly manage the risk related to changes in interest rates, the mix of balance sheet assets and liabilities, the holding of foreign currencies, and the use of derivatives. These risks should be managed...
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...Horizontal Analysis An increase in the total assets in 2010 by 18.28% as compared to base year 2009 can be attributed to the large percentage of increase in noncurrent assets. These accounts include intangible assets, goodwill, and other noncurrent assets. In addition to those, some current accounts such as prepaid expenses and biological assets contributed also to the increase in total assets. Using 2010 as a base year, there was a 28.27 % increase in total assets by 2011. This is largely attributable to the increase in investment on biological assets and other noncurrent assets accounts. There is also an increase in investment properties which are sources of additional cash and trade receivables from renting pieces of property to others. The increase in percentage of total assets dropped from 28.27% in 2011 to only 12.50 % by 2012. This is attributable to the minimal growth in several noncurrent assets which were the large contributors to total assets for the previous years. However, most current assets now have positive percentage increases, although cash and cash equivalents account remains negative. By 2013, there was a further decline in the increase of total assets, with only 6.23% as compared to 2012. This is largely attributable to the continuous decrease in investments on noncurrent assets which boosted increase in total assets in the previous years. In addition to that, several current assets accounts returned to their previous negative...
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...Asset Identification & Asset Classification 1. What is the purpose of identifying IT assets and inventory? i. To help identify areas of potential risks. 2. What is the purpose of an asset classification? ii. To evaluate the health of the company by examining how well each of the company’s assets are performing. 3. For the scenario you picked, give three (3) examples of customer privacy data elements. (HIPAA) iii. Names iv. Medical records v. Health plan beneficiary numbers 4. Why is your organization’s website classification minor nut its e-commerce server considered critical for your scenario? vi. Because it presents a smaller threat while the e-commerce server is more valuable to the organization. 5. Why would you classify customer privacy data and intellectual property assets as critical? vii. They are valuable assets to the organization and possess value to the organization. 6. What are some examples of security controls for recent compliance law requirements? viii. Sarbanes-Oxley Act – To certify the accuracy of financial information. ix. Children’s Online Privacy Protection Act – Information from children under the age of 13. 7. How can a Data Classification Standard help with asset classification? x. Classifying data helps prevent vulnerability to sensitive data. 8. How can you minimize leakage of customer privacy data through the public internet? xi. Gramm-Leach-Bliley...
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...FASB 144 Impairment of Assets Assets held for use Includes land, building, equipment, natural resources, and intangible assets FASB 147 specifies that intangibles from the banking industry are covered by FASB 144 rules: Long-term customer relationship assets such as Depositor-relationships intangible assets Borrower-relationships intangible assets Credit card holder Intangible assets When should impairment be recognized? Testing each asset each period would be too costly Events or changes in circumstances indicate that its carrying amount may not be recoverable TRIGGERING EVENTS: Decline in market value Change in way asset is used or physical change in asset Adverse changes in legal factors or business climate Accumulated costs in excess of amounts originally expected to construct or acquire asset Current expectation that, more likely than not, a long-lived asset will be sold or disposed of significantly before the end of its previously estimated useful life Current period losses with history of operating or cash flow losses associated with asset To apply impairment tests A long-lived asset shall be grouped with other assets and liabilities at the lowest level for which identifiable...
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...Intangible assets- practical approach An asset that is not physical in nature. Corporate intellectual property (items such as patents, trademarks, copyrights, business methodologies), goodwill and brand recognition are all common intangible assets in today's marketplace. An intangible asset can be classified as either indefinite or definite depending on the specifics of that asset. A company brand name is considered to be an indefinite asset, as it stays with the company as long as the company continues operations. However, if a company enters a legal agreement to operate under another company's patent, with no plans of extending the agreement, it would have a limited life and would be classified as a definite asset. While intangible assets don't have the obvious physical value of a factory or equipment, they can prove very valuable for a firm and can be critical to its long-term success or failure. During the past years, attention was brought to companies that are based only on intangibles, such a company is Amazon but also big companies that relied mostly on manufacturing goods, started paying more attention to intangibles. Oracle is an American multinational computer technology corporation headquartered in Redwood City, California, United States. The company specializes in developing and marketing computer hardware systems and enterprise software products – particularly its own brands of database management systems. Oracle is the third-largest software maker by revenue...
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...:INVESTMENT ALTERNATIVES * Types of assets that investors can invest in; financial assets and real assets * * Financial assets: are claims that organizations sell in order to finance their financial needs. Examples of financial assets are shares, bonds, certificate of deposits, unit trust. * Real assets: consists of tangible assets such as investment in real property, precious metal, gems, antiques, stamps, coins and work of arts. Real Asset vs Financial Assets Types | REAL ASSETS | FINANCIAL ASSET | Characteristics | Tangible asset/physical capital that generate income | Claims of organization sell in order to finance their financial needs t | Advantages | * It can be used to produce goods and service s * Owning a real tangible asset that has both investment and aesthetic value | * It has an efficient market for trading * High liquidity * Easy to transfer ownership | Disadvantage | * Lack of an efficient and limited market * Hard liquidate * High commission charged | * Must go through broker (middleman) to get access into the market | Example | * Real property ( house, land, machine, gold, antiques) | * Shares, bonds, certificate of deposit ,unit trust, commodity, derivative instruments | Savings * Form of fixed investment where principal amount and terminal amount is known. ADVANTAGES | DISADVANTAGES | * Provide security * Earn interest on savings * High liquidity | * Earn low income * Hard to...
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...– IAS 36 Impairment of Assets A. The purpose of this project is to provide an understanding on the process of impairment of assets and determining how it affects the financial statement and its users. B. The main purpose of standard IAS 36 is to ensure that the assets reported of Balance Sheet are recorded at no more than its recoverable amount. An asset or cash-generating unit will be considered impaired if the carrying amount is greater than the value of the sale of the asset or amount that could be recovered through use of the asset. The standard provides procedures that an entity must apply to properly measure the recoverable amount, recognize and measure impairment loss, reversing an impairment loss and proper disclosures. The standard applies to all assets except: * Inventories * Assets arising from construction contracts * Employee benefit assets * Deferred tax assets * Financial assets under IAS 39 * Investment property measure at fair value * Biological assets based on fair value * Deferred acquisition costs and intangible assets covered in IFRS 4 * Non-current assets as it pertains to IFRS 5 Identifying Impaired Assets Asset: Entities must assess if there are any indications that an asset may be impaired at the end of every reporting period. If any indicators are discovered must test for impairment. Intangibles with indefinite useful life or asset not yet available for use and goodwill: Must be tested on the annual...
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...Assets are formally controlled and managed within larger organizations via the use of assets tracking tools. These monitor the purchasing, upgrading, servicing, licensing, disposal etc., of both physical and non-physical assets. Current assets Current assets are cash and other assets expected to be converted to cash or consumed either in a year or in the operating cycle (whichever is longer), without disturbing the normal operations of a business. These assets are continually turned over in the course of a business during normal business activity. There are 5 major items included into current assets: 1. Cash and cash equivalents — it is the most liquid asset, which includes currency, deposit accounts, and negotiable instruments (e.g., money orders, cheque, bank drafts). 2. Short-term investments — include securities bought and held for sale in the near future to generate income on short-term price differences (trading securities). 3. Receivables — usually reported as net of allowance for noncollectable accounts. 4. Inventory — trading these assets is a normal business of a company. The inventory value reported on the balance sheet is usually the historical cost or fair market value, whichever is lower. This is known as the "lower of cost or market" rule. 5. Prepaid expenses — these are expenses paid in cash and recorded as assets before they are used or consumed (common examples are insurance or office supplies). See also adjusting entries. Marketable...
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...Option A – Sale of assets Following is an analysis of the different requirements and effects of choosing to structure the sale of Company as a sale of assets. The analysis includes a numerical exemplification of the said effects. I. Approval requirements In a sale of business such as the present one, vote requirements are essential before any further analysis can be done. In particular, as far as the seller is concerned – in the present case Company – both the approval of the board and of the shareholders are required. Complete information about the composition of the board is not yet available to us, though it can be expected that at least some of the five (5) sole shareholders are part of it. Even though the owners of Company themselves have asked for advice on potential sale structures, their final consent cannot be given for granted since their interest in selling today cannot yet be interpreted as a firm decision to do so tomorrow. Taking a closer look to the buyer entity, instead, it not sure whether approval by its board will be required as it depends on whether or not the present transaction can be defined as a material one from its perspective. Though, even in the event the transaction should not be a material one for the acquirer, it would still be advisable to get the board’s approval. The acquirer shareholders will not be asked to express their vote on the matter, unless the transaction will fundamentally change the nature of their initial investment...
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...Asset Securitization Securitization is the process of pooling and packaging Financial Assets, usually relatively illiquid, into liquid marketable securities. Securitization allows an entity to assign (i.e. sell) its interest in a pool of financial assets (and the underlying security) to other entities. The originator packages a pool of loans and assigns his interest therein, including the underlying security, to a bankruptcy remote and tax neutral entity which, in turn, issues securities to investors. The idea is to completely transfer the interest in pool of loans to the investors (a “true sale”) and achieve a rating higher than that of the Originator. Thus, in all cases of debit where a negotiable security is created, the process is called Securitization of debt. It would improve repayment culture of borrowers. It would reduce lending risks for a banker. In other words, liquidity is infused through the process. It can also enable a bank to improve its CAR Through securitization transaction, an originator can transfer the credit and other risks associated with the pool of assets securitized. It can provide much needed liquidity to an Originator’s balance sheet; help the originator churn its portfolio and make room for fresh asset creation; obtain better pricing than through a debt-financing route; and help the originator in proactively managing its asset portfolio. Securitization allows investors to improve their yields while keeping intact or even improving the quality...
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...Research Case—Defensive intangible Asset Ahorita Company manufactures wireless transponders for satellite applications. Ahorita has recently acquired Zelltech Company which is primarily known for its software communications development, but also manufactures a specialty transponder under the trade name “Rapido” that competed with one of Ahorita’s products. Ahorita will now discontinue Rapido and projects that its own product line will see a market share increase. Nonetheless, Ahorita’s management will maintain the rights to the Rapido trade name as a defensive intangible asset to prevent its use by competitors, despite the fact that its highest and best use would be to sell the trade name. Ahorita estimates that the trade name has an internal value of $1.5 million, but if sold would yield $2 million. Answer the following with supporting citations from the FASB ASC: a. How does the FASB ASC Glossary define a defensive intangible asset? A: A defensive intangible asset could include any of the following: a. An asset that the entity will never actively use b. An asset that will be used by the entity during a transition period when the intention of the entity is to discontinue the use of that asset. The determination of whether an intangible asset is a defensive intangible asset is based on the intentions of the reporting entity and that determination may change as the reporting entity's intentions change. For example, an intangible asset that was accounted for as a...
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...Inventory of Assets Introduction Inventory of assets is the accounting of information technology and systems, both hardware and software, that is necessary for maintaining a stable and accurate support in order to provide information security and assurance, disaster recovery, as well as to avoid service interruption. In any organization, it is important to have an organized list of all assets including hardware and software, as well as licensing. Company-issued laptops, smartphones, tablets, and other mobile devices can be an easy target of cyber attackers. It is ideal to have an organized way of keeping track of company assets (i.e. spreadsheets or database). Quick references such as spreadsheets/workbooks or databases can easily provide reports of asset inventory containing type of equipment, count, value, asset tag information, software license number, license expiration, employee ID to whom assets are issued to, etc. As an employee of any company or organization, the company issued laptops, devices and other peripherals should be the responsibility of the employee that the item(s) is issued to. A stolen laptop could cause the company a huge amount because it does not only require the replacement cost, but has serious security concerns involved. According to Mitnick and Simon, “Even when security is being well handled within a company, there is too often a tendency to overlook the corporate network, leaving an opening that attacker(s) can take advantage of. Laptops and...
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...ASSETS & LIABILITIES Asset is an item of value owned by the company. Assets can be tangible i.e. those which have some physical existence or can be intangible i.e. which do not exist in physical form but can be held in the form of contracts or rights. Assets are usually grouped in order of liquidity (ease of conversion to cash) on the balance sheet. Cash is therefore the most liquid of all assets. Assets can be classified as: 1.) Current Assets – Those assets that are expected to be converted to cash in 12 months or less. This can be in the form of cash, accounts receivables, inventory for producing goods etc. 2.) Investments – These are the investments which the company make in other companies in the form of equity purchase, bonds etc. 3.) Fixed Assets – A fixed asset is one that is held for the purpose of producing or supplying goods or services and not for sale in the normal course of business. They are also referred to as long lived/ long term assets and are sub-classified as following: a. Property, Plant & Equipment – These are tangible items having physical existence and can be seen and felt. b. Intangible Assets – They have no physical existence and rather represent legal rights with associated economic benefits. c. Natural Resources – These include oil, natural gas, minerals and forests. Liability is something which a company owns to people or businesses other than its owners. Liability is a present obligation arising due to...
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...Human Assets versus Other Organizational Assets September 18, 2014 Schuler and MacMillan (1984) stated that gaining and maintaining a competitive advantage is critical to any organization’s growth and prosperity, this involves recognizing and capitalizing on their human assets (p.1). Human assets are one of the most critical parts of a business that helps the company to maintain a competitive advantage in the market (Mello, 2015). Unfortunately, some organizations do not recognize and capitalize on their human assets. So why does senior management fail to realize the value of human assets versus other organizational assets. Human assets are often ignored compared to other assets because of five factors: management values, attitude toward risk, nature of employee skills, availability of outsourcing and utilitarianism. Each of these major factors affects how “investment oriented” a company is compared to other organizational assets (Mello, 2015, p. 12). The first factor, management values and their actions involve the readiness of the company to integrate successful plans to invest in human assets; and the second factor, attitude toward risk involves the risks the company is willing to take to invest in their human assets (Mello, 2015). In order to lessen the risk associated with human asset investments, organizations need to develop successful strategies that appeal to their employees or risk losing their investments. Employees today, seek more of a challenging or non-traditional...
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...identifiable assets (identifiable assets less liabilities assumed) acquired” (Fraser, Ormiston, 2013). What are the key factors in the creation of business goodwill? These are going concern, excess business income & the expectation of future economic benefits. Within a business they are three sources of goodwill. These are as follows: * Expertise of the workforce which states that there is no value included on the balance sheet as an asset for costs incurred for labor expertise. * The reputation of the product(s) of the business can help boost sales and profits if they are good or they could have negative effects on the sales and profits if the reputation is not up to par. * The general economic environment, if levels of interest and exchange rates are high will help with the amount of goodwill associated with the business. Balance sheets are calculated daily and are normally completed at a certain time period, such as: quarter-end, month-end and year-end and it is an in-depth process in making sure all of the numbers are correct and that it all adds up and is accurate on those dates. It is important that a business know what their profit is today, within a year, and a year and longer. Knowing the finances of the business on a daily basis is important but also planning ahead is a must in order to run a successful business. When calculating the projected finances for a business you should break it down into two sections, which are current assets and current...
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