11-21-2008, 10:34 PM
Dear,
In fact our market's fluctuations are so many times not supported by actual growth or decline in the actual value of shares. The purpose of quoting the shares of Nishat Mills was exactly the same. It is a blue chip company having nice growth in turnover, profit, EPS and DPO etc but the fluctuation in market value of shares is not reflective of what is actually going on.
Apart from such temporary situations where shares are not properly priced, of course the market value in active market is a good measure of fair value. If market value goes down significantly for longer periods this could be one element of objective eveidence of impairment but in circumstances like Pakistan it would be too earlier to declare the current situation as significant or persistent. We have seen such up and downs historically in our capital markets although the current one is larger specially in view of overall recession.
As far as longer periods are concerned, there had been a Technical Release (TR-23) issued by ICAP which has now been withdrawn due to more clarity and authority given by IAS 39. This TR-23 provided for a period of three years to decide for provision for permanent diminution in value of investments. This could be a guideline as to what period should be considered to decide about objective evidence that the decline in fair value is in fact accompnied by impairment.
In my personal view 3 years time (although not mentioned any where in IAS) is quite logical to take such decline as impairment. However, it is judgmental based upon subjective analysis.
Banks don't follow IAS 39, and normally state their investments under SBP circulars which being more prudent are normally more strict than the typical reporting frameworks.
Yes you are right as far as Reversal of Impairment of Available for Sale Investment is concerned. Such reversal does not have to be routed through from profit and loss account, as stated in paragraph 69 of IAS 39. All the increase in fair value will directly be taken to equity. Thanks for correcting me. Only the impairment of debt instruments clasified as available for sale has to be reversed through P/L.
Disclosure of subsequent market situation is optional and if you feel like giving it as per your judgment you can give it.
Regards,
KAMRAN.
In fact our market's fluctuations are so many times not supported by actual growth or decline in the actual value of shares. The purpose of quoting the shares of Nishat Mills was exactly the same. It is a blue chip company having nice growth in turnover, profit, EPS and DPO etc but the fluctuation in market value of shares is not reflective of what is actually going on.
Apart from such temporary situations where shares are not properly priced, of course the market value in active market is a good measure of fair value. If market value goes down significantly for longer periods this could be one element of objective eveidence of impairment but in circumstances like Pakistan it would be too earlier to declare the current situation as significant or persistent. We have seen such up and downs historically in our capital markets although the current one is larger specially in view of overall recession.
As far as longer periods are concerned, there had been a Technical Release (TR-23) issued by ICAP which has now been withdrawn due to more clarity and authority given by IAS 39. This TR-23 provided for a period of three years to decide for provision for permanent diminution in value of investments. This could be a guideline as to what period should be considered to decide about objective evidence that the decline in fair value is in fact accompnied by impairment.
In my personal view 3 years time (although not mentioned any where in IAS) is quite logical to take such decline as impairment. However, it is judgmental based upon subjective analysis.
Banks don't follow IAS 39, and normally state their investments under SBP circulars which being more prudent are normally more strict than the typical reporting frameworks.
Yes you are right as far as Reversal of Impairment of Available for Sale Investment is concerned. Such reversal does not have to be routed through from profit and loss account, as stated in paragraph 69 of IAS 39. All the increase in fair value will directly be taken to equity. Thanks for correcting me. Only the impairment of debt instruments clasified as available for sale has to be reversed through P/L.
Disclosure of subsequent market situation is optional and if you feel like giving it as per your judgment you can give it.
Regards,
KAMRAN.
