However, Scotiabank obtained pern Superintendent of Financial Institutions Canada OSFI to lions of this amount $314 millions after tax directly to retain As a result, Scotiabank reporte
Trang 1Year ended June 30, 1996:
Net income for the year
Unrealized gain on available-
for-sale securities, net of tax
Translation adjustment
Comprehensive income
Stock issued in conjunction
with the acquisition of
Stock options exercised 30,097
Purchase of treasury stock
Balance at June 30, 1996 16,391,683
Year ended June 30, 1997:
Net loss for the year
Unrealized loss on available
for sale securities, net of tax
Translation adjustment
Comprehensive income
Purchase of treasury stock
Stock received in the settle-
ment of an indemnification
claim made under the
Acrotec Stock Purchase
Agreement
Year ended June 30, 1998:
Net income for the year
Unrealized loss on available
for sale securities, net of tax
Shares Amount 2,000,000 $20
Trang 2
Excess of Retained Translation Gain on Stock Comprehensive Par Value Earnings Adjustments Investments Shares Amount Income
Trang 3482 Chapter 13
10
income as part of a statement of changes in shareholders’
part of the income statement
Required
a
equity rather than as
Describe and explain the source and nature of the unrealized loss on avail-
able for sale securities component of other comprehensive income shown on
the June 30, 1998 comprehensive income statement
Ifyou were an investor or analyst, which measure of perfo
or comprehensive income—would you use for the purp¢
future performance of Baldwin? Explain
If you were a member of the compensation committee o
directors, which measure of performance would you use
purposes? Explain
A former member of the FASB stated that if unrealized
available-for-sale securities had to be included in net inc comprehensive income, SFAS 115 would not be a viable
standard Use the criteria for standard setting given in S|
explain this statement
rmance—net income
se of predicting the
f Baldwins board of
for manager bonus
gains and losses on ome, rather than in financial reporting ection 13.7 to
El Paso Electric Company is a U.S electric power generating company incorpo- rated in the State of Texas In its December 31, 2000 annual report, El Paso
reported net income for the year of $58,392 (thousands) Fro
Other Comprehensive Loss of $1,277, being net unrealized
marketable securities, reporting comprehensive income of $5
Required
a Explain why the $1,277 unrealized loss is not included in ne
b As an investor, which earnings measure, net income ord
income, is most useful to you in deciding whether to buy
Paso shares? Explain
As a member of the compensation committee of El Pasd
senior officers for 2000? Explain
El Paso is unusual in that it reports other comprehensive
its income statement Most firms report other comprehe part of the statement of changes in shareholders’ equity
of cash bonuses for
income as part of insive income as see, for example,
Problem 9 of this chapter) Why do most firms report other comprehensive
income in this manner rather than as part of the income
Canadian firms are not required to report other comprehen fair value of financial instruments is reported as supplem
in the Notes to the financial statements Suppose that the
to adopt the JWG Draft Standard see (Section 7.4.5.), a
Trang 4and losses on financial instruments to be included in other income, instead of in net income as under the JWG Draft
increase or reduce the objections of Canadian managers? E}
11 In its 1999 Annual Report, Scotiabank’s auditors qualified t
The problem was with the bank’s provision for credit loss¢
Scotiabank decided to increase its general provision for cred:
receivable by $700 millions This was in addition to a specific | losses on identified problem loans The general provision app
have not as yet been specifically identified as in arrears
Under GAAP, the $700 increase in the general provision shot
an expense of the year However, Scotiabank obtained pern
Superintendent of Financial Institutions Canada (OSFI) to
lions of this amount ($314 millions after tax) directly to retain
As a result, Scotiabank reported net income for 1999 of $1,5
incomes for 1998 and 1997 were $1,394 millions and $1, 514 mil
This direct charge to retained earnings was criticized in the fin
example, Eric Reguly, in The Globe and Mail, December 7, 1
accounting sleight-of-hand that has never been used by the B banks.” Reguly describes the objections of the OSC which, h
nothing because the federal Bank Act (administered by OS Ontario Securities Act OSFI permitted the direct charge, acc
because it wanted banks to have a “thicker safety cushion.”
Required
a Use the public interest theory of regulation to justify OSFT’
the direct charge to retained earnings
ancial media For
999, called it “an
ig Five Canadian
owever, could do FI) overrides the
brding to Reguly,
$ permission for
b Use the interest group theory of regulation to explain OSFI’s permission for
the direct charge
c Given that the treatment was fully disclosed in the Notes to Scotiabank’s Annual Report, in the auditors’ report, and in the media, how do you think
the securities market would respond to this treatment?
Notes
1 Much of the material in this section is taken from the LASB’s excellent Web site:
<www.iasb.org.uk>
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