Efficient market hypothesis and Incremental borrowing rate: Difference between pages

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(EMH).  
''Financial reporting - IFRS 16''.


The efficient market hypothesis that markets operate efficiently. In other words, that assets are fairly priced by the market mechanism to incorporate available information. 
(IBR).


There are three forms of potential efficiency: the weak form, the semi-strong form and the strong form.
The lessee's Incremental Borrowing Rate is a key concept in financial reporting for leases under IFRS 16.


#The <u>weak form</u> states that past prices are no guide to future prices, so charting techniques cannot be used to make excess returns.
#The <u>semi-strong form</u> states that prices react to public information so that any form of analysis using publicly available information cannot be successful in consistently generating excess returns.
#The <u>strong form</u> states that even insider information cannot generate consistent excess returns.


The incremental borrowing rate is the rate the lessee would pay to borrow:
*Over a term similar to the lease term
*With a similar security


Important implications of the efficient market hypothesis for financial managers include:
* Keeping the financial markets well-informed.
* Taking market price movements seriously.
* Not attempting to 'fine tune' the timing of security issues.


Also known as the Efficient markets hypothesis.
When the interest rate implicit in the lease cannot be determined, the IBR shall be used instead, to discount the related lease liabilities and assets for reporting under IFRS 16.




In practice, extreme market outturns occur more commonly than predicted by simple efficient markets theory.
Note that a lessees's incremental borrowing rate is likely to differ from their existing borrowing rate under other borrowing arrangements.


As a consequence, the simplistic application of efficient markets theory to risk analysis will systematically:
* Overstate market stability, and
* Understate related market risks.


==See also==
*[[DIA]]
*[[IFRS 16]]
*[[Incremental]]
*[[Internal rate of return]]
*[[Interest rate implicit in a lease]]
*[[Lease]]


== See also ==
* [[Asymmetry of information]]
* [[Efficiency]]
* [[Efficient market]]
* [[Fractal markets hypothesis]]
* [[Interest rate parity]]
* [[No free lunch]]
* [[Perfect competition]]
* [[Semi-strong market efficiency]]
* [[Strong form efficiency]]
* [[Weak form efficiency]]


[[Category:The_business_context]]
==Other links==
[[Category:Identify_and_assess_risks]]
[https://www.treasurers.org/thetreasurer/definitive-guide-to-deriving-ifrs-16-discount-rates Definitive guide to deriving IFRS 16 discount rates: The Treasurer]
[[Category:Manage_risks]]
 
[[Category:Risk_frameworks]]
[[Category:Accounting,_tax_and_regulation]]
[[Category:Risk_reporting]]
[[Category:Compliance_and_audit]]
[[Category:Financial_products_and_markets]]

Latest revision as of 14:35, 21 December 2020

Financial reporting - IFRS 16.

(IBR).

The lessee's Incremental Borrowing Rate is a key concept in financial reporting for leases under IFRS 16.


The incremental borrowing rate is the rate the lessee would pay to borrow:

  • Over a term similar to the lease term
  • With a similar security


When the interest rate implicit in the lease cannot be determined, the IBR shall be used instead, to discount the related lease liabilities and assets for reporting under IFRS 16.


Note that a lessees's incremental borrowing rate is likely to differ from their existing borrowing rate under other borrowing arrangements.


See also


Other links

Definitive guide to deriving IFRS 16 discount rates: The Treasurer

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