IAS 36 and Price risk: Difference between pages

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imported>Doug Williamson
(Remove link to FRS 11. Add link to FRS 102.)
 
imported>Doug Williamson
m (Spacing, wiki bulleting and category added 21/8/13)
 
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International Accounting Standard 36, dealing with impairment of assets.
Price risk is the risk that the value of an investment that you own will fall.


Issued by the International Accounting Standards Board.
This risk illustrates how risks interact, as price risk could be caused by some or all of:


* Interest rate risk – interest rate fluctuations affect the value of instruments which pay fixed interest.
* Credit risk – the asset is worth less because the issuer’s credit standing has weakened.
* Market liquidity risk – the market is only willing to buy the asset at a lower price (if at all).


IAS 36 seeks to ensure that an entity's assets are not carried at more than their recoverable amount (i.e. the higher of fair value less costs of disposal and value in use).  
Price risk shows how risks can be bundled up into a single term in some applications, and how important it is that the treasurer understands how risks originate.


With the exception of goodwill and certain intangible assets for which an annual impairment test is required, entities are required to conduct impairment tests where there is an indication of impairment of an asset, and the test may be conducted for a 'cash-generating unit' where an asset does not generate cash inflows that are largely independent of those from other assets.  
Although a single term can be useful when considering an asset or liability class, it can also confuse. 
 
The terminology tends to be driven by symptoms rather than causes, and a risk management strategy should really be driven by the causes.




== See also ==
== See also ==
* [[Cash-generating unit]]
* [[Credit risk]]
* [[Fair value]]
* [[FRS 102]]
* [[Goodwill]]
* [[IFRS 9]]
* [[Impairment]]
* [[Intangible assets]]
* [[International Financial Reporting Standards]]
* [[Value in use]]


[[Category:Accounting,_tax_and_regulation]]
[[Category:Financial_risk_management]]
[[Category:Corporate_finance]]
[[Category:Compliance_and_audit]]

Revision as of 12:24, 21 August 2013

Price risk is the risk that the value of an investment that you own will fall.

This risk illustrates how risks interact, as price risk could be caused by some or all of:

  • Interest rate risk – interest rate fluctuations affect the value of instruments which pay fixed interest.
  • Credit risk – the asset is worth less because the issuer’s credit standing has weakened.
  • Market liquidity risk – the market is only willing to buy the asset at a lower price (if at all).

Price risk shows how risks can be bundled up into a single term in some applications, and how important it is that the treasurer understands how risks originate.

Although a single term can be useful when considering an asset or liability class, it can also confuse.

The terminology tends to be driven by symptoms rather than causes, and a risk management strategy should really be driven by the causes.


See also

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