Forum Archive Index - November 2003

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

Hi mixtrader,
 
> 
>One of the problems I see is in obtaining a good assessment of the
>firm's earnings - reported earnings are based on generally accepted
>accounting principles (GAAP) which calculate depreciation based on 
IRD
>"rules of thumb" rather than true rates of depreciation.  
>

My understanding is that some of these depreciation and goodwill 
amortisation issues are being addressed as NZ moves towards more 
internationally accepted accounting rules.

>
>Also,
> methods of valuation of the firms assets (in particular inventories,
> but also fixed assets, brands and goodwill) and the treatment of
> certain classes of expenditure (capitalised and depreciated, or fully
> expensed over current year) can impact on reported earnings.  
>

Do you have any particular concerns that AIA has distorted their 
accounts with regard to these specific issues you have raised?

>
>The revaluation of assets can be particularly 
>distortionary to reported earnings.
>

I think in the case of AIA the land revaluation, at least as it has been 
handled so far,  is justified.  Land does not depreciate and to have it 
stuck on the books at some historic snapshot value seems to me to be 
equally distortionary 'the other way around'.  The airport land has been 
revalued in accordance with the level of income that can be derived from 
it.  Given the scarcity of the land on what is a unique site, I cannot see 
that is liable to plunge in value during any future property cycle in the 
way CBD office buildings do.

However, although in theory an ideal stay in New Zealand (from the 
point of view of AIA) would be to have the airport so grid locked that 
incoming passengers are forced to spend hours at the site spending 
money, I think most passengers want to 'get the hell out of there' as fast 
as possible. 

SNOOPY




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