Forum Archive Index - November 2003

[mixtrader <mixtrader@clear.net.nz>]

Hi Snoopy

Yes the amortisation of depreciation and goodwill are being addressed in NZ
to ensure that they are more in line with International ideas of GAAP,
despite that the system needs to be flexible enough to account for the
myriad of businesses that have slight variations in treatment - where the
real problems arise (in terms of getting a good handle on reported earnings)
is where either the accountants change, or the accounting policies change,
which gives rise to distortions in the way that things are reported.  While
this is not considered an attempt at dishonest accounting, the market, as
users of the accounts, are often unable to get a fair understanding of
outcomes.  Whether changes in accounting practices will make financial
statements more comprehensible to the masses remains to be seen.

There are no particular problems evident with AIA, however, revaluations
don't only apply to land .  We have witnessed in NZ short term cycles where
land takes a plunge in terms of real value although with the opening up to
FDI in recent years this is becoming less likely.  Revaluations, where the
thing being revalued takes a plunge in value, are not uncommon with
companies listed on NZSE (consider Tower which had significant write-downs
in value of assets purchased in Australia resulting in a significant impact
on earnings).

I agree that it is desirable to get out of an airport ASAP although I have
been known to become quite relaxed in the Koru Lounge if I'm stuck for a
long wait.

As a side issue - the move to an international standard of accounting is, I
believe,  largely driven by accounting practices that have developed in USA.
In the light of some of the recent scandals to come from those shores
(Enron, Worldcom etc), is having accounting principles driven by  Norte
American standards wise??

regards


----- Original Message ----- 
From: <tennyson@caverock.net.nz>
To: <sharechat@sharechat.co.nz>
Sent: Monday, November 03, 2003 11:28 PM
Subject: Re: [sharechat] AIA reply to snoopy by macdunk


> 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
>
>
>
>
> --
> Message sent by Snoopy
> on Pegasus Mail version 4.02
> ----------------------------------
> "You can tell me I'm wrong twice,
> but that still only makes me wrong once."
>
>
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