Financial Accounting Standard 91 (FAS 91) for Dummies
February 28, 2009 | 4 Comments
“An expert is a person who has made all the mistakes that can be made in a very narrow field” Niels Bohr.
FAS 133 for Dummies - Fair Value Hedges (Now Available)
FEBRUARY 2009 - WASHINGTON DC, USA - In layman’s terms, Financial Accounting Standard 91or FAS 91 simply requires that (i) Initial direct costs be debited to the gross investment of a loan/security; (ii) the net investment in the loan should include the unamortized portion of the initial direct costs; (iii) the effective interest rate should be applied to the net investment at the beginning of the year to determine the amount of interest income to recognize; (iv) the implicit rate of interest should be applied to the net investment excluding the initial direct costs to determine the amount of unearned interest income to amortize; and (iv) the difference between (iii) and (iv) above will be the amount of initial direct costs to amortize each period.
So how do you interpret the above requirements and simply generate the premium/discount to book at every reporting period in your General Ledger using the Effective Interest method? Well, congratulations you are here. It shows that you can think outside the cube and you know how to search for solutions to business problems. Let us take the case of a plain vanilla investment with the following characteristics:
(i) CUSIP # - 12345678AQ1
(ii) Redemption Value - $25,000,000.00
(iii) Issue Date - 9/13/2007
(iv) Maturity - 6/18/2013
(v) Cash Coupon Rate (At Issue) - 5.671%
(vi) Discount - $382,812.00
(vii) Date Convention - Actual/360
(viii) Interest Reset Date - 9/17/2007
(ix) New Interest Rate - 5.813%
(x) Reporting Period - 9/30/2007
At period ended 9/30/2007, your amortization amount will be $2,729.11 and Coupon Interest Amount will be $72,263.89. See attached Excel Spreadsheet for calculation. This is a simple case without prepayment. Stay tuned for a new post on how to calculate your General Ledger numbers where principal repayments are anticipated. Thanks to our partners at Blackinsey & Company for providing the solution and template. Blackinsey & Company is a top tier strategy & management consulting outfit based in Washington, DC.
NOTE ON TREATMENT OF ISSUANCE COST PER GUIDANCE IN PARAGRAPH A41 OF FAS 159:
“A41. The Board considered whether to provide guidance on how reported interest should be determined for receivables and payables reported at fair value pursuant to the fair value option. The Board noted that the issue of determining interest when financial assets and financial liabilities are measured at fair value is not new and would best be resolved in a different project. During its redeliberations, the Board affirmed that the fair value option project does not address methods for recognizing and measuring the amount of interest and dividend income and that an entity should provide a description indicating how interest and dividends are measured and reported in the income statement. However, the Board clarified that origination fees and costs related to items for which the fair value option is elected should be expensed as incurred. No amendment to FASB Statement No. 91, Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases, is required because that Statement does not apply to loans measured at fair value with changes reported in earnings.”
FAS 91 INTEREST & AMORTIZATION CALCULATION
SUGGESTED READINGS/BIBLIOGRAPHY:
- Amortization of Bond Premiums and Discounts (Introduction)
- Reporting and Analyzing Liabilities (include topics on premium, discount, amortization, expense, bond redemption, settlement etc - an excellent primer)
If you love this article, stay tuned for the following:
- FAS 133 for Dummies
- FAS 91 for Dummies (Sample with Prepayments)
- FIN 46 for Dummies
- FAS 115 for Dummies
- FAS 123(R) For Dummies
Howard University African Students’ Association Fashion Show 2009.
February 28, 2009 | Leave a Comment
FEBRUARY 2009: The African Students’ Association at Howard University organized its Sixth Annual Fashion Show recently at the Crampton Auditorium. Tagged KALA - Couleur, the show featured up & coming African designers from the diaspora. Featured designers include Ox Lunden, Glamm Fashions, Tribal Immunity, Jenny P’s, Cranberry, Corjor International Cote Minou, Idia, Arewa, House of Versatile Styles and Loenche amongst others. We are pleased to bring you pictures from the event. All pictures by our Fashion photographer TFlash.
To navigate through the image gallery, click on the first image and double click to move to the next image. The images are still being uploaded, please come back to see more pictures.
Cornell MBA Essay - Describe your greatest professional achievement and how you were able to add value to your organization.
February 12, 2009 | Leave a Comment
“Excellence is the result of caring more than others think is wise, risking more than others think is safe, dreaming more than others think is practical, and expecting more than others think is possible”…..Anonymous.
“There are very few men – and they are the exceptions – who are able to think and feel beyond the present moment” - Carl Von Clausewitz, 1780-1831
Although I am proud of many of my professional accomplishments, one that clearly stands out and left an indelible mark in my memory was the audit of the Fair Valuation Models & Methodologies at the Black Herald International Bank. This audit was an extremely challenging project because $1 Trillion worth of securities are fair valued at BHIB every reporting period and because the project required an in-depth understanding and interpretation of Financial Accounting Standard 157. In addition, the project required dealing with the huge red-tapism and bureaucracy that are characteristic of Fortune 20 companies. Also, given the current financial crisis and scrutiny of financial records by regulatory agencies such as the Securities and Exchange Commission (SEC) and Public Company Accounting Oversight Board (PCAOB), there was pressure to perform the project to the highest level of professional standard.
To achieve my objective I divided the project into different modules and approached the task sequentially following the different stages of a standard project management life cycle namely setting the objective, performing the requirement analysis, developing the specification, implementing & testing the models, and concluding and making recommendation.
Specifically, I led a 50 man team to test the controls over 20 fair valuation models and determine whether the simplifying assumptions built into those models when they were originally developed during periods of favorable economic conditions are still relevant in today’s recessionary economic cycle. Based on the benchmark of the valuation assumptions against best practices, current economic realities , liquidity, credit risk, counter-party risk and recoverability, my team identified several questionable pricing assumptions that were corrected by BHIB resulting in billions of Dollars in accounting restatement.
After traveling back and forth between San Francisco and several business offices for several months, working weekends and overtime, I successfully led my team to complete the project well ahead of time while delivering a high quality work product. As a result of my stellar performance on the project, I won the BHIB Creativity Award- an honor bestowed only on the most valuable employees within the company and was promoted to an Executive Vice President.
Lessons I learned and the impact that I made, make this experience a substantial accomplishment for me. I learned how to successfully run a complex operation, entrust and delegate responsibilities, and manage people to effectively complete a difficult task within deadline. With my help, a Fortune 20 company met a critical business objective of recalibrating its securities valuation methodologies.
The Johnson School of Business prides itself on developing leaders who are able to create, transform and sustain organizations. My aim is to transform and energize any company that I work for, while ultimately working to create my own and I would be honored to have Cornell as my partner!
NOTA BENE: This is a draft and designed to help you with your MBA applications. Created under the Creative Commons rule and it is copyleft. Use as a guide for your essays. I plan to collate and refine the essays I have posted on Black Herald and publish a book of MBA essays in the future. The accomplishment I chose in this write-up is not really a big achievement for me but something that would be interesting to the prototypical powers that be and it is a made up story.
Africa’s Best and Worst Persons of the Week
February 8, 2009 | 7 Comments
Starting this week, the editors of Black Herald will be featuring the best and worst persons in Africa every week. Africa and Africans, both those who live on the continent and those in the Diaspora, are an exciting people: with a mix of heroes and villains, saviors and murderers, radicals and rascals, well-meaning folks with exemplary conduct and mean-spirited dirty rotten scoundrels. And yes, smart people who engage in unbelievably dumb stuff and dumb people who do extraordinarily smart things.
These are our judgments, but you may know someone who is more heroic than our hero this week, or viler than our villain. If so, send us your comments at st_james2000@yahoo.com or saint.james@blackherald.com.
Best Person in Africa This Week: Paul Kagame
The Rwandan President is Black Herald’s Best African of the Week, for arresting and taking Laurent Nkuda, one of the nastier war lords in eastern Congo, out of the picture. The ascetic Mr. Kagame has been instrumental in putting Rwanda back together again, after the genocidal horrors of 1994, when upwards of 1 million Tutsis and moderate Hutus were slaughtered. He has been making concerted efforts at making both victims and perpetrators come to terms with what happened, and most importantly, has been attracting foreign investment to transform Rwanda into “Africa’s Switzerland”.
But we pick Kagame this week for moving against Nkuda and arresting him. The Congo’s many wars are a long tortured and complicated affair, but here is a short take on why Kagame’s action deserves praise: A Congolese Tutsi, Laurent Nkuda fought and helped restore the Tutsis to power in Rwanda, and has always claimed to be protecting Congolese Tutsis from Hutu genocidaires. But in doing this, the UN and many human rights organizations have detailed nasty atrocities of his National Congress for the Defence of the People (known by its French initials as CNDP), including, as always, looting and rape. And Nkuda and the CNDP have complicated efforts to achieve peace in Congo.
The arrest of Nkuda may yet be seen by some as a cynical move by Kagame. And the devil may yet be in the details. Ordinary Congolese are wary of the benefits of taking Nkuda out of the picture: Nkuda’s minions may splinter into smaller hordes of marauders doing what they know how to do best: kill men, rape women and terrorize children. And that is to say nothing of Joseph Kabila, the younger. And Kagame may not be without blame: he is deservedly accused of meddling in Congo’s affairs and complicating peace efforts in the Congo, one of the messiest, largest failed states in the world. As a matter of fact, Kagame has plainly supported Nkuda up until last week.
But Kagame, whatever else you think of him, has built what is so far one of the most promising states in Africa. Under his watch, Rwanda may yet become a hugely successful post-genocidal state; in fact, the Israel of Africa.
For all he has done and for moving against his erstwhile maniac friend, Paul Kagame is the best person in Africa this week.
Best Persons Runner-Up: Second Circuit US Court of Appeals in New York
Ok, technically these ones are not Africans, but this week, the justices of the Second Circuit US Court of Appeals in New York may well be Africans. They ruled that Nigerian families can sue the drugs giant, Pfizer, in the US over its alleged role in the deaths of children. In 1996, Pfizer allegedly tested an oral antibiotic called Trovan on some 200 ill children in hospital in northern Nigeria, without proper authorization, killing 11 children and injuring 181 with blindness, deformities and brain damage.
A lower courts had earlier dismissed a case brought by the victims’ families as lacking merit under the Alien Tort Statute, an old law allowing foreigners to sue in US courts. The decision by the Second Circuit US Court of Appeals in New York overturns the earlier dismissal, and instead ruled that the Nigerian families can, in fact sue under the statute. With luck, even giant drug companies would be put on notice that Africans are not guinea pigs for testing out drugs..
Worst Persons
Worst Persons Runner-Up: George Obama
Barrack Obama’s half brother in Nairobi, who was arrested on suspicion of possession of marijuana is our runner up as worst person in Africa this week. Thanks, George for giving conservative hacks fodder for peddling nasty talking points.
But the Worst Person’s title this week goes to Militant Groups in Port Harcourt, Nigeria for the brutal murder of Odunayo Awonusi, an 11 year-old girl on her way to school, and kidnapping her younger brother. Little Odunayo was trying to prevent the militants from kidnapping her little brother. They shot her in cold blood, and they took her brother anyway.
Killing an 11 year old girl, kidnapping little boys and harmless priests and doctors has absolutely nothing to do with fighting for autonomy. It has nothing to do with fighting for mineral rights for the impoverished peoples of the Niger Delta. It has nothing to do with justice. It has everything to do with senseless greed and criminality. The bloodthirsty gangs of the Niger Delta have lost their way (if they ever had one), and it is time to stop the madness.
For killing an innocent little girl in cold blood, the murderous wild dogs of Port Harcourt are the Worst Persons in Africa this week.
