Lao Tang Note: This is the first question in the Buffett interview released by Yahoo Finance on April 28 - a video interview with Buffett by Yahoo Finance Editor Andy Selvo, editor-in-chief of Yahoo Finance, took place on March 10, 2020.
The first suggestion that the stock god gave to young people is: must understand accounting
I know that there are many friends waiting for me to talk about Yanghe, Focus Media, Gujing , and Hikvision's annual reports, and this year's annual reports do have content to talk about.
But because of the changes in accounting standards this year, I feel it is necessary to talk about important changes in the rules before talking about the content of the annual report to avoid misunderstandings of many information.
So this article is included.
Householders will implement the new financial instrument standards from January 1, 2019 - overseas listed companies and enterprises that are listed at the same time at home and abroad will be implemented from January 1, 2018.
From the perspective of investors, I think the most important thing about this new set of financial instrument standards are two major changes:
, one is to change financial assets from the previous four categories to the third category;
, the second is to impair the financial assets, from the original "loss method" to the "expected loss method", so as to impair financial assets, especially the impairment of receivables and other receivables, involves the calculation of "expected credit losses". These two changes in
have led to changes in the way and extent of financial assets affecting the balance sheet and income statement. If you don’t understand these two issues, you will easily get confused and trapped by reading the financial report.
In May 2018, Lao Tang once wrote an article about the short and medium-sized article of , , to talk about the changes in related rules. However, since there was no audited annual reports of domestic listed companies under the new rules at that time, the article was not comprehensive enough. This year's annual report was released. You can re-code the article and talk about the financial asset classification and expected loss law. This article first talks about financial asset classification. In the old
standard, financial assets are divided into four categories:
(1) loans and accounts receivable;
(2) holding to maturity investment;
(3) financial assets measured at fair value and their changes are included in the current profit and loss;
(4) financial assets available for sale.
The impact of these categories on reports has been explained in my book "Teaching You to Read Financial Reports" published on New Year's Day in 2015. In the new
standard, it is divided into three categories according to the purpose of holding by the enterprise and the source of return of financial assets:
(1) financial assets measured at amortized cost;
(2) financial assets measured at fair value and their changes are included in the current profit and loss;
(3) financial assets measured at fair value and their changes are included in other comprehensive income.
This revision seems to me to be a big improvement, making the report clearer and simpler.
Of course, whether the revision is good or not is the business of the theorists.
For investors, the important thing is: understand the criteria.
uses Lao Tang's mid-turn style to explain the above three assets simply and roughly:
(1) Assets that intend to collect interest rates and wait for maturity to repay the principal are "financial assets measured at the over-cost cost of ".
Pick two words from the scientific name to form a nickname to help memorize: contribution ( permature subsidies) , lying in bed and doing nothing, waiting for interest collection and waiting for repayment.
(2) The main purpose of taking over the capital and earning the difference is "the financial investment production measured at fair value and its changes are included in the current period loss profit".
Pick two words from the scientific name to form a nickname to help memorize: loss of capital ( bamboo shoots ) , expecting that my assets will rise like bamboo shoots underground, so that they can dig and sell money.
(3) The assets that both want to... and want... are stuck together. The company cannot explain clearly (or is unwilling to say clearly) whether it wants to collect interest rates or wait for the buyer. It is " assets that are measured at fair value and are included in other comprehensive combined income."
Pick two words from the scientific name to form a nickname to help memorize: Comprehensive investment (zongzi) , sticky and tied together, it is hard to say whether it is for the purpose of collecting interest rates or waiting for the takeover.
The following categories describe the characteristics of the three types of assets and related accounting accounts:
The first type: paralyzed
——Financial assets measured at amortized cost.
paralyzed can be regarded as a merger of investments, loans, receivables and monetary funds held to maturity under the old guidelines.
It mainly includes: cash funds, notes receivable, accounts receivable, other receivables, long-term receivables, debt investments, etc.
and the corresponding liability accounts, such as notes payable, accounts payable, other payables, bonds payable, etc. - For the sake of simplicity, the following text will not talk about liability accounts, but only asset accounts. Do you know the reason? The measurement rules of
are the same as in the past: interest income, impairment arrears, and profits and losses caused by mid-transfers are all included in the income statement.
Generally speaking, interest is calculated based on the interest rate agreed upon by the asset itself - without interest rates, there will be no income, such as accounts receivable.
But there is a special case. Not very important, but it needs to be understood. It is: the actual interest rate and the agreed interest rate of the product itself are inconsistent.
Such as debt claims with a term greater than one year and a one-time repayment of principal and interest upon maturity, debt claims with a premium or discount, etc. Products like
need to calculate the actual interest rate, and the interest income calculated based on the actual interest rate is included in the income statement. The actual interest rate of
is simply understood as correcting the non-uniform distribution of returns to the same annual rate of return.
On page 78 of "Teaching You to Read Financial Report", I gave an example of "Buy bonds at a discount, how to calculate the actual interest rate."
In the popular science post from the past year, I gave an example of "repaying principal and interest in one go in five years". In comparison, the latter example is clearer and easier to understand, so I copied it.
Lao Tang Co., Ltd. subscribed 1 million yuan of five-year bonds from Company A, without paying interest in the middle, and returned 1.5 million yuan in one lump sum with principal and interest when maturity.
Cash income can only be received in the fifth year, but when Lao Tang Company makes financial statements, according to accounting rules, it cannot count 500,000 as the profit in the fifth year, but must "distribute" it in five years. How to spread it?
First, find a compound interest calculator, enter the initial principal of 1 million, the time is 5 years, the principal and interest due and 1.5 million, calculate the compound annualized rate of return, and the calculation result is 8.45%.
In the first year, Lao Tang Company included 1 million × 8.45% = 84,500 yuan investment income in its profit statement. However, the actual cash received was 0, so the account records that the balance of the debts held by Lao Tang Company in Company A was 100+8.45=1.0845 million yuan.
, this 1.0845 million yuan is the cost of financial assets under the "remaining" after "allocating" the income, so it is called "financial assets measured at amortized cost" .
In the second year, Lao Tang Company included 108.45×8.45%=91,600 yuan investment income in its profit statement, but the actual cash received was still 0, so the amortized cost became 108.45+9.16=11761 million yuan; in the third year, the investment income was 117.61×8.45%=99,400 yuan, and the cash received was 0 yuan, and the balance of financial assets measured at amortized cost was 117.61+9.94=12755 million yuan; in the fourth year, the investment income was 127.55×8.45%=107,800 yuan, and the cash received was 0 yuan, and the balance was 127.55+10.78=13833 million yuan;
In the fifth year, 1.5 million yuan of cash was received, but the investment income in that year was also recorded at 8.45%: 138.33×8.45%=116,700 yuan, and the balance of financial assets measured at amortized cost = 138.33+11.67-150=0.
invests 1 million yuan in principal, and recovers the principal and 1.5 million yuan in five years. The total investment income recorded during the period = 8.45+9.16+9.94+10.78+11.67=500,000 yuan.
This is the calculation method of "amortized cost". We don’t want to calculate this, but to understand the principle of this thing and know how the investment income included in the income statement comes from.
The second type: bamboo shoot
- financial assets measured at fair value and their changes are included in the current profit and loss.
It can be simply understood as a financial asset with the purpose of making a difference. Whether it is a debt or a stock, as long as the company holds the purpose of obtaining the difference, it is classified as a subcategory of bamboo shoots.
Financial derivatives must be included in this category. Equity investments - mainly stocks and funds, as well as preferred stocks, convertible bonds, perpetual bonds and other investment products with equity nature. The regulatory authorities hope to try to classify them as much as possible.
It is the easiest to understand. When an asset is classified as a bamboo shoot subcategory, the market value fluctuations + dividends or interest received during the holding period are included in the investment income statement of the company.
bamboo shoots are divided into two accounts in the financial report:
① If the expected holding is not more than one year, the record is "financial assets measured at fair value and their changes are included in the current profit and loss" or "trading financial assets". Among them, derivative financial assets must be classified into this category and disclosed separately; if
② expires for more than one year from the date of the financial statement (or no fixed term) and is expected to hold for more than one year, it shall be recorded as "other non-current financial assets".
Because it is measured at fair value and the fluctuations have been included in the investment income, bamboo shoots do not need to make provisions for impairment.
The third type: Zongzi
—Financial assets measured at fair value and their changes are included in other comprehensive income.
Zongzi is a little more complicated. It has two major categories and different processing rules.
A major category: equity investment.
Equity investment is an investment product with equity nature. The regulatory authorities hope that the company will include all equity investments in bamboo shoots, and the fair value fluctuations will be directly included in the income statement, which is simple and clear.
However, some companies say: I hold this equity for long-term purposes. I don’t care about its market value fluctuations. What I care about is dividends, Balabara...
In a word, companies don’t want to include it in bamboo shoots - some companies are really because of long-term investment purposes. Some companies are actually afraid that they will not be able to control the fluctuations in fair value, which will lead to their net profits in their statements.
So the regulatory authorities said: OK, you make the decision on your money and do what you say. But since you say you are not trading stocks, you don’t care about market value fluctuations. Then let the fair value of fluctuates, and it does not affect the net profit from beginning to end.
You do not count bamboo shoots, you can, but when you sell in the future, the difference cannot be calculated back to the net profit, and can only be adjusted in the net assets.
The two parties reached an agreement to install a separate Huanghuali bench for these equity investments in the statement: other equity tools to invest.
Other equity tools investments are special varieties of zongzi.
We might as well extend our memory from equity zongzi to stock zongzi→ butt zongzi→ meat zongzi
How to deal with meat zongzi:
① Dividends are included in the investment income statement of the company;
② Fair value fluctuations are included in other comprehensive income, and net profit is not allowed to be included in the sale.
As the saying goes, "As soon as you enter the meat dumplings, you will say goodbye to your net profit."
meat dumplings have two important characteristics:
first, no regrets are allowed, and they cannot be changed to paralyzed or bamboo shoots;
second, like bamboo shoots, no impairment is required.
B category: The debt assets included in the zongzi
We call it debt zongzi, or homophonic vegetable zongzi bar
The fair value fluctuations of vegetable zongzi are also included in the "other comprehensive income", which only affects the net assets and does not affect the net profit.
However, the difference between and meat dumplings is that when the vegetable dumplings are sold, the fair value fluctuations accumulated over the years in other comprehensive income will be transferred out at one time, and the investment income of the year was calculated, which will affect the net profit of that year.
vegetable dumplings are usually packed in four small dishes in the balance sheet:
① If the assets are obtained and the maturity period is within one year (including one year), it is called: other current assets;
② If the assets are obtained and the maturity period is more than one year, it is called: other debt investments;
③ As time goes by, the maturity period of the original "other debt investments" has been shortened to within one year (including one year), it is called: non-current assets that are due within one year;
④ If the accounts receivable and notes receivable classified as Zongzi, it is called: receivable financing.
Note that accounts receivable and notes receivable include both paralyzed and zongzi. How to divide it?
First of all, the company classifies accounts receivable and notes receivable. If it intends to hold it all the way to the other party to pay, it will be considered as "accounts receivable" and "notes receivable", which is a paralyzed.
If the plan is to endorse or discount halfway, it will continue to be divided into two:
If the endorsement is transferred or discounted, it is expected to still bear joint and several guarantee liability, then it will continue to be counted as accounts receivable or notes receivable, or a paralyzed - mainly accounts receivable, commercial acceptance bills, acceptance bills issued by small banks such as low-level city commercial banks, rural commercial banks.
If endorsement is transferred or discounted, it is expected that the joint and several guarantee liability will no longer be borne, and it will be considered as receivable financing and classified as Zongzi - mainly acceptance bills issued by large banks.
Therefore, receivable financing actually refers to acceptance bills issued by large banks that the enterprise plans to discount or endorse and transfer.
vegetable dumplings are also measured at fair value, and generally no longer need to make up impairment provisions.
However, if certain credit risks occur, management believes that the fair value does not reflect the losses caused by such credit changes, and impairment can also be made. Impairment as the expenses of the income statement affect the current net profit - just know this special case, it is rare to see such treatment.
Long-term equity investment
There is another category related to three types of financial assets, which can be explained together: long-term equity investment.
Before July 1, 2014, there were three situations in the equity of other companies held by a company:
- consolidated subsidiaries (whomally owned or controlled);
- joint venture or joint venture equity;
- three no equity (no active market, no fair value, and no significant impact equity).
These three situations: wholly-owned or controlled subsidiary equity is measured according to the cost method in the parent company's financial statements. The measurement rules of the
cost method are very simple, which means that dividends are calculated as investment returns, impairment is calculated as expenses, and nothing else is involved.
However, when the financial statements are merged, all the assets and liabilities of the subsidiary are merged, offsetting the long-term equity investments in the subsidiary held by the parent company.
that is, in the long-term equity investment account of the consolidated financial statements, long-term equity investment in wholly-owned or holding subsidiaries does not display .
joint ventures and joint ventures are calculated based on the equity method. The rules for the equity method calculation are also simple, that is,: the impairment arrears in
- are also calculated as fees; the net profit of the joint venture or joint venture in the current year's statement × the shareholding ratio is included in the profit of the listed company; the changes in the "other comprehensive income" of the net profit in the joint venture or joint venture in the current year's statement are not included in the changes in the "other comprehensive income" of the net profit, and the listed company is also included in its own "other comprehensive income" in the proportion.
The long-term equity investment of the above-mentioned subsidiaries and joint ventures or joint ventures has not changed in the old and new standards.
The last one that changes: non-listed companies with no active market, no fair value, and no significant impact.
In accounting standards before July 1, 2014, these equity shares of non-listed companies that cannot obtain fair value are included in long-term equity investments and measured according to the cost method.
In the accounting standards after July 1, 2014, this part of the three-no equity will be driven out of long-term equity investment. If
can obtain fair value, it is required to be included in bamboo shoots; if fair value cannot be obtained, it is included in "available-for-sale financial assets measured at historical costs."
So since July 2014, the long-term equity investment in the consolidated financial statements of listed companies has only equity-based equity equity.
's current new rules, since January 1, 2019, will revise the three-no equity that was originally classified as "available-for-sale financial assets measured at historical costs" and the classification will be revised again.
's preferred recommendation is classified as bamboo shoots. If the company does not want to be classified as bamboo shoots, it is classified as "other equity instrument investment" (meat dumplings). , no matter which type it is classified, will be measured at fair value.
But, just now, didn’t they say that they “cannot obtain fair value”, so how can they be measured at fair value? The
standard definition is long and difficult to understand. It is important to accountants who do accounting and audit accountants, but not to investors.
Lao Tang simply and roughly understood it as: now the "fair value" is divided into three levels, and the credibility is reduced in turn.
First level: The first level of fair value is the first level of fair value.
Level 2: The assets themselves do not have open market quotes, but similar assets have them. You can refer to the observable valuation parameters of similar assets - such as price-to-earnings ratio, price-to-book ratio, accounting firm appraisal report, etc. - for valuation. This is the second level of fair value.
The third level: use self-set valuation parameters and valuation model to value.
If there are neither reference valuation parameters, the company cannot use reasonable parameters to make a valuation, or even if the valuation range is too broad, the company can use historical costs to represent the fair value of the equity. This is the third level of fair value.
That is to say, the historical cost of is now included in the definition range of fair value . As the "guaranteed fair value" when it is really impossible to obtain fair value
. In this way, all financial assets of are uniformly recorded in at fair value. The advantage of revisions like
is that we no longer need to worry about the conversion (reclassification) between the three types of assets.
—— In addition to the meat dumplings that do not allow conversion, it is difficult to "create" additional statement profits for other financial assets. Therefore, listed companies have lost the need to reclassify them. Let's look at the reports and make it a little simpler and clearer.
Of course, the credibility of fair value at these three levels is different.
The first level of fair value is basically credible.
The second and third levels of fair value, due to the different values of the valuation models and parameters adopted by each company, it is impossible to evaluate whether there is something tricky or whether it is reasonable in one-size-fits-all manner. It is necessary to look at the valuation methods of the three levels of fair value disclosed in the notes - in the "Disclosure of Fair Value" section of the notes to the statement.
Fortunately, the assets held by listed companies are generally not large in scale, and the valuation model used is unlikely to change suddenly, and the impact on financial reports is very small. If there is a mutation in
, the financial report will usually disclose the reason (such as never listed companies have become listed companies, or new unrelated third parties have invested real money according to a certain valuation level, etc.), then you can just check whether the changes in its valuation parameters are reasonable.
This is what you must know about financial asset classification under the new guidelines.
Lao Tang’s brief statement certainly does not meet the academic precision requirements. But for actual investment, I think it is basically enough to understand this level. To summarize it, the essence of this article is roughly as follows: (The measurement standard in the table should be initial measurement) The corresponding financial liabilities of
usually listed companies will directly divide them into transactional financial liabilities and other financial liabilities, which can be understood as two major categories: bamboo debt and paralyzed debt.
The reason why this article focuses very little on liabilities is because I think the liability data can directly accept the report data.
After all, liabilities need cooperation from the opponent, and it is far less easy than asset fraud. Moreover, the fraudulent results of liabilities still need to be reflected with fake assets.
Therefore, investors can focus on assets and can already verify liabilities.
In addition:
Buffett said that his accounting knowledge comes from self-study, what a coincidence, I am the same
Lao Tang’s understanding of the new standards comes entirely from reading financial reports and flipping books by himself. There may be any errors in understanding or one-sidedness.
I know that among the readers of the study, there are many senior certified public accountants, and many experienced financial workers.
If you find that Lao Tang’s statement has errors or omissions, please do not need to consider face issues at all. Just point it out directly
Lao Tang expresses his gratitude in advance, thank you
"Romance of Bamang"--BY Tang Study Room Tang Dynasty
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