Question

After graduation, you work for a few years at a major accounting firm and advance to...

After graduation, you work for a few years at a major accounting firm and advance to Senior.

However, as part of this role, you start working on a client that is different from your other

background: specifically, a major bank located in San Francisco. This bank primarily takes

deposits from retail and business customers and lends money out to others. The accounting seems

to be completely different from what you are used to and so you go to the Codification to find out

what the accounting standards for this industry consist of. Describe the major classes of

transactions undertaken by this sort of entity and how they should be accounted for.

0 0
Add a comment Improve this question Transcribed image text
Answer #1

Financial Instruments (IFRS 9/IAS 39, IAS 32) - If you are working in a bank, then the standards about financial instruments are absolutely a MUST for you. financial instruments are very complex and involve lots of considerations and topics. Not only banks face financial instruments – any trading company has some financial instruments, too (if selling and invoicing). The truth is that banks enter into many complicated transactions, issue various types of compound financial instruments (in which both equity and liability element is present, e.g. convertible bond), generate loans to different portfolios of clients with different credit risk and many others. IFRS 9 Financial Instruments, which will have a significant impact on the balance sheet, along with accounting systems and processes.

2 Presentation of financial statements (IAS 1, IAS 7, IFRS 7) - Banks present their financial position and financial performance in totally different way than other companies. The standard IAS 1 Presentation of Financial Statements does not prescribe the format of the statement of financial position – however, it brings some examples of accepted formats, as soon as you include items mandatorily required by IAS 1, you are OK with your selected format. When you look at the statement of financial position of any bank, you will not see the balance sheet that you are used to in other types of companies, starting with non-current assets (property, plant and equipment, intangibles), followed by current assets (inventories, receivables, cash), and then the second part starting with equity, non-current liabilities finishing with current liabilities. What you would see instead is the statement in which individual items are ordered by their liquidity, starting from the most liquid assets, finishing with the least liquid ones. The equity & liabilities part corresponds with the assets – it starts with the current liabilities in a descending order of liquidity and finishing with equity.

3 Consolidation and special purpose entities IFRS 10, IFRS 12) - Banks love to use special purpose entities. Before some time, it was a “great and creative” way of hiding some undesirable or toxic assets from the eyes of public, as the special purpose entities were usually not included in the consolidation (understand: no one saw them).However, after a few accounting scandals (for example, Enron), there were new and strong rules adopted. In IFRS, we have the standards IFRS 10 Consolidated Financial Statements and IFRS 12 Disclosure of Interests in Other Entities, that require inclusion of structured entities in the consolidation when they meet the conditions (basically, when banks has control over SPE).Even today, many banks use literally hundreds of SPEs for various purposes, mostly for securitization of their loan receivables, holding some tax-efficient leases, for asset-backed financing, etc.

Major classes of transactions undertaken by the banks are as follows –

  1. Interest income and expenses
  2. Lending and borrowing
  3. Fees and commission income and Expenses
  4. Income from financial Instruments
  5. Income from investments in associates.

Major classes of transactions undertaken by this entity is Lending and borrowing of money.

Accounting treatment of above is as follows.

  

For Lending money

Loans and advances A/c     Dr

      To Customer current A/c       Cr

(Journal entry for Loan given by the Bank)

Customer Current A/c    Dr

   To Cash /Bank   A/c

(Amount paid by the bank)

Customer A/c         Dr

        To Interest Earned A/c     Cr

(Interest Received by the bank from Customer)

Cash   A/c    Dr

   To Advances Received (Loan)   Cr

( Being Money borrowed by the bank)

Interest paid A/c Dr

     To Customer A/c

( Interest Paid To customer

Add a comment
Know the answer?
Add Answer to:
After graduation, you work for a few years at a major accounting firm and advance to...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions
  • After graduation, you work for a few years at a major accounting firm and advance to...

    After graduation, you work for a few years at a major accounting firm and advance to Senior. However, as part of this role, you start working on a client that is different from your other background: specifically, a major bank located in San Francisco. This bank primarily takes deposits from retail and business customers and lends money out to others. The accounting seems to be completely different from what you are used to and so you go to the Codification...

  • After graduation, you work for a few years at a major accounting firm and advance to...

    After graduation, you work for a few years at a major accounting firm and advance to Senior. However, as part of this role, you start working on a client that is different from your other background: specifically, a major bank located in San Francisco. This bank primarily takes deposits from retail and business customers and lends money out to others. The accounting seems to be completely different from what you are used to and so you go to the Codification...

  • Accounting

    After graduation, you work for a few years at a major accounting firm and advance to Senior.However, as part of this role, you start working on a client that is different from your otherbackground: specifically, a major bank located in San Francisco. This bank primarily takesdeposits from retail and business customers and lends money out to others. The accounting seemsto be completely different from what you are used to and so you go to the Codification to find outwhat the...

  • Question 2 - 1,500 words The Senior Partner of the firm you work for has appointed you to a new role. It is now your responsibility to review upcoming accounting standards and provide a report to...

    Question 2 - 1,500 words The Senior Partner of the firm you work for has appointed you to a new role. It is now your responsibility to review upcoming accounting standards and provide a report to the partners on the proposed standard and the opinions of other industry players on the changes.  Firstly, you are required to find a current exposure draft or proposal for a new accounting standard which has been opened for public comments. (These can be found...

  • What are the differentiating features of banks that target ethnic communities? (Bullet point answers please). United...

    What are the differentiating features of banks that target ethnic communities? (Bullet point answers please). United Commercial Bank and El Banco17CASE 2.1 This telling of the story of two special banks originally was prepared by students in 2007 who were engaged by the notion of two banks that had developed separate strategies for serving two niche markets. As you first read the students’ story, ask yourself, what could have gone wrong with each bank? Also, as you read, keep a...

  • Background You are an experienced audit manager at Samway Baker Fitzgerald (SBF), an accounting f...

    Background You are an experienced audit manager at Samway Baker Fitzgerald (SBF), an accounting firm with offices in Orange, Wagga Wagga, Tamworth, Port Macquarie and Albury in NSW, Toowoomba in Queensland and Ballarat in Victoria. In the next 18 months, you hope to be promoted to partner at the Orange office. Although a medium-sized firm by national standards, SBF includes Australia’s largest regionally-based auditing practice. Most of SBF’s audit clients are in the mining, manufacturing and agriculture industries. For various...

  • Background It was almost noon when Diego Vilas and Miguel Sema landed at the airport in...

    Background It was almost noon when Diego Vilas and Miguel Sema landed at the airport in Lima, Peru. The two auditors cleared customs and met the company controller of EasyMoney Inc., a large multi-national corporation. The controller drove them to the headquarters in the beautiful neighborhood of San Isidro. In the past, the Peruvian subsidiary received its internal auditing services from its Chilean affiliate. Starting with this trip, these services will be provided from auditors based in Argentina. After several...

  • Background You are an experienced audit manager at Samway Baker Fitzgerald (SBF), an accounting f...

    Background You are an experienced audit manager at Samway Baker Fitzgerald (SBF), an accounting firm with offices in Orange, Wagga Wagga, Tamworth, Port Macquarie and Albury in NSW, Toowoomba in Queensland and Ballarat in Victoria. In the next 18 months, you hope to be promoted to partner at the Orange office. Although a medium-sized firm by national standards, SBF includes Australia’s largest regionally-based auditing practice. Most of SBF’s audit clients are in the mining, manufacturing and agriculture industries. For various...

  • What are the major areas of change from the old design to the new design? What...

    What are the major areas of change from the old design to the new design? What do you think the major concerns will be of employees and managers in the new design? Use the star model to identify the transitions at each point of the star. Case Study 4: Reorganizing the Finance Department: Managing Change and Transitions Read the finance department case and consider the challenges you might anticipate during this reorganization. Develop a transition plan that addresses the following...

  • Fraud at Berry, CPA’s BERRY, CERTIFIED PUBLIC ACCOUNTANTS Brief History of the Firm In 1999, John...

    Fraud at Berry, CPA’s BERRY, CERTIFIED PUBLIC ACCOUNTANTS Brief History of the Firm In 1999, John Berry graduated from college with an accounting degree. After 10 years at an international accounting firm, John decided to start his firm, Berry, CPA’s. The firm, located in Oakwood, caters to local clients; specifically, John and his staff of four professionals specialize in non-public companies. The majority of the services provided by Berry, CPA’s are tax planning and preparation; however, the firm also performs...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT