We know the following holds for clean surplus equation:
Book 2011 = Book 2010 + Earnings - Dividends
Could someone please explain why pension liabilities, FX translation gains/losses and unrecognized gain/loss on available-for-sale securities are a violation of the clean surplus relationship?作者: Analyze_This 时间: 2011-7-13 13:05
Pensions smoothing things, cumulative current translation effect and Unrecognized gain/loss on AFS are recognized in equity as other comprehensible income (which is difficult to forecast).
So Book 2011 = Book 2010 + earnings - Dividends +/- other comprehensible income. So clean surplus relationship does not hold.作者: wxs1986 时间: 2011-7-13 13:05
Great, thanks.
Can we generalize to the effect that any accruals which impact OCI can be seen as a detriment to the clean surplus relationship (and not just pensions or unrecognized / FX translations gains/losses)?作者: tianxin 时间: 2011-7-13 13:05
yeah. One important condition of RI method is the existence of clean surplus relationship.作者: defour44 时间: 2011-7-13 13:05
This might be dated but anything that bypasses the income statement and goes directly to equity, examples you gave, are violations of clean surplus.作者: troymo 时间: 2011-7-13 13:05
So, anything that flows though to OCI instead of the NI statement violates the clean surplus relationship:
OCI =
unrealized g/l in AFS
unrealized g/l from CF Hedge
unrealized g/l from current rate method
pension adjustments
