Residual Income Valuation Model

Residual income can be described as required return on common equity deducted from net income. If a company has its net profit margin lesser than equity capital cost, then it means the company does not have any economic profit regardless of its positive earnings.   

International Parity Conditions

International parity conditions refer to the economic theories which are associated with exchange rates, prices and interest rates. 

Fundamental Accounting Assumptions

There are mainly three fundamental accounting assumptions. They are - going concern, consistency and accrual.

Off-balance sheet Activities and Their Risk

Off-balance sheet risk refers to the risk associated with contingent assets and liabilities. Contingent asset or liability denotes that an item that becomes an asset or liability depending on the occurrence of future event. For example, if the company has a loan commitment of borrowing $10 million from a bank, the event becomes the liability only when the company decides to borrow the money. 

Duration Model and Problems Associated with it

The Duration Model is based on market value and helps to manage interest rate risk. The market value approach helps to identify the true value of assets and liabilities. For example, if a bond was purchased at a 4% R sometime back, and if the R has fallen to 3% at present, the bond must be stated at the new price which is higher. 

Repricing Model, its Uses and Limitations

If  a security in a specific maturity category is repriced within that time period it is known as repricing. The rate at which the assets or liabilities are repriced it is known as rate sensitivity. 

Does the Law of Negligence Apply to the Company Auditor?

Law of Negligence is applicable to certain situations where the failure occurs while performing duties. This law applies to professionals especially when due care is not taken while serving their clients. In such cases, negligence of professionals cause damage to the parties that obtain their services.