Please find listed five
questions that relate to the areas of IR’s Annual Report that I had difficulty
understanding. Any knowledge/information you can provide would be greatly appreciated.
- What is ‘divestment of other non-current financial assets’?
- What are ‘derivative financial instruments’?
- What is ‘hedging’ or the 'hedge relationship'?
- Why do annual reports include the numbers of meetings of the Company’s Board of Directors and the numbers of meetings attended by each director?
- In the Director’s Report, it mentions ‘officers who were previously partners of the audit firm’. What does that mean?
Hi Jess,
ReplyDeleteI can hopefully shed a little light on questions 3 and 5.
Hedging refers to making an investment to reduce the risk of adverse price movements in an asset.
According to Investopedia: An example of a hedge would be if you owned a stock, then sold a futures contract (contract to be implemented in the future) stating that you will sell your stock at a set price, therefore avoiding market fluctuations.
Investors use this strategy when they are unsure of what the market will do. A perfect hedge reduces your risk to nothing (except for the cost of the hedge).
'Officers who were previously partners of the audit firm' I think is just a section that outlines if any of the executive officers where, as the name suggests partners of the audit firm. I think it's just a way of highlighting any conflicts of interest (if any) between the executive officers and the external audit firm. I'm not 100% sure on this though.
Hope this helps a little.
Cheers Matt
Hi Matt,
DeleteYou certainly have shed some light...thank you :-) I had no idea what hedging was, but your explanation and example was great...I now understand! In regards to question 5, I had a feeling it might have been something like that. I wasn't entirely sure though, so thanks for the clarification.
Good luck, Jess.
Hi Jess
ReplyDelete1. Divestment of non-current financial asset, as far as I understand it means sale of long term financial investment. Such financial asset such as say, long term bonds, properties are not related to the companies core businesses
2.Derivative financial instrument: this can take someone a whole year to try to understand. Examples of derivatives are options, warrants, swaps etc. Basically, any financial instruments which are traded in financial markets and not a share price are derivatives
3. Matt has explained 3 and 5.
Hi,
DeleteThank you very much for taking the time to reply :-) Your explanations have helped me immensely to understand what other non-current financial assets means and what derivative financial instruments are.
Well done, Jess.
Hey Jess, great blog!!
ReplyDeleteYour key concept and questions are really interesting.
Did a quick little google session to help with the term 'hedging' and I have found the below.
Hedge relationship describes the criteria for including the fair value of derivatives on balance sheet as part of an effort to regulate and normalize the use of hedging in corporate accounting. A hedge relationship can be conceptualized as a type of insurance contract for risk mitigation on an underlying asset and a set of tests and methods for valuation of this insurer/insuree contract in corporate accounting and reporting. - Try wrap your head around that! Haha. Looks like Matt has a much better explanation above!
Hi Julia,
DeleteThank you very much for the feedback...it is definitely appreciated :-) Wow, haha...that is a rather complex summary of hedging. Matt's explanation was much easier to process...thank you for taking the time to reply though :-)
Good luck, Jess.