In this article, we shares some incredible tips. These formulas can help audit firms in Dubai to speed up IFRS accounting processes, especially when handling complex calculations. Lets get started, shall we?
IRR formula calculates the Internal Rate of Return (IRR) for a series of cash flows. Cash flows should be expressed in numbers or values. They must be repeated at regular intervals, whether they are daily, weekly, monthly or annually.
What is the internal rate of return? It is simply an interest rate that you pay on your initial loan, which is a negative value. You then pay regular installments over a period of time, which are positive values. However, the size of the installments does not have to be equal.
If a company audit pro is required to value financial assets or liabilities according to IAS 39/IFRS 9, then they will need to calculate the effective interest rate. That's the internal rate of return on cash flows from the financial instrument. Lease accounting according to IAS 17 also requires that an actuarial method be used. There, the financial audit specialists can use IRR. You can find out more about the internal rate of return in our blog. How to determine implicit interest rate in a lease.
Read also : How Dubai company audit experts test hedge effectiveness by IFRS 9
What is NPV?
Using a predetermined discount rate, cash flows (investment, future payments (negative value), and future receipts (+ value), NPV calculates the Net Present Value (NPV) of an investment. Net Present Value refers to the difference between cash inflows (or discounted), and cash outflows (or discounted). It is simply your return on investment in today's money.
Net Present Value, a formula that financial audit specialists use to calculates the potential profit or loss of a project, is widely used in project appraisals. According to IAS 36, IFRS uses NPV broadly for value in use calculations. Individuals and companies in UAE might be familiar with the importance of value in use when determining an asset's impairment loss.
IAS 37 also states that audit services in Dubai NPV can be used to calculate the amount of provision. If you have a long-term contract or a long-term restructuring, the NPV of cash flows can be used to calculate your provision.
YIELD calculates the interest rate on a security paying periodic interest, such as bonds or treasury bill. Investors often look for yield to determine the real rate of return on a bond.
A little clarification: Yield is the internal rate of return for a series cash flows starting with the initial purchase price, periodic coupon payments or interest payments, and ending with the redemption price. This represents how much the investor receives from the bond issuer at maturity.
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The YIELD formula is widely used for the valuation of fixed-term securities, in accordance with IAS 39/IFRS 9. Many securities are not traded publicly on stock exchanges. Their fair value must therefore be calculated by extrapolation along the yield curve.
It is also helpful to be able to use YIELD formula to extrapolate along the yield curve to determine the appropriate discount rate to value employee benefits in accordance with IAS 19. Although the last formula is a little difficult, IFRS accounting skills of a financial audit specialists should improve if they take advantage these three.
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Theshani is a Senior auditor and has experience of 4+ years in providing audit assurance and advisory services to a wide range of industry clients. She continues to stay on top of ever-changing industry dynamics by continuously learning and developing expertise.