Average coupon rate used to calcuate carrying amount of a 5-yrs-bonds portfolio

Hi  ,

I have come across a problem relating to IAS 32/39 (IFRS 7) on the carrying amount computation of a 5-yrs-bonds portfolio.

This is a debt instrument classified under financial liabilities categories of Fair Value through Profit or Loss.

In order to determine the recoverable amount i.e. the Present Value. I discount the estimated cash flows [(Principal + accrued interests) x AER x (months to maturity/12] at the bonds' original coupon rate. ( we have a portfolio of bonds with different coupon rates and months to maturity but they are all 5-yrs-bonds)

Here comes to the question: Can I use an industry average annual coupon rate of a 5-yrs-bond for the whole portfolio of my 5-yrs-bonds (over 20 some) ? because if each individual coupon rate is used, I would lose track of my "months to maturity data" and make the spreadsheet unbelievably complex, and It would be even harder to spot any errors.

My worry is that the auditor may pick this up and say that it is a best practice to use each rates. Even the standards didn't specify this explicitly.

I am asking here that are there any supporting claims ( from the standards or those reputable sources) to allow my way of calculation ? i also believe, using average coupon rate does not constitute to materiality issues here. Correct ? Or Have i got it wrong completely ?

Many thanks for your prompt responses !



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15th Jun 2012 14:37

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I had to post just to say I love the avatar/picture selection.

I reckon this is beyond most of the regulars here on Aweb purely for the fact the membership base is generally (in my opinion) operating within the UK GAAP regime and seems to focus more on tax! I'm one of them, however I do understand where you are coming from.

My two suggestions would be to try either the ACCA/ICAEW/CIMA helplines or check the appendices of the IAS' - they usually have handly calculations and it may well provide an "average" methodology as a suggestion.

I think your approach is reasonable. Your auditor may well pick this up and say it is best practice to calculate individually. As long as they do not assess it as material you don't have an issue (unless you have higher-ups to worry about?). In reality, who cares, it is unlikely to be material and the man on the street will think you have acted reasonably.

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