Mortgages. Short Term Advice By Michael Challiner

There are some new types of home loans coming onto the market which are being advertised at present. Several of the mortgage companies are offering variation of them and they are being marketed as “lifetime” loans. So might this be the end of the short-term mortgage? Not necessarily so, it appears that there are still bargains out there for those prepared to shop around.

Mortgage brokers usually advise discounted short term mortgages and advise clients to regularly shop around after the two year discount has come to an end to obtain an even better deal. These clients are known to the insurers as “rate tarts”. But who can blame them for obtaining the best possible deal, especially as the broker does all the work for them, making the whole procedure painless and trouble free.

First of all, if you need to borrow over £150,000 the above advice is still without a doubt the very best and asking your broker to shop around for discounted rates is, in our opinion, essential.

For borrowers of less than £150,000, some of these new mortgages appearing on the market initially sound tempting. They are classed as low-rate “lifetime” loans. Abbey and Woolwich are two of the building societies offering flat-rate low cost home loans, amongst others.

The Woolwich has a lifetime tracker mortgage rate which has a guarantee of staying at 0.19 percentage points above base rate. At present the Bank of England’s base rate is 4.50%, therefore the rate is 4.69%.

Conversely, the Portman Building Society’s two year fixed rate plan presently stands at 4.19%, still cheaper than the Woolwich “lifetime”. You do, however, have to factor in the cost of shopping around, which we have listed:

·Legal fees £350 on average.
·Application fee £499.
·Valuation fee £300 on average.
·Deeds release fee £199.

This is worked out on a loan of £150,000. The above sums come to just under £1,350 and the saving on interest over the Woolwich comes out at £1,500. This means that there is a very small saving on the Portman deal at two years. You would need to find another tempting deal and be ready to switch to it at the end of this period as a 6.5 per cent rate would come into force otherwise.

Abbey’s Flexible Plus tracker has a slightly higher rate than the Woolwich, at 5.09% but, as the name implies, it is very flexible and will allow you to reduce the amount of money borrowed by offsetting your mortgage and also permitting you to withdraw money from the mortgage. One advantage is that you can make use of the mortgage as a type of savings account. Money withdrawn is charged at the mortgage rate.

To sum up, these new loans do seem to be competitive, but the mortgage market alters all the time if you’re out for the very best deals, check with your on-line broker and find out what’s available out there. They’ll search the whole market and get you the very best deal. That’s what they’re there for!

Resource: http://www.isnare.com/?aid=62900&ca=Finances

General Misconceptions about Cash Advance

A cash advance is an easy method of getting a short term loan to get over unexpected or unplanned emergency expenses. Many people do not allocate funds for emergencies in their budget with the misconception that they can take a cash advance if the need arises. The truth is that these pay day loans come at a high price and sometimes wholly swallow the next paycheck of the borrower.

Some borrowers take cash advance loans to improve their credit scores. While the borrower may pay off some debts, the time for repayment of these short term loans comes in no time at all. Within two weeks of taking the loan, payment time arrives. The borrower may need to take another loan to pay off the cash advance payday loan and slowly the debts of the borrower pile up. These advance loans do not give financial security contrary to the popular misconception. At best they give short term financial help. The repayment has to be done in a short span of time. The borrower needs to keep the funds for repayment in a bank account as soon as the repayment is due. If these funds are not available a high late fee is charged which will add to the dues by the borrower.

Another misconception harbored by borrowers is that all lenders lend at the same rate of interest and charge standard fees. Each lender has different fee and interest terms. Borrowers can shop and find a short term cash advanced loan at an affordable rate of interest with few or no fees attached. Unlike the popular misconception borrowers have the right to choose the best lender for their unique repayment needs.

What are Compiled Financial Statements?

All organizations, whether private, public, or non-profit, need to prepare financial statements on their performance to provide fiscal accountability and accuracy to their stakeholders and people with an interest in the company. Financial statements enable management to make business decisions, enable creditors to evaluate loan applications, and provide individuals with information to make investment decisions.
Financial statements provide information from an organization’s accounting documents about their economic resources and obligations on a specific date, as well as their financial activities over a period of time. Financial statements are usually prepared in accordance with Generally Accepted Accounting Principles (GAAP), which are the standards issued by the American Institute of Certified Public Accountants (AICPA), but they may also be prepared on other comprehensive basis of accounting, such as cash basis or tax basis, depending on the needs of the users of the financial statements.
The lowest level of assurance in regards to financial statements is compiled financial statements. One of the main reasons these are used in lieu of other financial statement presentations is for the timely release of financial information about an organization. Compiled financial statements are presentation of various financial reports and documentation, which is the representation of management or owners of an organization. Compilation standards allow the organization to omit note disclosures as long as there is no intent to mislead the users. This is the only type of financial statement that allows omitted disclosures.
An accountant will compile the information supplied by the client into a proper financial statement presentation. This is the only financial statement presentation that a non-certified accountant can prepare. The accountant will read the financial statements and issue a report. If the organization has elected to omit any disclosures, this must be included in the accountant’s report of the financial statements, as well as if the disclosures had been included; they might have influenced the user's conclusions.
The accountant preparing the compiled financial statements are not required to verify or confirm the records and do not need to analyze the statements for accuracy. However, an accountant engaged to compile financial statements is required to obtain a general understanding of the organization’s business transactions, its accounting records, qualifications of their accounting personnel, the accounting basis on which the financial statements are presented, and the form and content of the financial statements. If any obvious material misstatements or missing information is noted, the accountant must discuss these items with the organization's management for clarification or adjustment to the statements, or withdraw from the engagement if management refuses to provide additional or revised information.
In compiled financial statements, the organization, not the accountant, is responsible for the accuracy and completeness of the financial statements. Since the statements were not audited or reviewed, they are not certified by a Certified Public Accountant (CPA). No opinion or assurance is expressed in the report as to whether the financial statements are free of material misstatements or false/missing information or if they are found to be accurate, complete and fairly presented to meet the requirements of the US GAAP (Generally Accepted Accounting Principles).

What are Reviewed Financial Statements?

All organizations, whether private, public, or non-profit, need to prepare financial statements on their performance to provide fiscal accountability and accuracy to their stakeholders and people with an interest in the company. Financial statements enable management to make business decisions, enable creditors to evaluate loan applications, and provide individuals with information to make investment decisions.
Financial statements provide information from an organization’s accounting documents about their economic resources and obligations on a specific date, as well as their financial activities over a period of time. Financial statements are usually prepared in accordance with Generally Accepted Accounting Principles (GAAP), which are the standards issued by the American Institute of Certified Public Accountants (AICPA), but they may also be prepared on other comprehensive basis of accounting, such as cash basis or tax basis, depending on the needs of the users of the financial statements.
The middle level of assurance in regards to financial statements is reviewed financial statements. A Certified Public Accountant (CPA) must obtain a reasonable basis for expressing limited assurance that the financial statements meet the requirements of the US GAAP are free of material misstatements or false/missing information.
To perform the review, the CPA must obtain a general understanding of: the organization’s industry as well as information about their operations, products, and services, their accounting records, qualifications of their accounting personnel, the accounting basis on which the financial statements are presented, and the form and content of the financial statements. The auditor then reviews the information supplied by the client and makes specific inquiries relating to accounting policies, record keeping and accounting practices, actions of the Board of Directors, and changes in business activities. The specific inquiries required to perform a review should address the following areas: related party transactions; accounting policies, problems, and areas of greater risk; uncertainties, contingent, current and long-term liabilities and assets; qualifications of accounting personnel and division of accounting duties; inventory; any departures from GAAP; revenues, expenses, accounts receivable, cash and equity accounts, and investments; and property, plant, and equipment assets and liabilities.
The auditor then applies various analytical procedures to identify unusual items or trends in the financial statements that may need explanation. If any material errors or misstatements are noted, the CPA will discuss these items with the organization's management for clarification or adjustments to the financial statements.
Upon completion of a review, the CPA will issue a report that provides limited assurance that the financial statements are free of material misstatements or false/missing information and are found to be accurate, complete and fairly presented to meet the requirements of the US GAAP. Since the financial statements were reviewed and not audited, no opinion about their nature is expressed. The report also notes that the financial statements are a representation of management. Reviewed financial statements can also be done on Other Comprehensive Basis of Accounting (OCBOA), such as a tax or cash basis, as long as the basis used is documented in the report.

Allowance for bad debts

The Statement of Financial Accounting Standards 5 (SFAS 5) states that a contingent loss should be recognized in cases where a financial asset is “probable " to be impaired and the loss can be "reasonably estimated". However, the standard does not set parameters or more detailed information for defining precisely what is meant by "probable" and "reasonably estimated". The FASB Interpretation 14 (FIN 14) - Reasonable Estimation of the Amount of a Loss, deepens the understanding of the rule defining that, if a range of loss cannot be reasonably estimated, the amount most within the range should be considered, if possible. If there is no most likely value within the range, then the range lower extremity value should be recognized.
Thus, there is evidence of restriction to conservatism, since the contingent losses are recognized only when probable and estimated with confidence, in accordance with SFAS 5, in addition to being measured on the basis of lower extremities within a range of possible values in the absence of a best estimate, as provided in FIN 14. The language used by SFAS 5 and FIN 14 provides interpretations and broad concepts about the measurement of the allowance for doubtful accounts. The FASB itself by issuing SFAS 114 - Accounting by Creditors for Impairment of a Loan, acknowledged that the application of subjective concepts in the SFAS5 resulted in significant differences in when and how different types of financial institutions recognizing losses. Rules that establish criteria for measuring the allowance for bad debts are SFAS 5 and SFAS 114 only, being all other pronouncements and interpretations of these two rules a result of the complexity of accounting norms in the United States. Thus, it is important to clarify that SFAS 114 establishes criteria for loss allocation of specific loans subject to individual assessment, through which it has determined are impaired. The SFAS No. 5, on the other hand, establish rules about recognition of impairment losses related to groups of loans evaluated collectively. The Staff Accounting Bulletin 102 (SAB 102) - Selected Loan Loss Allowance Methodology and Documentation Issues requires that financial institutions have systematically, consistently applied, documented and auditable measurement methods of allowance for doubtful accounts. SFAS 114 and SFAS 118 - Accounting by Creditors for Impairment of a Loan: Income Recognition and Disclosure set out the criteria for the measurement and disclosure of information about the operations of credit impaired. SFAS 118 provides that a loan is impaired when the present value of estimated future cash flows is less than the carrying amount of the loan. SFAS 114 states that a loan is impaired when, based on current information and events, it is likely that the entity is not able to collect all amounts due according to contractual terms, meaning payments of principal and interest made in accordance with the conditions and deadlines. The standard does not specify how the entity should be determined not likely to receive the amounts owed, only recommends that the entity holds its usual procedures for revision of lending to such arbitration. Additionally, SFAS 114 also clarifies that a loan is not impaired during a period of late payment if the entity expects to receive all amounts due, including interest with appropriate contractual basis during the period of delay. The definitions given by SFAS 114 and SFAS 118 are not fully converged, since the 118 emphasizes the concept of expectation of future cash flows while the 114 provides that the employer should use his trial to determine when it is likely that money flows provided by the contract terms are not met.
The set of U.S. standards makes no restriction on the use of data that reflect trends and projections of future events, so that might be considered as a model based on expected losses. This feature is one of the main differences between the models of measurement proposed by the U.S. GAAP and IFRS, since the model established by the international accounting standards is based on loss experience. Another conceptual difference between the two models (international and U.S.) can be seen in the following hypothetical situation. A large group of homogeneous loans is typically composed of some operations that immediately after booking goes into default, a situation in which SFAS 5 requires to immediately recognizing the corresponding allowance for doubtful accounts. In applying this model to recognize a loss on the initial operation could distort the comparison of revenue and expenditure, bearing in mind that while the loss is recognized at once at the beginning of the operation, the interest income is appropriate in function of the duration of the loan.

Accounting for Goodwill

What is goodwill? Depending on whom you ask you may find many different answers to this question. If you were to ask an accountant what goodwill is he or she would exclaim that goodwill is the amount an entity pays in acquiring a business that is in excess of the acquisition’s fair market value of its net assets (Goodwill = Purchase Price of an Entity - The Entity’s Fair Market Value of Net Assets of the business). What this basically means is that goodwill represents a value of an entity above what the current fair market value of the acquired firm’s net assets. Some examples of goodwill would be: future profitability of the acquired firm, client lists, brand name etc… Goodwill is considered an intangible asset and once the value of goodwill is established this amount is listed as an asset on the acquiring firm’s balance sheet.
In the past, firms had to account for goodwill by abiding by the Accounting Principles Board (APB) Opinion 17 issued in 1970. In this opinion, when a firm was purchasing another entity, the purchasing firm could account for any goodwill involved in the transaction as an asset on their balance sheet and amortize the asset over a maximum of 40 years. If the purchasing firm did not want to amortize the value of the goodwill involved in the purchase of another organization it could also use the Pooling-of-Interest accounting method. The Pooling-of-Interests accounting method combines the book value of each firm’s assets and liabilities to create the new entities’ combined balance sheet. In this transaction, it is hard, if not impossible, to figure out which entity is the purchasing entity and which entity is being purchased. The Pooling-of-Interests method basically negated the need to account for goodwill at all. However, the Pooling-of- Interests method was superseded and is no longer an option of merging firms as of the issuance of FAS 141 by the Financial Accounting Standard Board (FASB). The Accounting Principles Board (APB) opinion 17 was also superseded when the Financial Accounting Standards Board (FASB) issued SFAS 142, Goodwill and Other Intangible Assets, in June 2001. In this statement the FASB laid out the new rules when accounting for goodwill. In this statement, amortization of all goodwill stopped regardless of when it was originated. According to this statement goodwill amounts are still to be treated as intangible assets (and listed on the purchasing firms balance sheet), but instead of amortizing this asset over a maximum of 40 years, each firm that records goodwill on their balance sheet must annually test the value of goodwill for impairment. To test goodwill for impairment an organization has to take the book value of the goodwill on their balance sheet (the carrying value), and compare it against the current fair value of this goodwill (using the present value of future cash flows). If the fair value of the goodwill in question were to decrease to a value lower than the book value (carrying value), then the firm must impair (or write off) the difference in the value of the current goodwill asset. An example of this would be if XYZ firm purchased ABC firm, and the transaction involved $100,000 worth of goodwill, this goodwill would have to be tested at least annually to make sure it does not decrease in fair value. If it were to decrease in fair value the amount that the $100,000 was reduced by would need to be impaired (written off). For the purposes of our example let’s say the fair value of the goodwill in question were to decrease by $10,000 and the fair value of this goodwill would now be $90,000 the $10,000 would be impaired (written off). That is, the $10,000 would be reduced from XYZ assets (goodwill) on its balance sheet, and this $10,000 would show up as a loss (expense) on XYZ income statement. SFAS 142 also states that if in the following accounting periods test of goodwill for impairment, the $90,000 in goodwill now on XYZ balance sheet were to increase in value the firm is not allowed to increase the goodwill asset; XYZ is only able to impair the value of the goodwill asset if it were to decrease in value.
The effect of SFAS 142 does have a mixed impact on different organizations. Because goodwill was amortized and expensed on the income statement (prior to SFAS 142) this amortized amount would be part of the expenses deducted from the purchasing firm’s revenue to come up with the entity’s net income. By getting rid of this amortization the purchasing firm in theory may not have to report a loss against its revenue (on the entity’s income statement) if the fair value of the goodwill in question does not decrease in value. Thus SFAS 142 would be advantageous to a firm that does not have to impair any value of their current goodwill assets, and because the amortization expense of this goodwill is no longer netted against current revenues, net income would in essence be higher as a result. SFAS 142 could also lower the purchasing firm’s net income on an irregular basis. Now that the purchasing firm is no longer allowed to amortize goodwill over a maximum of 40 years and it has to test the goodwill asset for impairment; any reduction in net income that would occur from the loss of fair market value of the goodwill in question is going to be more volatile and varying in amounts. This volatility means that a loss could be booked for the goodwill one year and not be booked the next year, and each time the loss is booked it could be by a different amount.
Accounting for goodwill does spark some controversy in the accounting field. Because it is an intangible asset, goodwill is very hard to value, identify, and measure. Also when the acquiring entity does its yearly evaluation of the goodwill in question the fair market value is difficult to measure because it is an intangible asset. The accounting for goodwill is still a controversial topic that will more than likely have to be modified again in the future.