Comments on: The Bonfire of the Blazers (Part 7 in a series)

By: gerardvroomen

gerardvroomen — Thu, 06 Oct 2011 08:23:25 +0000

My point is that whether it is real or not is hard to see from the outside. For example I’ve been in a situation where we had a lot of business in Euros and a lot in USD. Because the revenue in Euros was always enough to pay the expenses in Euros and the Revenue in USD could cover the expenses in USD, currencies were almost never actually exchanged. So the paper fluctuations might be in the millions (up or down), the net effect could be zero.

By: fmk

fmk — Thu, 06 Oct 2011 08:17:36 +0000

Agreed that a portion of the figure relates to balance sheet items. Accountants are meant to be prudent and provide for losses as they as they become apparent, and not wait for them to actually happen.

But not being realised does not mean not real.

Think of this as not unlike your pension fund. It may be in the shitter today, but by the time you retire it will have bounced back. You hope.

I was going to explain this using the Guarantees as an example but I ran out of Neurofen.

Where it matters is that it impacts the bottom line. If the UCI want to report a surplus for 2011 this is something they have to get some contrrol over.

By: gerardvroomen

gerardvroomen — Thu, 06 Oct 2011 07:44:34 +0000

The currency losses of 1.7M may not be a problem (although 1.7M on their size of revenue is substantial). They are not necessarily all realized losses, they may just be bookkeeping losses. Simply put, if you have 1M Euros in the bank and you report in CHF, seeing the exchange rate drop from 1.4 to 1.2 gives you a loss on the books of 200k. But as long as you don’t actually convert your money and simply leave your Euros in the bank to pay Euro expenses with, you’re actual loss isn’t there (OK, the accountants can explain it’s more complicated than that, and the time between receipt of invoice and paying it, the way you account for fluctuations, etc, but you get the point).

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