Manulife Financial is a large Canadian-based insurance and financial services company, with operations in Canada, United States,
Question:
Manulife Financial is a large Canadian-based insurance and financial services company, with operations in Canada, United States, and Asia. The company reports on the basis of IASB standards. However, until 2014, it also reported the amount of its net income under FASB standards (see Theory in Practice 13.1). In 2014, Manu life discontinued reporting U.S. GAAP -based earnings, on the grounds that the significant net income differences between the two sets of accounting standards overemphasized the effects of fair value accounting on its IFRS-based financial statements. Presumably, Manulife felt that investors might be confused about the quality of its IFRS net income when they saw how different it was from that of the FASB. Instead, Manulife put greater emphasis on its core earnings. This measure, introduced in 2012, excluded the effects on Manulife's financial statements of changes in equity markets and interest rates. It also excluded changes in actuarial methods and assumptions and several other items that Manulife considered material and did not believe reflected its underlying earnings capacity. Manulife indicated that its core earnings concept had gained acceptance from its stakeholders.
A more recent example of Manulife's core earnings calculation is given below. Manulife's Core earnings for 2016:
Required
a. Would reporting IFRS-based financial statements, plus core earnings as supplementary information, be more or less useful to United States investors than Manulife's previous practice of reporting IFRS-based financial statements plus a single FASB-based net income number as supplementary information? Assume that U.S. investors are interested in Manulife's earnings persistence.
b. Which earnings measure, core earnings or IASB net income, or neither, is more useful to non-U.S. investors in predicting future Manulife earnings? Use the concept of earnings persistence in your answer.
c. Can you suggest other reasons than informing United States investors for Manulife to emphasize core earnings? Consider relevant investor behavioural characteristics in your answer.
Step by Step Answer:
Financial Accounting Theory
ISBN: 9780134166681
8th Edition
Authors: William R. Scott, Patricia O'Brien