Usual, usual

Richard Murphy says:
February 15 2021 at 12:20 pm
With the very greatest of respect, very large numbers of financial instruments can only be valued by modelling because there is no open market value, and those models are always subjective. If they weren’t there would be no risk in financial markets and we do, of course, know there is. As such what you are saying is simple nonsense. My case is emphatically right.

As it is on goodwill amortisation which has a carrying value only because of its future value and not historic cost (which you seem unaware of). An imnp[airment review will always require a review of future trading, and discounting to the present, of course.

With respect, you really do need to learn some accounting.

And you are now banned from this site.

It’s this though that’s the most interesting:

Richard Murphy says:
February 15 2021 at 6:59 am

It would be used to help value reserves, and assumptions on stranded assets would be key to this

P³ doesn’t like discounting because it makes the future look cheap compared to the present. Well, OK. But then he starts talking about stranded assets. The values of which are discounted of course. Which he complains about. But that means that stranded assets off into the future are cheap today – therefore there’s no systemic worry about stranded assets, is there?

16 thoughts on “Usual, usual”

  1. This bundle of incoherent thoughts and muddled reasoning would make anyone question the sanity of the man.

    He starts out by asserting that financial risk exists because of models used to value financial instruments that don’t have a market value. This is either incomplete or merely incorrect. It is hard to say because he doesn’t give an example of such an instrument. This raises the question of why would anyone go to the trouble of creating such an instrument.

    Then there is a curious leap to the question of valuing goodwill which is again strangely incoherent. Any fule know that goodwill is simply the difference between purchase price and the value of net assets – or, if you prefer, equity plus pre-acquisition reserves. So it obviously is a matter of historical cost. The only reason for looking ahead to future profit streams would possibly be to arrive at a good price to put on the asset in the first place. If you were worried about its value once you own it, the easiest way of doing that, for a quoted company, is to look up the share price – what the market thinks you are worth. Most forecasting is like holding your finger up to assess the wind speed and it’s only done to satisfy the needs of corpulent, complacent and fundamentally stupid professors of accounting

  2. I think he’s worried that some tax might not be extracted because no one wants to pay what the government thinks something is “worth”

  3. Diogenes

    Lest we forget he is a master of so many topics including (For example) Cryptocurrency – where his philosophy was ‘There seems to be a lot of wealth here and it needs to be taxed’

  4. @ Diogenes
    They are, in fact, a large number of financial instruments that are not quoted on any liquid market, so the value thereof is estimated by calculating a price based on a financial model. Fifty years ago (in the years before Derek Hatton) I had to calculate the “value” of loans to local authorities assuming a discount rate 2% higher than the nearest equivalent gilt-edged stock. It was cheaper for a decent borough to raise a private loan than to jump through the hoops to raise money on the stock exchange.

    Where he is talking through his hat is the assertion that these financial instruments create significant risk.

  5. Tim

    Having messed up the preservation of the excellent Rajeev – I am conscious Jon’s forensic demolition of Murphy’s accounting ‘knowledge’ could also face the axe so to that end it’s preserved on my laptop – if he should suffer the same fate I can presume you will be happy to keep his ignorance memorialized in a post?

  6. @ Diogenes
    The IASC has “updated” (rewritten) the rules on Goodwill so that the imputed value of in-house-generated intangible assets are separated off from “Goodwill” so it is not *purely* a matter of historic cost – it is now historic cost plus some forecast of future earnings/cashflow from intangible assets. One more step towards Humpty Dumpty “it’s worth what I, as Finance Director, think it is worth”.

  7. John77, I assumed that Spud was thinking about LTCM, where there was real risk, which was averted by an industry-led bailout. But he fails to prove his assertion that unquoted financial instruments are a source of risk.

  8. Agreed that the growth of intangible assets – one company, Kape plc, even capitalises marketing costs – is a disaster waiting to happen but we shouldn’t assume that Spud has any more knowledge than he specifically demonstrates

  9. VP it looks as if Jon makes exactly the same points as me but at greater length, in a futile attempt to get Spud to admit he is wrong

  10. As soon as the potato replies “with the greatest of respect” and “My case is emphatically right” you know the original poster has more knowledge than the tuber and he’s now huffing and puffing . What seals the deal of course is the ever ready ban hammer. He’s so predictable and pathetic.

  11. We have market to model assets. There is valuation risk given uncertainty of input parameters and the model choice. That’s different (and hopefully smaller) however from the risk of the input parameters changing value.

    Either way we waste our time as it is trivial to prove he knows nothing of which he speaks. And yet he gets airtime on the BBC which bans so much other thought. Strange… no?

  12. @ Diogenes
    LTCM went bust dealing in quoted assets – but, of course, we don’t expect Murphy to recognise this when it suits his book to claim otherwise.

  13. The four stages of Tuberism:

    With the very greatest of respect…
    … what you are saying is simple nonsense…
    …With respect, you really do need to learn…
    …And you are now banned from this site.

  14. @tmb – he added a new one – “if you post on here again it better be an apology”- as if the slug ever apologised to anyone- ever.

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