What Is the Asian Development Bank?

The Asian Development Bank’s primary mission is to “foster economic growth and cooperation” among countries in the Asia-Pacific Region. Founded in 1966 and based in Manila, Philippines, the ADB assists members and partners by providing loans, technical assistance, grants, and equity investments to promote social and economic development.

The ADB has been responsible for major projects in the region and raises capital regularly through the international bond markets. The ADB also relies on member contributions, retained earnings from lending, and the repayment of loans for the funding of the organization.

How the Asian Development Bank Works

The Asian Development Bank provides assistance to its developing member countries, the private sector, and public-private partnerships through grants, loans, technical assistance, and equity investments to promote development. The ADB regularly facilitates policy dialogues and provides advisory services. They also use co-financing operations that tap official, commercial, and export credit sources while providing assistance.

Membership in the ADB is open to members and associate members of the United Nations Economic Commission for Asia and the Far East. It’s also open to other regional countries and non-regional developed countries that are members of the U.N. or of any of its specialized agencies. 

Financing Provided by the Asian Development bank

The ADB provides both private financing and sovereign (public) financing. Private sector efforts focus on projects that help promote private investments in the region that will have significant development impact and will lead to accelerated, sustainable, and inclusive growth. Public-sector financing provides funding for member countries with flexibility in determining how they can achieve development goals.

In 2021, the ADB committed nearly US$13.5 billion to help its developing member countries address the impacts of the COVID-19 crisis and address vaccination needs, and has mobilized a further $12.9 billion in co-financing from partners. Through a $9 billion Asia Pacific Vaccine Access Facility, or APVAX, announced in December 2020, the ADB provided funding for vaccine procurement, logistics, and distribution.

The total private financing portfolio consisted of $14.2 billion at the end of 2021. In terms of sovereign financing, ADB’s portfolio stood at $104 billion by the end of 2021, consisting of 713 loans, 392 grants, 915 TA projects, one guarantee, and 1 equity investment.

Structure of the Asian Development Bank

According to ADB’s website, “the Agreement Establishing the Asian Development Bank, known as the ADB Charter, vests all the powers of the institution in the Board of Governors, which in turn delegates some of these powers to the Board of Directors. The Board of Governors meets formally once a year during ADB’s Annual Meeting.” The ADB’s highest policy-making body is its Board of Governors, which comprises one representative from each member.

The two largest shareholders of the Asian Development Bank are the United States and Japan. Although the majority of the Bank’s members are from the Asia-Pacific region, the industrialized nations are also well-represented. Regional development banks usually work in harmony with both the International Monetary Fund (IMF) and the World Bank in their activities.

Asian Development Bank Country Relationships

When ADB was founded in 1966, it consisted of 31 members. Since then, membership has grown to 68 members, which is made up of 48 regional and 19 non-regional members. Membership as of 2022 includes:

What Is Accounts Receivable Aging?

Accounts receivable aging is a periodic report that categorizes a company’s accounts receivable according to the length of time an invoice has been outstanding. It is used as a gauge to determine the financial health and reliability of a company’s customers.

If the accounts receivable aging shows a company’s receivables are being collected much more slowly than normal, this is a warning sign that business may be slowing down or that the company is taking greater credit risk in its sales practices.

How Accounts Receivable Aging Works

Accounts receivable aging, as a management tool, can indicate that certain customers are becoming credit risks, and may reveal whether the company should keep doing business with customers that are chronically late payers. 

Accounts receivable aging has columns that are typically broken into date ranges of 30 days each and shows the total receivables that are currently due, as well as those that are past due for each 30-day time period.

Allowance for Doubtful Accounts

Accounts receivable aging is useful in determining the allowance for doubtful accounts. When estimating the amount of bad debt to report on a company’s financial statements, the accounts receivable aging report is useful to estimate the total amount to be written off.

The primary useful feature is the aggregation of receivables based on the length of time the invoice has been past due. Accounts that are more than six months old are unlikely to be collected, except through collections or a court judgment.

Companies apply a fixed percentage of default to each date range. Invoices that have been past due for longer periods of time are given a higher percentage due to increasing default risk and decreasing collectibility. The sum of the products from each outstanding date range provides an estimate regarding the total of uncollectible receivables.

Aged Receivables Report

The aged receivables report is a table that provides details of specific receivables based on age. The specific receivables are aggregated at the bottom of the table to display the total receivables of a company, based on the number of days the invoice is past due.

The typical column headers include 30-day windows of time, and the rows represent the receivables of each customer. Here’s an example of an accounts receivable aging report.

What Is Accretion of Discount?

Accretion of discount is the increase in the value of a discounted instrument as time passes and the maturity date looms closer. The value of the instrument will accrete (grow) at the interest rate implied by the discounted issuance price, the value at maturity, and the term to maturity.

How Accretion of Discount Works

A bond can be purchased at par, at a premium, or at a discount. Regardless of the purchase price of the bond, however, all bonds mature at par value. The par value is the amount of money that a bond investor will be repaid at maturity. A bond that is purchased at a premium has a value above par. As the bond gets closer to maturity, the value of the bond declines until it is at par on the maturity date. The decrease in value over time is referred to as the amortization of premium.

A bond that is issued at a discount has a value that is less than the par value. As the bond approaches its redemption date, it will increase in value until it converges with the par value at maturity. This increase in value over time is referred to as an accretion of discount. For example, a three-year bond with a face value of $1,000 is issued at $975. Between issuance and maturity, the value of the bond will increase until it reaches its full par value of $1,000, which is the amount that will be paid to the bondholder at maturity.

Special Considerations

Accretion can be accounted for using a straight-line method, whereby the increase is evenly spread throughout the term. Using this method of portfolio accounting, accretion of discount can be said to be a straight-line accumulation of capital gains on a discount bond in anticipation of receipt of par at maturity.

Accretion can also be accounted for using a constant yield, whereby the increase is closest to maturity. The constant yield method is the method required by the Internal Revenue Service (IRS) for calculating the adjusted cost basis from the purchase amount to the expected redemption amount. This method spreads out the gain over the remaining life of the bond, instead of recognizing the gain in the year of the bond’s redemption.

Calculating Accretion

To calculate the amount of accretion, use the formula:

Accretion Amount = Purchase Basis x (YTM / Accrual periods per year) – Coupon Interest

The first step in the constant yield method is determining the yield to maturity (YTM) which is the yield that will be earned on a bond held until it matures. The yield to maturity depends on how frequently the yield is compounded. The IRS allows the taxpayer some flexibility in determining which accrual period to use for computing yield. For example, a bond with a $100 par value and a coupon rate of 2% is issued for $75 with a 10-year maturity date. Let’s assume it is compounded annually for the sake of simplicity. The YTM can, therefore, be calculated as:

• $100 par value = $75 x (1 + r)¹⁰
• $100/$75 = (1 + r)¹⁰
• 1.3333 = (1 + r)¹⁰
• r = 2.92%

Coupon interest on the bond is 2% x $100 par value = $2. Therefore,

• Accretion_period1 = ($75 x 2.92%) – Coupon interest
• Accretion _period1 = $2.19 – $2
• Accretion_period1 = $0.19

The purchase price of $75 represents the bond’s basis at issuance. However, in subsequent periods, the basis becomes the purchase price plus accrued interest. For example, after year 2, the accrual can be calculated as:

• Accretion_period2 = [($75 + $0.19) x 2.92%] – $2
• Accretion_period2 = $0.20

Using this example, one can see that a discount bond has a positive accrual; in other words, the basis accretes, increasing over time from $0.19, $0.20, and so on. Periods 3 to 10 can be calculated in a similar manner, using the former period’s accrual to calculate the current period’s basis.

What Is an Auditor’s Opinion?

An auditor’s opinion is a certification that accompanies financial statements. It is based on an audit of the procedures and records used to produce the statements and delivers an opinion as to whether material misstatements exist in the financial statements. An auditor’s opinion may also be called an accountant’s opinion.

Understanding Auditor’s Opinions

An auditor’s opinion is presented in an auditor’s report. The audit report begins with an introductory section outlining the responsibility of management and the responsibility of the audit firm. The second section identifies the financial statements on which the auditor’s opinion is given. A third section outlines the auditor’s opinion on the financial statements. Although it is not found in all audit reports, a fourth section may be presented as a further explanation regarding a qualified opinion or an adverse opinion.

For audits of companies in the United States, the opinion may be an unqualified opinion in accordance with generally accepted accounting principles (GAAP), a qualified opinion, or an adverse opinion. The audit is performed by an accountant who is independent of the company being audited.

Unqualified Opinion Audit

An unqualified opinion is also known as a clean opinion. The auditor reports an unqualified opinion if the financial statements are presumed to be free from material misstatements. In addition, an unqualified opinion is given over the internal controls of an entity if management has claimed responsibility for its establishment and maintenance, and the auditor has performed fieldwork to test its effectiveness.

Qualified Audit

A qualified opinion is given when a company’s financial records have not followed GAAP in all financial transactions. Although the wording of a qualified opinion is very similar to an unqualified opinion, the auditor provides an additional paragraph including deviations from GAAP in the financial statements and points out why the auditor report is not unqualified.

A qualified opinion may be given due to either a limitation in the scope of the audit or an accounting method that did not follow GAAP. However, the deviation from GAAP is not pervasive and does not misstate the financial position of the company as a whole.

Adverse Opinion

The most unfavorable opinion a business may receive is an adverse opinion. An adverse opinion indicates financial records are not in accordance with GAAP and contain grossly material and pervasive misstatements. An adverse opinion may be an indicator of fraud. Investors, lenders, and other financial institutions do not typically accept financial statements with adverse opinions as part of their debt covenants.

Disclaimer of Opinion

In the event that the auditor is unable to complete the audit report due to the absence of financial records or insufficient cooperation from management, the auditor issues a disclaimer of opinion. This is referred to as a scope limitation and is an indication that no opinion over the financial statements was able to be determined. A disclaimer of opinion is not an opinion itself.