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Name – Shobhit Prabhakar

Student No. – 218355172 Individual Assignment – MetLife Inc. Course Code - CSAC 359 Intermediate Financial Accounting I Instructor Name – Su Supinder pinder Babra

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SECTION A Academic integrity is fundamental to learning and scholarship at the York University School of Continuing Studies Participating honestly, respectfully, responsibly, and fairly in this academic community ensures that the Schulich degree that you earn will be valued as a true indication of your individual academic achievement, and will continue to receive the respect and recognition it deserves. While I don’t expect to encounter instances of cheating in this class, you should be aware that I take academic integrity very seriously, and that there are significant consequences if you are caught cheating or engaging in academic misconduct. Examples of misconduct on tests and exams: • Misrepresenting your identity • Submitting an altered test for re-grading • Submitting work done as group or collaborating on an exam that must be done individually Please sign the space below acknowledging the academic integrity statement above.

Signature: Shobh

Print name: Shobhit Prabhakar

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SECTION B Question 1

Using the internet (make sure your sources can be referenced) and find an accounting issue that has been in the news in the past 5 years 2016 - 2021.

Summarize the article or news segment, discussing the specific issue. Discuss your opinion on this issue, providing examples of your prior experience or current experience on the matter as necessary to support your arguments. What key factors should be included in the discussion? Conclude with supporting arguments and research, if necessary, on the issue.

Summarize the article or news segment, discussing the specific issue.

Price Waterhouse Coopers (PWC) issued a general info leaflet in 2014 announcing the arrival of IFRS 15 Revenue from contract with customers. Here is the official link https://www.pwc.com/sk/en/publikacie/assets/ifrs15leaflet-final.pd

Ever since the inception of IFRS, attempts have been made to duly integrate it with internationally acclaimed US GAAP. IFRS in its infancy was overly general and lacked clear guidelines on the crucial and problematic 3

issues, making its implementation tard difficult. US GAAP was broad yet approached in a split manner, complicating the usage IFRS 15 Revenue from contracts with customers introduced a five-step model of revenue recognition, common to all types of transactions and applicable to all companies and industries. Those five steps are as follows Step 1 – Identify the contract with the custome Step 2 – Identify separate performance obligations in the contrac Step 3 – Determine the transaction pric Step 4 – Allocation of the transaction price to separate performance obligation Step 5 – Recognize revenue as each performance obligation is satisfied IFRS 15 aimed to shift revenue recognized over the period of time across the whole duration of the contract i.e., following the percentage of completion method, may in the future be recognized once, at the end of the contract and vice versa. It had to be implemented wef January 1, 2018. Later an amendment on April 12, 2016, set the implementation date as the standard itself i.e., 2014 However, it was not a smooth sailing. IFRS 15 grabbed quite a lot of headlines over its impracticality and overly forecasted approach. Here is link to one of such headlines - https://www.accountancydaily.co/frc-flagsimplementation-issues-ifrs-9-and-1

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Discuss your opinion on this issue, providing examples of your prior experience or current experience on the matter as necessary to support your arguments.

Current experience on the matter can be discussed as follows:

1) There is no explanation of the impact on the balance sheet due to the transition to IFRS 15, despite having material contract balances recognized on the balance sheet. There is no strict stipulation required to disclose information on contract balances in interim accounts as per IFRS 15.

2) There is no disclosure of accounting policies for contract assets and contract liabilities.

3) Companies with material onerous contract provisions did not acknowledge the change in guidance on accounting for these contracts. Previously, onerous contracts were accounted in connaissance with IAS 11 Construction Contracts and IAS 18 Revenue. Now they are referenced as per IAS 37 Provisions, Contingent Liabilities, and Contingent Assets.

4) There are insufficient or confusing explanations of variable consideration and its accounting, including the application of the variable consideration constraint. Though IFRS 15 standard explains 5

that variable consideration should only be recognized to the extent that, probably, a significant revenue reversal will not occur. The companies need to be careful in how they account for this constraint with an explanation.

5) Often, there are disclosures that an input or output method is used to measure the delivery of an overtime performance obligation but no clarification of the actual method used and why it is appropriate. Companies tend to quote language from the standard, making it impossible to have sufficient insight into reality.

What key factors should be included in the discussion?

Key factors to be included in discussion can be discussed as follows:

1) The impact of transition to IFRS 15 upon the earnings per share must be sufficiently disclosed. There is a requirement of paragraph 28(F) IAS 8 for entities who adopt a complete retrospective transition approach.

2) Some accounting policies appear to reflect the previous IFRS. However, other control indicators are often left unnoticed though risk and rewards still find their relevance under the IFRS 15. The former should be reflected in the same way as the latter.

3) The impact of the standard on accounting for costs goes addressed most of the time. Often, the revenue part is stressed and highlighted.

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IFRS 15 does guide in respect of contract costs and any changes to the accounting for the costs incurred in obtaining contracts.

4) The variable consideration provisions of IFRS 15 certainly do impact the industries segregated by their nature. But their disclosure often goes unaddressed. It needs to be addressed duly.

5) The tailored nature of customer offerings indicates that directly observable prices may not be available to reference when determining standalone selling prices. Yet, some companies don’t explain the allocation of the transaction price for performance obligations. It should be considered duly.

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Conclude with supporting arguments and research, if necessary, on the issue. Supporting arguments on the issue are as follows:

1) Every type of transition comprehensively impacts the other variables in the annual report. Any such impact must be properly explained. 2) The changes made to accounting policies (including the reasons for these changes and associated judgments) are clearly articulated and convey company-specific information. 3) There must be proper identification and explanation for the judgments made in determining the performance obligations, and the timings of their delivery to the customer. 4) The impact on the balance sheet must be addressed, including the disclosures of accounting policies for contract assets and contract liabilities. 5) IFRS 15 has led companies to dwell on the accounting gaps that have affected their business. Also, the additional company-wide effects and process overhaul required to adopt IFRS 15 are getting ignored. As a gap assessment is a foundation for the subsequent design and implementation phases, a holistic perspective will facilitate an effective, efficient, and sustainable adoption of IFRS 15.

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QUESTION 2

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10

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a

Indirect Method

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b

Cash paid to suppliers = Opening Accounts Payable - Closing Accounts Payable =

5359-4604=755

Note - Insufficient info to find out cash from operating activities under the direct method.

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QUESTION 3

Retrieve the most recent company annual report and based on this document create a report with the following:

1 Define the company Operations As a world-leading financial services provider, MetLife provides its expertise in the fields of insurance, annuities, employee benefits and asset management. It was formulated in 1868 in New York under the alias of ‘’Metropolitan Life Insurance Company” and focused primarily upon the life insurance business. The company also operates across the other parts of the world via its subsidiaries and affiliates established in Japan, Latin America, Asia, Europe, and the Middle East. In the US (parent country), MetLife provides services in fixed income securities, mortgage loans, real estate, real estate joint-ventures, limited partnerships, and equity securities. Outside the United States, MetLife provides life, medical, dental, credit, accident & health insurance, as well as annuities, endowment, and retirement and savings products. At present, the company has expanded to around 40 plus global markets across the world with a dedicated team of 45000 employees.

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2 What is the company Strategy? The company aims at driving future growth and enhancing shareholder value. The ‘Next Horizon Strategy” was devised as a consequence, which includes: ➢ Focus – Generate strong free cash flow by deploying capital and resources to the highest value opportunities. ➢ Simplify – Simplify our business to deliver operational efficiency and an outstanding customer experience. ➢ Differentiate – Drive competitive advantage through our brand, scale, talent, and innovation.

As a part of its marketing strategy, the company seeks to develop and attract talent. It’s fulfilled via career support, performance tracking, motivational leadership, diversity, and inclusion at the workplace. As regards its products and services, the company follows the 4PS marketing mix as follows:

MetLife Product Strategy – It involves identifying potential employers of various organizations and offering them a basket of its insurance services that includes policies for Auto, Dental, Disability, Home, Life, Vision, Accident & Health, and Annuities. Met life also provides such services to employees of the organization in partnership/on behalf with its main client i.e., the employer. MetLife Price/Pricing Strategy – The company follows a diverse pricing portfolio of its services based upon the regions, demand, government regulations, etc.

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MetLife Place & Distribution Strategy – MetLife ties up with local commercial institutions and strong retail networks to sell its policies in other countries and global markets in an efficient and timely manner. MetLife Promotion & Advertising Strategy - MetLife makes extensive and widespread use of print media (i.e., newspapers, posters, pamphlets, etc.) and electronic media (Internet, online ads, digital sponsorships, etc.) to spread awareness about its goods and services.

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3 Provide an industry assessment of your company. MetLife SWOT Analysis ( S-strengths W- weaknesses O- opportunities T – threats )

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MetLife PESTEL Analysis ( P- political E – economic S- social T- technological E- environmental L- legal )

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4 Describe three items on the company balance sheet and provide an explanation of why the company records these on the statements.

Items recorded in Balance sheet with explanatory notes:

I)

Goodwill: Goodwill is an intangible asset associated with the purchase of one company by another. It’s a portion of the purchase price paid more than the net fair value of all assets purchased in the acquisition and the liabilities assumed during the process. Goodwill exists primarily due to its brand name, robust customer base, good customer relations, good employee relations, and proprietary technology. Goodwill indirectly represents the reputation of the company. It helps in acquiring new customers, besides also retaining the existing ones. Goodwill represents the true value of a company, that is, its total worth over and above its market value. Another reason for goodwill recorded in the balance sheet is that its an additional cost incurred for acquisition as part of the purchase price. So, these costs get assimilated as capitalized costs instead of being pushed towards income statement as expenses. The benefit gets considerably derived over a long period. The goodwill remains over the company balance sheet over an indefinite time. However, its value may get impaired over a while. An impairment charge has to be incurred, and marked off by charging to profit & loss account debit side.

II)

Assets held-for-sale: Non- current assets get used over a considerable time. However, some of such assets get used over their substantial period of life, with no chances of further depreciation and creation of economic benefit. The only benefit that 21

accrues is the final selling price. Such assets take time to sell. If a company commits to selling it, it must be sold within 12 months and find a buyer for immediate acquisition. The given asset is marked at a price that reflects its fair value. As a result, they have to be put apart separately from the pool of other non-current assets and labeled as “assets held-for-sale”. Before classifying an asset or a disposal group as held-for-sale, a company works out its carrying value. An asset’s carrying value equals its cost minus accumulated depreciation and accumulated amortization. Once the conditions mentioned above are met, the asset gets classified as a held-forsale. Its carrying value is reduced if the fair value less cost to sell is lower, and the difference is charged to the income statement as a loss on held-for-sale assets. If the fair value less costs to sell is higher than the carrying value, no adjustment is needed, and the classification only results in additional disclosure. III)

Accrued Investment Income: Investment income is money received in interest payments, dividends, capital gains realized with the sale of stock or other assets, and any profit made through an investment vehicle. Interest earned on bank accounts, dividends received from stock owned by mutual fund holdings, and the profits on the sale of gold coins are all considered investment income. Accrued Investment Income refers to that portion of earning from the investments that have not yet been received by the investing entity, and to which the investing entity is entitled. It uses a concept under the accrual basis of accounting wherein income can be earned, even when the related cash has not yet been received. Under the accrual basis, the investing entity should accrue its best estimate of the income in the accounting period in which it earns the income. A business operating under the cash basis of accounting would not record this entry since it would only record income upon the receipt of cash. Such usually delays the recognition of income.

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5 Look at the company cash flow statement o Copy the statement into you document as an image and describe what happened during the year

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❖ Cash flows declined at the rate of -15.6 % from the previous year of 2019. ❖ Record Losses on derivatives in 2020 at the rate of – 386% from the previous year's figures of 2019. ❖ Other liabilities shot down by negative 15 times increase from the previous year 2019. ❖ A significant amount of business was purchased in 2020. The amount spent was 53 times more than being spent on purchases in 2019. ❖ A considerable negative loss on the sale of the business in 2019 was replaced by a positive balance figure in 2020.

o Provide some explanations of the activity over the year. ❖ Since 2016 there has been a consistent decline in MetLife cash flows. It can be linked to the fact that there has been a constant array of lower interest rates in European markets due to the exit of many corporate players from the capital markets across the globe. UK Wealth Management business was the core revenue generator for the corporation but unfortunately had to be closed abruptly in 2017. So MetLife has been compelled to divest in non-core high-risk, unprofitable operations in every possible measure to generate some kind of free cash flow. The company experienced a positive cash flow in 2019, but the class-action lawsuit legal penalty was imposed upon the company to the tune of $ 84 million for fraudulently coaxing investments in 2010-11 via underreporting its death benefit liabilities. It probably caused cash flows to go negative again in 2020. ❖ The recent widespread COVID-19 catastrophe thwarted and hampered the financial well-being of the capital markets across the world. Derivatives are generally securities to cover up the risk of exchange rates in international markets while dealing in goods. With 26

almost minuscule trade in 2020 owning to COVID 19 pandemic across the globe, the loss on derivatives was quite imminent for MetLife. ❖ Payables related to securities purchased but not yet settled, securities sold short, accrued interest on debt obligations, estimated fair value of derivative obligations, deferred compensation arrangements, guaranty liabilities, and accruals and accounts payable due under contractual obligations, which are all reported in other liabilities on the consolidated balance sheet. They arise due to contractual obligations. However, in 2020, a considerable portion of them couldn’t be established due to the stagnant capital market owning to the COVID-19 pandemic. Hence, a significant segment of them got marked off the balance sheet in 2020.

❖ Intending to deploy capital to the highest-value opportunities, MetLife acquired Versant Health, a prominent vision care company, in an allcash deal valued at $1.675 billion in 2020. MetLife estimated that more than 90 percent of employees in the U.S. workforce were “interested in receiving vision insurance through their employer.” As a result of the acquisition, MetLife will have access to the approximately 35 million members of Versant Health, essentially transforming the insurer into the nation’s third-largest vision care insurer. ❖ MetLife has been busy streamlining its business over the years. It continually focuses on the businesses with growth potential and fixes or exits businesses that do not create value. MetLife started in 2017 and had to take tough decisions, selling off its pivotal and prominent businesses to avoid low-interest rates and release blocked-up capital stuck in unprofitable ventures. That’s why a significant loss on the sale of the business in 2019 can be attributed to such measures. However, the positive figures in 2020 signify that MetLife has gotten over its unproductive ventures and is currently disposing of not-so-significant businesses. 27

6 Perform a financial ratio assessment of the company and provide explanations and thoughts on the ratios. Financial Ratio Assessment of MetLife

Liquidity Ratios

I)

Current Ratio = Current Assets/Current Liabilities 3904+19795+3388/393+587+129= 27087/1109=24.4:1

=

The current Ratio denotes an organization's obligation to fulfill its short-term debt obligations. An optimum current ratio must be 2 :1. However, being an insurance company, the need for cash remains comparatively high. IFRS establishes yearly benchmark limits for such ratios based upon types of industry. The established benchmark for 2020 was 16.92:1. In...