Scope IFRS 7 Financial instruments Disclosures High level summary
IFRS 7 applies to all recognised and unrecognised financial instruments (including contracts to buy or sell non-financial assets) except:
Disclosure requirements: Significance of financial instruments in terms of the financial position and performance
Statement of financial position
Comparability – An enhancing qualitative characteristic that enables users to identify and understand similarities in, and differences among, items.
The Conceptual Framework provides the following guidance [Conceptual Framework 2.24 – 2.29]:
Users’ decisions involve choosing between alternatives, for example, selling or holding an investment, or investing in one reporting entity or another. Consequently, information about a reporting entity is more useful if it can be compared with similar information about other entities and with similar information about the same entity for another period or another date.
Comparing Financial Statements between companies is the qualitative characteristic that enables users to identify and understand similarities in, and differences among, items. Unlike the other qualitative characteristics, comparability does not relate to … Read more
Combined financial statements: represents the combination of two or more legal entities or businesses that may or may not be part of the same group, but do not by themselves meet the definition of a group under IFRS 10 Consolidated Financial Statements – i.e. a parent and all of its subsidiaries. At a simplistic level, preparing combined financial statements involves adding together two or more legal entities and eliminating any inter-company transactions – e.g. intercompany profits, revenue and expenses, receivables and payables and equity (e.g. unrealised gains and losses).
These activities are typically under common control, BUT do not comprise an existing legal entity or group and are presented as a single reporting entity.
For some combined financial … Read more
Identified asset, a term from IFRS 16 Leases. Let’s see what it is all about….
An asset is identifiable if it either:
- Is separable, i.e., is capable of being separated or divided from the entity and sold, transferred, licensed, rented, or exchanged, either individually or together with a related contract, identifiable asset or liability, regardless of whether the entity intends to do so; or
- Arises from binding arrangements (including rights from contracts or other legal rights), regardless of whether those rights are transferable or separable from the entity or from other rights and obligations.
Note: Even though the definition given requires an intangible asset to be identifiable to distinguish it from goodwill, any goodwill recognised in an acquisition is an … Read more
Leases explained along defined terms to obtain a quick overview. An overview is provided here.
Definitions from IFRS 16 Leases are:
IFRS 16 Leases: A contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration.
Lease payments – Payments made by a lessee to a lessor relating to the right to use an underlying asset during the lease term, comprising the following:
- fixed payments (including in-substance fixed payments), less any lease incentives;
- variable lease payments that depend on an index or a rate;
- the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and
- payments of
Economic life also known as useful life is either Economic life
- the period over which an asset is expected to be economically usable by one or more users, or Economic life
- the number of production or similar units expected to be obtained from an asset by one or more users. Economic life
IFRS 16 Leases introduced the term ‘Assets of low value’. IFRS 16 does not provide much guidance to assess what ‘low value’ means. There is no definition. The value referred to as ‘low value’ is the value of the asset when it was new, regardless of the age of the asset at inception of the lease.
The Basis for Conclusions of IFRS 16 provided the following guidance: Assets of low value
‘The IASB intended the exemption to apply to leases for which the underlying asset, when new, is of low-value (such as leases of tables and personal computers, small items of office furniture and telephones). At the time of reaching decisions about the exemption in 2015, the IASB had in … Read more
IFRS 2 Quick-start best share-based payments – A share-based payment is accounted for under IFRS 2 if it meets the definition of a share-based payment transaction and the transaction is not specifically scoped out of the standard.
The standard does not contain a stand-alone definition of a share-based payment but provides a complex two-step definition using the terms ‘share-based payment arrangement’ and ‘share-based payment transaction’. The definitions are as follows. (IFRS 2 A Defined terms)
A ‘share-based payment arrangement’ is an agreement between the entity (or another group entity or any shareholder of any group entity) and another party, including an employee, that entitles the other party to receive:
IFRS 2 Taxes and share-based payments best studies – In some countries, a share-based payment arrangement may be subject to a tax payment related either to the employee’s own tax obligations or to employee-based taxes levied on the employer. The tax is often based on the difference between the share price and the exercise price, measured at the exercise date.
Alternatively, the tax may be calculated based on the grant-date fair value of the grant.
Tax payments when employee has primary liability
In many cases, the tax obligation is a liability of the employee and not the employer, although the employer may have an obligation to collect it or withhold it.
If the employer has an obligation to collect or … Read more
The 2 essential types of share-based payments – Snapshot
Share-based payments are classified based on whether the entity’s obligation is to deliver its own equity instruments (equity-settled) or cash or other assets (cash-settled).
1. Equity-settled share-based payments
For equity-settled transactions, an entity recognises a cost and a corresponding entry in equity.
Measurement is based on the grant-date fair value of the equity instruments granted.
Market and non-vesting conditions are reflected in the initial measurement of fair value, with no subsequent true-up for differences between expected and actual outcome.
The estimate of the number of equity instruments for which the service and non-market performance conditions are expected to be satisfied is revised during the vesting period such that the cumulative amount … Read more