– Certain decision-makers may be obligated to exercise their decision powers on behalf of other parties and do not exercise their decision powers for their own benefit. IFRS 10 regards such decision-makers as ‘agents’ that are engaged to act on behalf of another party (the ‘principal’).
A principal may delegate some of its power over the investee to the agent, but the agent does not control the investee when it exercises that power on behalf of the principal (IFRS 10.B58).
Power normally resides with the principal rather than the agent (IFRS 10.B59). There may be multiple principals, in which case each of the principals should assess whether it has power over the … Read more
There are two asset definitions in current IFRS Standards, in IAS 38 Intangible assets and in the Conceptual Framework for Financial Reporting. The wording deviated but the meaning is exactly the same, here they are:
IAS 38 Intangible assets
The asset definition as per IAS 38 Intangible assets is as follows – an asset is a resource:
controlled by an entity as a result of past events; and
from which future economic benefits are expected to flow to the entity.
Before providing examples of assets, let’s analyse the asset definition.
– determines which entities are consolidated in a parent’s financial statements and therefore affects a group’s reported results, cash flows and financial position – and the activities that are ‘on’ and ‘off’ the group’s balance sheet. Under IFRS, this control assessment is accounted for in accordance with IFRS 10 ‘Consolidated financial statements’.
Some of the challenges of applying the IFRS 10 Special control approach include:
identifying the investee’s returns, which in turn involves identifying its assets and liabilities. This may appear straightforward but complications arise when the legal ownership of assets diverges from the accounting depiction (for example, in financial asset transfers that ‘fail’ de-recognition, and in finance leases). In general, the assessment of the investee’s assets and returns should be consistent with the accounting depiction in accordance with IFRS
it may not always be clear whether contracts and other arrangements between an investor and an investee
create rights or exposure to a variable return from the investee’s performance for the investor; or
transfer risk or variability from the investor to the investee IFRS 10 Special control approach
the relevant activities of an SPE may not be obvious, especially when its activities have been narrowly specified in its purpose and design IFRS 10 Special control approach
the rights to direct those activities might also be difficult to identify, because for example, they arise only in particular circumstances or from contracts that are outside the legal boundary of the SPE (but closely related to its activities).
IFRS 10 Special control approach sets out requirements for how to apply the control principle in less straight forward circumstances, which are detailed below: IFRS 10 Special control approach
when voting rights or similar rights give an investor power, including situations where the investor holds less than a majority of voting rights and in circumstances involving potential voting rights
when an investee is designed so that voting rights are not the dominant factor in deciding who controls the investee, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements IFRS 10 Special control approach
involving agency relationships IFRS 10 Special control approach
when the investor has control only over specified assets of an investee
summarises the process surrounding changes in lease contracts that identify as lease modification.
A lessee that chooses not to apply the practical expedient(IFRS 16 option for rent concessions arising directly from the COVID-19 pandemic that are not going to be accounted for as lease modifications), or agrees changes to its lease contracts that do not qualify for the practical expedient, assesses whether there is a lease modification.
Overview
A change in the scope of a lease, or the consideration for a lease, that was not part of the original terms and conditions meets the standard’s definition of a lease modification.
A lessee accounts for a lease modification as a separate lease if both of the following conditions exist:
the modification increases the scope of the lease by adding the right to use one or more underlying assets; and
the consideration for the lease increases by an amount equivalent to the stand- alone price for the increase in scope and any appropriate adjustments to that stand-alone price to reflect the circumstances of the particular contract.
For a modification that is not a separate lease, at the effective date of the modification the lessee accounts for it by remeasuring the lease liability using a discount rate determined at that date and:
for modifications that decrease the scope of the lease: decreasing the carrying amount of the right-of-use asset to reflect the partial or full termination of the lease, and recognising a gain or loss that reflects the proportionate decrease in scope; and
for all other modifications: making a corresponding adjustment to the right-of- use asset.
If an entity holds money on behalf of clients (‘client money’):
should the client money be recognised as an asset in the entity’s financial statements?
where the client money is recognised as an asset, can it be offset against the corresponding liability to the client on the face of the statement of financial position?
DEFINITION: Client money
“Client money” is used to describe a variety of arrangements in which the reporting entity holds funds on behalf of clients. Client money arrangements are often regulated and more specific definitions of the term are contained in some regulatory pronouncements. The guidance in this alert is not specific to any particular regulatory regime.
Entities may hold money on behalf of clients under many different contractual arrangements, for example:
a bank may hold money on deposit in a customer’s bank account;
a fund manager or stockbroker may hold money on behalf of a customer as a trustee;
an insurance broker may hold premiums paid by policyholders before passing them onto an insurer;
a lawyer or accountant may hold money on behalf of a client, often in a separate client bank account where the interest earned is for the client’s benefit.
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.
Overview IFRS 10 Consolidated Financial Statements – Short – To establish principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities Overview IFRS 10 Consolidated Financial Statements
Longer – IFRS 10 replaces the part of IAS 27 Consolidated and Separate Financial Statements that addresses accounting for subsidiaries on consolidation. What remains in IAS 27 after the implementation of IFRS 10 is the accounting treatment for subsidiaries, jointly controlled entities and associates in their separate financial statements.
The aim of IFRS 10 is to establish a single control model that is applied to all entities including special purpose entities. The changes require those dealing with the implementation of IFRS 10 to exercise … Read more
Securitisation entails pooling the cash flows and selling them to investors via a special purpose vehicle, turning ‘illiquid’ assets into a more ‘liquid’ asset.
What Does a Performance Obligation Look Like – IFRS 15 Revenue from Contracts with Customers (contents page is here) introduced a single and comprehensive framework which sets out how much revenue is to be recognised, and when. The core principle is that a vendor should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the vendor expects to be entitled in exchange for those goods or services. See a summary of IFRS 15 here.
Contracts with customers generally state explicitly the goods or services that an entity promises to transfer to a customer. However, promised goods or services in a contract may also be implied … Read more
