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.
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
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 … Read more
Arrangements with multiple parties – Identifying the customer can be more challenging when there are multiple parties involved in a transaction. The analysis should include understanding the substance of the relationship of all parties involved in the transaction. Arrangements with multiple parties
Arrangements with three or more parties, particularly if there are separate contracts with each of the parties, require judgment to evaluate the substance of those relationships. Management will need to assess which parties are customers and whether the contracts meet the criteria to be combined when applying the guidance in IFRS 15.
An entity needs to assess whether it is the principal or an agent in an arrangement that involves multiple parties. Has the entity promised to provide … Read more
Principal versus agent considerations – If an arrangement involves three or more parties, an entity will have to determine whether it is acting as a principal or an agent in order to determine the amount of revenue to which it is entitled. For example, technology entities may offer a platform to sell virtual or digital goods on behalf of a third party or they may contract with an advertising agency to deliver advertising content to a website or mobile application.
When the entity is the principal in the contract, the revenue recognised is the gross amount (i.e., the amount to which the entity expects to be entitled as the principal). When the entity is the agent, the revenue recognised is … Read more
Control of an investee exists when an investor controls an investee as it's exposed, or has rights, to variable returns from its involvement with the investee
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