Determining a leases discount rate

Determining a leases discount rate

The definition of the lessee’s incremental borrowing rate states that the rate should represent what the lessee ‘would have to pay to borrow over a similar term and with similar security, the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment.’ In applying the concept of ‘similar security’, a lessee uses the right-of-use asset granted by the lease and not the fair value of the underlying asset.

This is because the rate should represent the amount that would be charged to acquire an asset of similar value for a similar period. For example, in determining the incremental borrowing rate on a 5 year lease of a property, the security for the portion of the asset being leased (i.e. the 5 year portion of its useful life) would be likely to vary significantly from the outright ownership of the property, as outright ownership would confer rights over a period of time that would typically be significantly greater than the 5-year right-of-use asset contained in the lease.

In practice, judgement may be needed to estimate an incremental borrowing rate in the context of a right-of-use asset, especially when the value of the underlying asset differs significantly from the value of the right-of-use asset.

An entity’s weighted-average cost of capital (‘WACC’) is not appropriate to use as a proxy for the incremental borrowing rate because it is not representative of the rate an entity would pay on borrowings. WACC incorporates the cost of equity-based capital, which is unsecured and ranks behind other creditors and will therefore be a higher rate than that paid on borrowings.

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Example accounting policies

Example accounting policies

Get the requirements for properly disclosing the accounting policies to provide the users of your financial statements with useful financial data, in the common language prescribed in the world’s most widely used standards for financial reporting, the IFRS Standards. First there is a section providing guidance on what the requirements are, followed by a comprehensive example, easy to tailor to the specific needs of your company.Example accounting policies

Example accounting policies guidance

Whether to disclose an accounting policy

1. In deciding whether a particular accounting policy should be disclosed, management considers whether disclosure would assist users in understanding how transactions, other events and conditions are reflected in the reported financial performance and financial position. Disclosure of particular accounting policies is especially useful to users where those policies are selected from alternatives allowed in IFRS. [IAS 1.119]

2. Some IFRSs specifically require disclosure of particular accounting policies, including choices made by management between different policies they allow. For example, IAS 16 Property, Plant and Equipment requires disclosure of the measurement bases used for classes of property, plant and equipment and IFRS 3 Business Combinations requires disclosure of the measurement basis used for non-controlling interest acquired during the period.

3. In this guidance, policies are disclosed that are specific to the entity and relevant for an understanding of individual line items in the financial statements, together with the notes for those line items. Other, more general policies are disclosed in the note 25 in the example below. Where permitted by local requirements, entities could consider moving these non-entity-specific policies into an Appendix.

Change in accounting policy – new and revised accounting standards

4. Where an entity has changed any of its accounting policies, either as a result of a new or revised accounting standard or voluntarily, it must explain the change in its notes. Additional disclosures are required where a policy is changed retrospectively, see note 26 for further information. [IAS 8.28]

5. New or revised accounting standards and interpretations only need to be disclosed if they resulted in a change in accounting policy which had an impact in the current year or could impact on future periods. There is no need to disclose pronouncements that did not have any impact on the entity’s accounting policies and amounts recognised in the financial statements. [IAS 8.28]

6. For the purpose of this edition, it is assumed that RePort Co. PLC did not have to make any changes to its accounting policies, as it is not affected by the interest rate benchmark reforms, and the other amendments summarised in Appendix D are only clarifications that did not require any changes. However, this assumption will not necessarily apply to all entities. Where there has been a change in policy, this will need to be explained, see note 26 for further information.

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What Is Fintech reporting IFRS 15

What Is Fintech or Financial Technology And Its Benefits?

New and fast-growing technologies like Financial Technology or Fintech have the potential benefits to collect and process data in real-time. This transforms how all businesses are working, how products and services are creating in the new economy, and how customers are engaging in this process. Every professional and commercial industry is affecting due by this change in workflows and business processes. The financial and economic sector is no exception.

Financial Technology or Fintech?

Fintech, short for Financial Technology, is a growing field and is now an economic revolution by the tech-savvy. It is the development of new technology to transform traditional institutions such as banks and insurance companies by uplift how they handle their finances and economic services. The process is not only digitizing money but also monetizing data to fit into the digitized world.

FinTech solutions have huge potential benefits for all businesses, especially new and existing small businesses. Small and medium-sized enterprises (SMEs) are essential for economic maturity and employment. However, others may find it difficult to get the financing they need to survive and thrive.

Example

Automated drafting of portfolio management commentaries – Analytics & Reporting (October 2018, Societe Generale Securities Services)

Addventa Fintech exclusive partnership for automated drafting of portfolio management commentaries based on artificial intelligence solutions.

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Better Communication in Financial Reporting

Better Communication in Financial Reporting

Better Communication in Financial Reporting is an IFRS.org initiative to focus financial reporting on users. There is a general view that financial reports have become too complex and difficult to read and that financial reporting tends to focus more on compliance than communication. See also narrative reporting as a discussion on alternative ways of reporting.

At the same time, users’ tolerance for sifting through information to find what they need continues to decline.

This has implications for the reputation of companies who fail to keep pace. A global study confirmed this trend, with the majority of analysts stating that the quality of reporting directly influenced their opinion of the quality of management.

To demonstrate what companies could do to make their financial report more relevant, there are several suggestions to ‘streamline’ the financial statements to reflect some of the best practices that have been emerging globally over the past few years. In particular:

  • Information is organized to clearly tell the story of financial performance and make critical information more prominent and easier to find.
  • Additional information is included where it is important for an understanding of the performance of the company. For example, we have included a summary of significant transactions and events as the first note to the financial statements even though this is not a required disclosure.

Improving disclosure effectiveness

Terms such as ’disclosure overload’ and ‘cutting the clutter’, and more precisely ‘disclosure effectiveness’, describe a problem in financial reporting that has become a priority issue for the International Accounting Standards Board (IASB or Board), local standard setters, and regulatory bodies. The growth and complexity of financial statement disclosure is also drawing significant attention from financial statement preparers, and more importantly, the users of financial statements.

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Components of Financial Statements

Components of Financial Statements – The following comprise a complete set of financial statements:

  • a statement of financial position,
  • a statement of profit or loss and other comprehensive income, presented either:
    • in a single statement that included all components of profit or loss and other comprehensive income, or
    • in the form of two separate statements:
      • one displaying components of profit or loss,
      • immediately preceding another statement beginning with profit or loss and displaying components of other comprehensive income,
  • a statement of changes in equity,
  • a statement of cash flows,
  • notes to the financial statements, comprising significant accounting policies and other explanatory information,
  • a (third) statement of financial position as at the beginning of the preceding period where an entity restates comparative information following:
    • a change in accounting policy,
    • a correction of an error, or
    • a reclassification of items in the financial statements, and
    • comparative information in respect of the preceding period.

Components of Financial Statements Components of Financial Statements

Components of Financial Statements

a (third) statement of financial position as at the beginning of the preceding period where an entity restates comparative information following a (third) statement of financial position as at the beginning of the preceding period where an entity restates comparative information following a (third) statement of financial position as at the beginning of the preceding period where an entity restates comparative information following

a (third) statement of financial position as at the beginning of the preceding period where an entity restates comparative information following a (third) statement of financial position as at the beginning of the preceding period where an entity restates comparative information following a (third) statement of financial position as at the beginning of the preceding period where an entity restates comparative information following

Components of Financial Statements

Combined financial statements

Combined financial statements: 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).

Accounting policies

Accounting policies: The specific principles, bases, conventions, rules, and practices applied by an entity in preparing and presenting financial statements.

First IFRS financial statements

The first annual financial statements in which an entity adopts International Financial Reporting Standards (IFRSs), by an explicit and unreserved statement of compliance with IFRSs. IFRS 1 sets out detailed rules that entities must follow when adopting IFRS for the first time. The standard also sets out a number of exemptions that may be applied when adopting IFRS. If an entity wishes to apply either of these exemptions a full audit trail must be produced to outline the assessment and sufficient evidence must be provided to evidence that the application of the exemption is appropriate.

Notes to the financial statements

Notes to the financial statements that contain information in addition to the statement of financial position, of financial performance, of changes in equity

The Main Statements of Financial Statements – 1 Updated Reward to

The Main Statements of Financial StatementsThe Main Statements of Financial Statements

This is some explanation of the basic presentation of Financial Statements into a categorised format that is useful for the most of the users for Financial Statements.

There are four main financial statements:

  1. Statement of Financial Position,
  2. Statement of Profit or Loss and Other Comprehensive Income,
  3. Statement of Cash Flows,
  4. Statement of changes in Shareholders’ Equity.

Then to complete the contents of Financial Statements there are the ‘Notes to the Financial Statements‘. The Main Statements of Financial Statements

Keep in mind that as part of the Better Business Reporting project (Better communication in financial reporting) by among others IFRS and audit firms, reporting is more and more about better (easier, aligned to Read more