IFRS 2 Fair value of equity instruments granted

IFRS 2 Fair value of equity instruments granted – Share-based payment transactions with employees are measured with reference to the fair value of the equity instruments granted (IFRS 2.11).

The fair value of a equity instrument granted is determined as follows (IFRS 2.16-17):

  • If market prices are available for the actual equity instruments granted – i.e. shares or share options with the same terms and conditions – then the estimate of fair value is based on these market prices. IFRS 2 Fair value of equity instruments granted
  • If market prices are not available for the equity instruments granted, then the fair value of equity instruments granted is estimated using a valuation technique.

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IFRS 2 How to easily determine the grant date

IFRS 2 How to easily determine the grant date – The determination of grant date is important because this is the date on which the fair value of equity instruments granted is measured. Usually, grant date is also the date on which recognition of the employee cost begins. However, this is not always the case (see 6.4.10) (reference will follow). (IFRS 2 11)

‘Grant date’ is the date at which the entity and the employee agree to a share-based payment arrangement, and requires that the entity and the employee have a shared understanding of the terms and conditions of the arrangement. (IFRS 2 Definitions) IFRS 2 How to easily determine the grant date

In order for … Read more

Fair value measurement

Fair Value Measurement can present significant challenges for preparers of financial statements, particularly because it involves using judgment and estimation. Further, it is the market participant view that shapes fair value, so preparers need to monitor whether the valuation models and assumptions they use for financial reporting appropriately reflect those of market participants.

Fair Value Measurement under IFRS 13: Fair value measurement

  1. defines fair value;
  2. sets out in a single IFRS a framework for measuring fair value; and
  3. requires disclosures about fair value measurements.

The definition of fair value focuses on assets and liabilities because they are a primary subject of accounting measurement. In addition, IFRS 13 is applied to an entity’s own equity instruments measured at fair value.

The … Read more

Verifiability

Verifiability – An enhancing qualitative characteristic that enables different knowledgeable and independent observers to reach consensus, although not necessarily complete agreement, that a particular depiction is a faithful representation.

The Conceptual Framework provides the following guidance [Conceptual Framework 2.30 – 2.32]:

Verifiability

Verifiability helps assure users that information faithfully represents the economic phenomena it purports to represent. Verifiability means that different knowledgeable and independent observers could reach consensus, although not necessarily complete agreement, that a particular depiction is a faithful representation. Quantified information need not be a single point estimate to be verifiable. A range of possible amounts and the related probabilities can also be verified.

Verification can be direct or indirect. Direct verification means verifying an amount or … Read more

Allocation to periods and assets

Allocation to periods and assets Allocation to periods and assets – Many measurements in financial reporting involve allocations of costs and revenues to different accounting periods and different assets. These allocations inevitably include an element of arbitrariness and therefore subjectivity. Just to name a few obvious items:

  • Depreciation of fixed assets involves judgmental allocation decisions (See explanation below).
  • Where assets are bought for stock (or inventory) and subsequent resale, unless the cost of each one can be individually identified (or unless their purchase price never changes), calculation of a particular asset’s purchase price involves a judgmental allocation.
  • For measurements of discounted future liabilities, allocation to different accounting periods depends on the choice of an appropriate discount rate, which inevitably involves a significant element
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Some challenges in measurement bases for financial reporting

Some challenges in measurement bases for financial reporting – When applied to financial reporting the term measurement can give a misleading Some challenges in measurement bases for financial reporting impression of certainty and objectivity. In daily life, measurements are typically made of the physical characteristics of physical objects – such as height, weight, temperature and so on. If accurate measurement tools are employed, information of this sort is objective and uncontroversial (a ‘fact’). The subjects of measurement in financial reporting, however, are abstract concepts of uncertain meaning such as income and net assets (an ‘estimate’). Some challenges in measurement bases for financial reporting

For this reason alone, their measurement is always liable to be controversial.

All measurements in financial reporting are expressed in monetary terms and therefore purport … Read more