Best complete read IAS 24 Disclosure Related party transactions

Disclosure Related party transactions

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Disclosure Related party transactions provides a summary of IFRS reporting requirements regarding IAS 24 Related party transactions and a possible disclosure schedule. However, as this publication is a reference tool, no disclosures have been removed based on materiality. Instead, illustrative disclosures for as many common scenarios as possible have been included. Please note that the amounts disclosed in this publication are purely for illustrative purposes and may not be consistent throughout the example disclosure related party transactions.

Presentation

All of the related party information required by IAS 24 that is relevant to the Reporting entity Plc has been presented, or referred to, in one note. This is considered to be a convenient and desirable method of presentation, but there is no requirement to present the information in this manner. Compliance with the standard could also be achieved by disclosing the information in relevant notes throughout the financial statements.

Materiality

The disclosures required by IAS 24 apply to the financial statements when the information is material. According to IAS 1 Presentation of Financial Statements, Disclosure Related party transactionsmateriality depends on the size and nature of an item. It may be necessary to treat an item or a group of items as material because of their nature, even if they would not be judged material on the basis of the amounts involved. This may apply when transactions occur between an entity and parties who have a fiduciary responsibility in relation to that entity, such as those transactions between the entity and its key management personnel. [IAS1.7]

Key management personnel compensation

While the disclosures under paragraph 17 of IAS 24 are subject to materiality, this must be determined based on both quantitative and qualitative factors. In general, it will not be appropriate to omit the aggregate compensation disclosures based on materiality. Whether it will be possible to satisfy the disclosure by reference to another document, such as a remuneration report, will depend on local regulation. IAS 24 itself does not specifically permit such cross-referencing.

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IFRS 16 Good Important Read – Lease payments

Lease payments – Lessee perspective

or what does a lessee include in its lease liability?

At the commencement date, a lessee measures the lease liability as the present value of lease payments that have not been paid at that date. In a simple lease that includes only fixed lease payments, this can be a simple calculation (IFRS 16.26).

Lease payments

Worked example – Fixed lease payments are included in lease liabilities
Lessee B enters into a five year lease of a photocopier. The lease payments are 10,000 per annum, paid at the end of each year.

Because the annual lease payments are fixed amounts, B includes the present value of the five annual payments in the initial measurement of the lease liability.

Using a discount rate (determined as B’s incremental borrowing rate) of 5%, the lease liability at the commencement date is calculated as follows:

Year

Lease payments

Discounted

1

10,000

9,524

2

10,000

9,070

3

10,000

8,638

4

10,000

8,227

5

10,000

7,835

Lease liability at commencement date

43,294

 

Categories of lease payment

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IFRS vs US GAAP Employee benefits

IFRS vs US GAAP Employee benefits

The following discussion captures a number of the more significant GAAP differences under both the impairment standards. It is important to note that the discussion is not inclusive of all GAAP differences in this area.

The significant differences and similarities between U.S. GAAP and IFRS related to accounting for investment property are summarized in the following tables.

Standards Reference

US GAAP1

IFRS2

715 Compensation – Retirement benefits

710-10 Compensation- General – Overall

712-10 Compensation – Nonretirement Postemployment Benefits – Overall

IAS 19 Employee Benefits

IFRIC 14 The limit on a defined benefit asset minimum funding requirements and their interaction

Introduction

The guidance under US GAAP and IFRS as it relates to employee benefits contains some significant differences with potentially far-reaching implications.

This narrative deals with employee benefits provided under formal plans and agreements between an entity and its employees, under legislation or through industry arrangements, including those provided under informal practices that give rise to constructive obligations.

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Some challenges in measurement bases for best 1 in quality IFRS reporting

Some challenges in measurement bases

for best 1 in quality IFRS reporting

– When applied to financial reporting the term measurement can give a misleading Some challenges in measurement basesimpression 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’).

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 to be measurements of value. However, value can mean different things. A particular asset might be valued at, for example, its historical cost, its replacement cost or its market value. It cannot be said that any one of these measurements is the one and only correct value for the asset. Each value, if the measurement is made properly, will be correct on the basis being used. In the conceptual framework, the financial reporting standard-setters refer to the different attributes of assets and liabilities, which give different values when measured. Historical cost, replacement cost and market value are all attributes in this sense.

The diversity of the purposes for which financial reporting information is used means that a basis of measurement appropriate for one purpose may not be appropriate for all other purposes. If you ask someone the question, ‘What is this company’s income?’, the reply ‘Why do you want to know?’ may be a sensible first step towards providing a useful answer. There is no single, right answer to the question. Some challenges in measurement bases

As said before financial reporting measurements are inherently a matter of judgment, subjectivity and convention. Measurements of transactions for financial reporting that are affected by one or more of these fundamental problems when one measurement technique is used may well be faced by another fundamental problem if an alternative technique is tried. For such items there is no escape from subjectivity in measurement.

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Best guide IFRS 16 Lessee modifications

Best guide IFRS 16 Lessee modifications

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.

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Best guide IFRS 16 Lessor modifications

Best guide IFRS 16 Lessor modifications

summarises the accounting for lessor modifications that depends on – and may change – the lease classification.

Unlike IAS 17 Leases, the new standard provides detailed guidance on the lessor accounting for lease modifications, with separate guidance for modifications to finance leases and operating leases.

However, additional complexities arise for modifications of a finance lease receivable not accounted for as a separate lease for which, under paragraph 80(b) of IFRS 16, the lessor applies the requirements of IFRS 9 Financial Instruments. A number of issues arise due to differences in the basic concepts between IFRS 16 and IFRS 9.

The following diagram summarises the accounting for lease modifications by a lessor.

Best guide IFRS 16 Lessor modifications

Separate lease Not a separate lease – Finance to operating Not a separate lease – Finance to finance Lessor modifications to operating expenses

* A lessee reassessment of whether it is reasonably certain to exercise an option to extend, or not to exercise a termination option, included in the original lease contract is not a lease modification

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IFRS 16 Effective date of a modification

IFRS 16 Effective date of a modification

The date on which to account for a lease modification is a key consideration – and may be earlier than you think.

Lease modifications are accounted for at the effective date of the lease modification. This is the date on which both parties agree to the lease modification. For modifications that are not accounted for as separate leases, the lease liability and right-of-use asset are remeasured at this date.

Complex application issues arise if the modification is agreed on one date but an additional right of use starts on a later date. This section illustrates some issues. IFRS 16 Effective date of a modification

The following diagram summarises the accounting for common scenarios in which a modification is agreed on one date but the change in the right of use or consideration happens at a different date. IFRS 16 Effective date of a modification

IFRS 16 Effective date of a modification

When a modification is accounted for as a separate new lease, it is accounted for in the same way as any other new lease.

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Beware of COVID 19 Rent concessions IFRS accounting

Beware of COVID 19 Rent concessions IFRS accounting

IFRS 16 amendments Corona Rent concessions provide relief to lessees in accounting for rent concessions.

IFRS 16 Rent concession amendments in a nutshell

The lessee perspective

The amendments to IFRS 16 add an optional practical expedient that allows lessees to bypass assessing whether a rent concession that meets the following criteria is a lease modification:

  • it is a direct consequence of COVID-19; Beware of COVID 19 Rent concessions IFRS accounting
  • the revised lease consideration is substantially the same as, or less than, the original lease consideration;
  • any reduction in the lease payments applies to payments originally due on or before June 30, 2021; and
  • there is no substantive change to the other terms and conditions of the lease.

Lessees who elect this practical expedient account for qualifying rent concessions in the same way as changes under IFRS 16 that are not lease modifications. The accounting will depend on the nature of the concession, but one outcome might be to recognize negative variable lease payments in the period in which the lessor agrees to an unconditional forgiveness of lease payments.

Lessees are required to apply the practical expedient consistently to similar leases and similar concessions. They must also disclose if they elected the practical expedient and for which concessions, as well as the amount recognized in profit and loss in the reporting period to reflect changes in lease payments that arise from rent concessions to which they have applied the practical expedient.

The amendments are effective for reporting periods beginning after June 1, 2020, with early application permitted.

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IAS 24 Related parties by definition

IAS 24 Related parties by definition starts with two classes of related parties:Third party services

  • person(s) IAS 24 Related parties by definition
  • entity(ies) IAS 24 Related parties by definition

in relation to the central entity in this standards the REPORTING ENTITY. IAS 24 Related parties by definition

The reporting entity in IAS 24 is referred to (so it strictly is spoken not an IFRS Definition) as the entity that is preparing its financial statements (consolidated and/or unconsolidated).

PERSONS

For persons it includes close members of that person’s family – where family is sometimes broader than a domestic (legal) definition of a married couple, as follows:

Starting point is a person and its relation with the reporting entity, the (related party) person has … Read more

How to best account for COVID-19 under IAS 10

How to best account for COVID-19 under IAS 10 Events after the reporting period? The question is whether the COVID-19 crises is an adjusting event of a non-adjusting event for the Financial Statements for the period ended 31 December 2019 that have not been authorised for final distribution to stakeholders or for filing at a chamber of commerce or similar institute.

If it is a non-adjusting event what disclosures does it still require in the financial statements or management report accompanying these financial statements?

In terms of accounting implications, the current consensus is that an entity shall not adjust the amounts recognized in its financial statements (IAS 10 10 Non-adjusting events) as at 31 December 2019 to reflect … Read more