Vesting period

Initial Coin Offering

Initial Coin Offering

An Initial Coin Offering (‘ICO’) is a form of fundraising that harnesses the power of cryptographic assets and blockchain-based trading. Similar to a crowdfunding campaign, an ICO allocates (issues or promises to issue) digital token(s) instead of shares to the parties that provided contributions for the development of the digital token. These ICO tokens typically do not represent an ownership interest in the entity, but they often provide access to a platform (if and when developed) and can often be traded on a crypto exchange. The population of ICO tokens in an ICO is generally set at a fixed amount.

It should be noted that ICOs might be subject to local securities law, and significant regulatory considerations might apply.

Each ICO is bespoke and will have unique terms and conditions. It is critical for issuers to review the whitepaper (A whitepaper is a concept paper authored by the developers of a platform, to set out an idea and overall value proposition to prospective investors. The whitepaper commonly outlines the development roadmap and key milestones that the development team expects to meet) or underlying documents accompanying the ICO token issuance, and to understand what exactly is being offered to investors/subscribers. In situations where rights and obligations arising from a whitepaper or their legal enforceability are unclear, legal advice might be needed, to determine the relevant terms.

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What is initial public offering

What is initial public offering

An Initial Public Offering (IPO) comprises of a privately owned business that wants access the public capital market through the sale of securities (shares in the before IPO privately owned business). Thereby, the business can raise monies more readily than by the retention of profits in order to also grow through acquiring other businesses. Other possible motivations for an IPO include the prestige of ownership of a public company or the desire of major shareholders to exit the company.

Back-door listings

Another way that entities may list is through a reverse restructure with an existing non-operating listed entity that has few assets or liabilities (i.e. a shell company) or a Special Purpose Acquisition Company (SPAC).

Special Purpose Acquisition Companies (SPACs) are publicly traded companies formed for the sole purpose of raising capital through an IPO and using the IPO proceeds to acquire one or more unspecified businesses in the future.

The management team that forms the SPAC (the “sponsor”) forms the entity and funds the offering expenses in exchange for founder shares. There are various tax considerations and complexities that can have significant implications both during the SPAC formation process and down the road.

Under these circumstances where a private entity is ‘acquired’ by the listed entity, this is commonly referred to as aWhat is initial public offering back-door listing. Since the listed non-operating entity is not a business, the transaction is not a business combination. Normally such transactions are accounted for similar to reverse acquisitions.

However, because the accounting acquiree is not a business the transaction is considered a share-based payment. That is, the private entity is deemed to have issued shares to obtain control of the listed entity and to the extent their fair value exceeds the fair value of the listed entity’s identifiable net assets an expense will arise.

Disclosure of key judgements

Determining the appropriate accounting treatment of a reverse restructure with an existing non-operating listed entity that has few assets or liabilities (i.e. a shell company) or a SPAC often involves judgements. Therefore entities need to ensure that they comply with the disclosure requirements of IAS 1 Presentation of Financial Statements (‘IAS 1’), specifically paragraph 122.

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The 2 essential types of share-based payments

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

IFRS 2 Employee equity-settled share-based payment

IFRS 2 Employee equity-settled share-based payment – Headlines

Employee services are recognised as expenses, unless they qualify for recognition as assets, with a corresponding increase in equity.

  • Employee service costs are recognised over the vesting period from the service commencement date until vesting date.
  • Employee services are measured indirectly with reference to the fair value of the equity instruments granted; this is done by applying the modified grant-date method. If, in rare circumstances, the fair value of the equity instruments granted cannot be measured reliably, then the intrinsic value method is applied.
  • Under the modified grant-date method, the grant-date fair value of the equity instruments granted is determined once at grant date, which may be after the service commencement date.
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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

IFRS 2 Determination of the vesting period

Overview IFRS 2 Determination of the vesting period

Employee service costs are recognised in profit or loss over the vesting period from the service commencement date until vesting date. The following topics are of importance in IFRS 2 Determination of the vesting period

Service commencement date and grant date

The ‘vesting period’ is the period during which all of the specified vesting conditions are to be satisfied in order for the employees to be entitled unconditionally to the equity instrument. Normally, this is the period between grant date and the vesting date (see IFRS 2 Definitions).

However, services are recognised when they are received and grant date may occur after the employees have begun rendering services. Grant date is … Read more

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.

IFRS 2 (IFRS … Read more

Defined Benefit Pension Plans

In traditional defined benefit pension plans, workers accrue a promise of a regular monthly payment from the date of their retirement until their death, or, in some cases, until the death Defined Benefit Pension Plansof their spouse. The promised life annuity (deferred) is commonly based on a formula linked to an employee’s wages or salary and years of tenure at the sponsoring firm. Defined Benefit Pension Plans

In a typical DB plan the member earns a unit of pension, usually expressed as a percentage of nominal earnings, for each year of credited service/participation. The DB pension may be indexed to inflation but in a number of countries such as the U.S. and Canada, this is uncommon in private sector pensions. Defined Benefit Pension … Read more

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.

Share-based payment

In share-based payment transactions, an entity receives goods or services from a counterparty and grants equity instruments (equity-settled share-based payment transactions) or incurs a liability to deliver cash or other assets for amounts that are based on the price (or value) of equity instruments (cash-settled share-based payment transactions) as consideration.

The following transactions are not in the scope of IFRS 2:

  • transactions with counterparties acting as shareholders rather than as suppliers of goods or services;
  • transactions in which a share-based payment is made in exchange for control of a business; and
  • transactions in which contracts to acquire non-financial items in exchange for a share-based payment are in the scope of the financial instruments standards.

A ‘counterparty’ can be … Read more

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