The comment period for the revenue recognition re-exposure ended last month, so this seems like a good moment to take a look at the progress of the IASB’s priority projects – revenue, leasing, financial instruments (all of these being convergence projects with the FASB) and insurance.
The comment period for the updated exposure draft, Revenue from Contracts with Customers, closed last month, but comments continue to stream in. Over 330 letters have been received, most supporting the boards’ continued efforts. That said, some respondents have expressed concerns with some of the proposals. Common themes include lack of clarity on how to identify separate performance obligations, performing the onerous assessment at the performance obligation level, and the volume of disclosures. Public round tables are scheduled to take place this month, and the boards are likely to begin redeliberations in May. It is not clear when a final standard will be issued; however, the boards have indicated the effective date will be no earlier than 2015.
The boards have made significant progress on several key redeliberation issues but have yet to reach consensus on two remaining areas: subsequent expense recognition for lessees and the approach for lessor accounting. There was general agreement at the February meeting that the front-loading of expenses should be addressed for lessees, but the boards could not agree on a solution. The staff will consult further with constituents about the operationality and usefulness of the different solutions for users.
There has been some discussion of lessor accounting, but there is a concern about the proposed scope exemption for all investment properties. The boards will consider lessor accounting at the same time as they consult on lessee accounting. The staffs are expected to report back to the boards during quarter two. This latest development has introduced a further delay to the project, and a revised exposure draft is not expected until the second half of 2012.
IFRS 9 is being addressed in three phases:
The IASB agreed in late 2011 to consider limited modifications to IFRS 9 for classification and measurement. This is an opportunity to work with the FASB to eliminate the differences between the two models, consider interaction with the insurance project and address application issues. An exposure draft is expected in the second half of 2012.
Impairment is still being redeliberated and is expected to be re-exposed in the second half of 2012.
A staff draft of the hedging proposals is expected in quarter two, with a final standard in the second half of 2012.
The boards have designed a building block model to measure insurance liabilities. They have reached key decisions on each of these building blocks. They have still to complete deliberations on certain topics, such as the unbundling of non-insurance components in a contract, residual margin, the use of other comprehensive income, review of the unit of account, presentation/ disclosures and transition issues.
The boards are also assessing whether and how any differences between the IASB and the FASB can be reconciled.
A revised exposure draft or final review draft is targeted for the second half of 2012. The date for the final standard, according to the IASB, is to be confirmed.
The IASB has amended IFRS 1, First-time Adoption of IFRS, to provide relief from the retrospective application of IFRS in relation to government loans.
The new exception requires first-time adopters to apply the requirements in IFRS 9, Financial Instruments, and IAS 20, Accounting for Government Grants and Disclosure of Government Assistance, prospectively to government loans that exist at the date of transition to IFRS. This will give first-time adopters the same relief as existing preparers. It means a first-time adopter can use its previous GAAP carrying amount for government loans on transition to IFRS.
The exception applies to recognition and measurement only. Management should use the requirements of IAS 32, Financial Instruments: Presentation, to determine whether government loans are classified as equity or as a financial liability.
The amendment applies to annual periods beginning on or after January 1, 2013. Earlier application is permitted.
How much do you know about share-based payments? Can you easily identify and account for them, or do you phone a friend? Test yourself against PwC’s share-based-payments specialist, Eniko Konczol, with this quiz about identifying, classifying, recognizing and measuring share-based payments. If you need to do some some background reading first, a good place to start is our topic summary on share-based payments.
Identifying share-based payments is not as straightforward as you might expect. It is broader than simply giving shares or share options to employees. IFRS 2 was issued in 2004, but some entities still struggle with its application. You need to understand the basics if you are going to account for them properly. The following questions help you to assess your knowledge.
Q1: Assess the following statements on the scope of IFRS 2 as true or false:
Q2: How you classify a share-based payment has an impact on how you measure it. What are the possible classifications for share-based payment transactions under IFRS 2?
Q3: When should you recognize the expense for an equity-settled share-based payment transaction that requires service from an employee to earn the award?
Q4: The grant date is important for measuring equity-settled share-based payment transactions because it is the measurement date. On March 15, 2010, the entity explained the key terms, including vesting conditions of its new equity-settled share-based payment plan. The awards vest on March 15, 2012. The remuneration committee approved the plan only on vesting. When is the grant date?
Q5: The vesting period is the period during which all the vesting conditions in a share-based payment arrangement are satisfied (and during which the expense is recognized). How long is the vesting period if management grants equity-settled share options to its employees that are forfeited if the employees leave within two years, and can be exercised between three years and five years after the grant date?
Q6: An entity grants 1,000 equity-settled share options to its employees on January 1, 2011. The options vest over two years: half at the end of the first year and half at the end of the second year. This is often referred to as “tranched” or “graded” vesting. How much should management charge to profit or loss in the first year if all the awards are expected to vest? The fair value of the options on January 1, 2011 (grant date) is C10.
Q7: How should management account for a share-based payment where the counterparty may choose the settlement method?
Q8: How should management account for the cancellation of an equity-settled share-based payment during the vesting period?
Q9: One year after granting unvested shares to the employees, management increases the vesting period from three to six years. This is a modification to the award that is not beneficial to the employee (requiring the employees to work longer to earn the award). Assume that there are no changes in other assumptions. How much expense should be charged to profit or loss in year two if the charge in year one was C100?
Q10: How should a share-based payment be classified in a subsidiary’s separate financial statements if the parent company grants its own shares to the employees of the subsidiary, and the subsidiary has no obligation to settle the award?