When buying equity shares in a company, one can purchase different category shares, namely ‘ordinary shares’ (also referred to as ‘common stock’) and ‘preference shares’ (also referred to as ‘preferred stock’). Shares represent equity in a company. However, in certain circumstances shares may have to be recognised as a liability in stead of equity. This tip will look at when shares are equity and when it represents a liability.View PDF
This tip deals with the principle that a contractual or a statutory obligation in itself does not necessarily gives rise to a liability. For example, an entity is obligated by law to pay income tax – however – in terms of accrual accounting principles, there is no obligation to pay tax unless income has been earned. The earning of the income is the past event that gives rise to the obligation to pay the tax. In this example, the liability is classified as a tax liability in accordance with IAS 12.View PDF
To ensure a higher level of accountability from executive management, the JSE Listing Requirement 3.84(k) requires the CEO and the financial director to sign a responsibility statement that they have implemented the necessary internal financial controls to ensure the financial statements are fairly presented and no facts have been omitted or untrue statements were made View PDF
All companies that are required to have their annual financial statements (AFS) audited and those that have their AFS voluntarily audited in terms of Section 30(2) of the Companies Act 71 of 2008, shall disclose directors’ or prescribed officers’ remuneration and other benefits paid, payable or receivable as per Section 30 (4)(5)(6) of the Act. View PDF
The last few months forced many entities to renegotiate lease terms and review their current lease agreements – the question arises how and when to account for a new lease when the lease terms and/or lease payments have changed, or where it was determined that it is not a new lease but a lease modification.View PDF
The objective of IFRS 7 disclosures is to ensure entities provide disclosures in their financial statements that will enable users of those financial statements to evaluate:
- the significance of financial instruments for the entity’s financial position and performance; and
- the nature and extent of risks arising from financial instruments to which the entity is exposed to during and at the end of the reporting period, and how the entity manages those risks.
When disclosing the significance of financial instruments in the statement of financial position, an entity is required to disclose either on the face or in the notes the carrying amounts for each category of financial instrument.
These categories are illustrated below:
In providing the disclosures as above, entities very often make the following mistakes:
- Include items that ARE NOT financial instruments within the scope of IFRS 7
- DO NOT include the measurement basis of the financial instruments as per the above categories and totals per measurement basis
- In disclosuring the required information in the notes, DO NOT include adequate cross-referencing to the line items or notes where these items were included in the financial statements
Some notes include a combination of financial and non-financial instruments, for example:
Trade and other payables may include amounts due to employees as part of their services, value-added tax (VAT) and other contract liabilities.
Where this is the case, an entity may want to distinguish between financial and non-financial instruments in the specific note and summarise this information with cross-referencing to a note called “financial instruments”.
The illustration below provides examples of line items that are usually financial instruments in IFRS 9 and those that are not financial instruments and therefore should not be included when disclosing the carrying amounts in accordance with IFRS 7 par 8. (Refer to IFRS 7 par 3 and the scope of IFRS 9 when assessing specific items)
*Some financial assets and liabilities are outside the scope of IFRS 9 but are still subject to other disclosure requirements, such as credit and liquidity risk disclosures
**Except those that are measured in accordance with IFRS 9
- The Advertising Policies apply to (1) ads and commercial content served by or purchased through Facebook, on or off the Facebook services, including ads purchased under AAAA/IAB Standard Terms and Conditions, (2) ads appearing within apps on Facebook, and (3) ads on Instagram. Your use of Facebook’s advertising products and services is part of “Facebook” under Facebook’s Statement of Rights and Responsibilities (https://www.facebook.com/legal/terms, the “SRR”) and is subject to the SRR.You may be subject to additional terms or guidelines if you use Instagram or certain Facebook advertising-related products or services.
- Advertisers are responsible for understanding and complying with all applicable laws and regulations. Failure to comply may result in a variety of consequences, including the cancellation of ads you have placed and termination of your account.
- We do not use sensitive personal data for ad targeting. Topics you choose for targeting your ad don’t reflect the personal beliefs, characteristics or values of the people who use Facebook or Instagram.
- Once displayed, ads are public information. Ads may be re-shared and accessed outside of the targeted audience, including from the Facebook Page running the ads or within Facebook Products. If users have interacted with your ad, your ad may remain on Facebook products (for example, shared until the users delete it or visible to users through their account tools). If your ad is a political ad, it will be displayed in our Ad Archive. This means that Facebook may display (at no cost to you) and provide access to the ad content and creative, as well as information about the ad campaign (such as total spend and delivery data) for a period of seven (7) years from the completion of your order. Facebook may disclose your advertising content, and all information associated with your advertising, to a governmental entity or body if Facebook believes that disclosure would assist in a lawful investigation.
- If you are managing ads on behalf of other advertisers, each advertiser or client must be managed through separate ad accounts. You must not change the advertiser or client associated with an established ad account; set up a new account. You are responsible for ensuring that each advertiser complies with these Advertising Policies.
- We reserve the right to reject, approve or remove any ad for any reason, in our sole discretion, including ads that negatively affect our relationship with our users or that promote content, services, or activities, contrary to our competitive position, interests, or advertising philosophy.
- For policies that require prior written permission, Facebook or a Facebook Company may grant these permissions.
- These policies are subject to change at any time without notice.
Useful life is defined as either:
- The period over which an asset is expected to be available for use by an entity; or
- The number of production or similar units expected to be obtained from the asset by an entity.
It is important to note that there is a difference between the useful life and potential or economic life of an asset.
For example, the economic life of a motor vehicle may go beyond 10 years, but if it is a company’s policy to renew company cars every 3 years, then its useful life is 3 years.
Nil value assets
Nil value assets are assets that are used beyond their useful life, they are fully depreciated and their carrying amount is zero. This usually occurs when:
- Annual review was not performed of the useful life in terms of IAS 16 or the indicators requiring such a review in terms of IFRS for SMEs were not identified; or
- The assumptions or circumstances made when the useful life was estimated have changed (resulting in useful life being different from what was initially estimated).
What to do when fully depreciated assets will continue to be used?
The decision on how to treat nil value assets will depend on what caused assets to be fully depreciated and to be used beyond its useful lives.
- If the entity has reviewed the useful lives in the past regularly but during the current reporting period, a decision was taken to use the assets even longer (beyond its useful life), then there is not much further to do. Assets cannot be depreciated beyond zero and should therefore continue to be carried at nil value. However, where this is a regular occurrence it would be an indication that the useful life was not appropriately reviewed and will result in an accounting error. Management therefore needs to make sure to avoid this situation in future by regularly reviewing the useful life.
NOTE: Only where the asset is already fully depreciated, no further action is taken. However, where the asset still has a carrying value, the change in the useful life must be done in accordance with IAS 8 or Section 10 as a “change in accounting estimate”.
- Where an entity did not appropriately review the useful life as required and the asset is fully depreciated, but still being used, this constitutes a prior period error. The error should be corrected and disclosed in accordance with the requirements of IAS 8 (IFRS) or section 10 (IFRS for SMEs).
NOTE: IAS 16 encourages but does not require disclosure of the gross carrying amount of fully depreciated assets still in use.
The Covid-19 pandemic and the lockdown may have a significant impact on the ability of lessees to meet their lease obligations in paying rent. However, it may happen that the landlord has offered a “rent-holiday” of a few months. With the recent amendment, lessees now have a choice to either consider whether such a rent concession represents a “lease modification” or apply the practical expedient and elect not to consider whether the rent concession is a lease modification.
Assessing whether a change in payments is a lease modification
IFRS 16 defines a lease modification as a change in the scope of a lease, or the consideration for a lease, that was not part of the original terms and conditions of the lease. In determining whether there has been a change in the scope of the lease, you have to consider whether there has been a change in the right of use conveyed to the lessee by the contract. For example, adding or terminating the right to use one or more underlying assets, or as in this situation extending or shortening the contractual lease term. It is crucial to note that a rent holiday in isolation is not a change in the scope of a lease.
In assessing whether there has been a change in the amount of the lease payments, one must consider the overall impact of any change in the lease payments. For example, if the lessee does not make lease payments for a three-month rent holiday, the lease payments after the three-month period would probably be increased by the landlord. This means that the consideration that the lessee would pay over the term of the lease would not change and would not represent a lease modification.
Applying the practical expedient (elect not to assess whether rent concession is a lease modification)
A lessee that makes this election shall account for any change in lease payments resulting from the rent concession the same way it would account for the change applying IFRS 16 if the change were not a lease modification.
The practical expedient applies only to rent concessions occurring as a direct consequence of the covid-19 pandemic and only if all of the following conditions are met:
- the change in lease payments results in revised consideration for the lease that is substantially the same as, or less than, the consideration for the lease immediately preceding the change;
- any reduction in lease payments affects only payments originally due on or before 30 June 2021 (for example, a rent concession would meet this condition if it results in reduced lease payments on or before 30 June 2021 and increased lease payments that extend beyond 30 June 2021); and
- there is no substantive change to other terms and conditions of the lease.
Disclosure requirements when applying the practical expedient
The lessee shall disclose:
- that it has applied the practical expedient to all rent concessions that meet the conditions as above or, if not applied to all such rent concessions, information about the nature of the contracts to which it has applied the practical expedient; and
- the amount recognised in profit or loss for the reporting period to reflect changes in lease payments that arise from rent concessions to which the lessee has applied the practical expedient
Decision-Tree when opting NOT to apply the practical expedient
All preparers of Annual Financial Statements should consider the impact of the Coronavirus (COVID-19) on interim and annual financial statements.View PDF