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Both IFRS and US GAAP state that the purpose of lease disclosures is to provide financial statement users with information to evaluate the amount, timing, and uncertainty of cash flows related to leases.
On the balance sheet, the non-current assets section typically includes a “right of use” asset, while the non-current (long-term) liabilities section usually includes the lease liability. However, some companies might not have separate line items for leases due to the size of leased assets and obligations and may report leases under “Other assets” or “Other liabilities.”
Additionally, lessees and lessors must disclose quantitative and qualitative information about their leases, including significant judgments made to comply with lease accounting standards. They must also disclose the amounts recognized in the financial statements related to leases and their locations on those statements.
Under IFRS 16, lessee disclosures include the following for the current reporting period:
Additionally, lessees should disclose a maturity analysis of lease liabilities separately from other financial liabilities such as bonds and loans. They should also provide additional quantitative and qualitative information about their leasing activities to help users of financial statements assess the nature and future cash outflows of these activities. This analysis should include:
IFRS 16 specifies different disclosure requirements for lessors. Like lessees, lessors must provide information (either in the notes or the financial statements) that allows users to assess the impact of leases on the lessor’s financial position, performance, and cash flows.
At a minimum, lessors should disclose the following regarding finance leases:
For the operating leases, lease income, with separate disclosure for income related to variable lease payments not based on an index or rate, should be disclosed.
Additionally, lessors must provide qualitative and quantitative information about their leasing activities, helping users understand the nature of these activities and how the lessor manages risks associated with any rights retained in the underlying leased assets.
For instance, regarding finance leases, lessors should explain significant changes in the carrying amount of the net investment and provide a maturity analysis of receivable lease payments. This analysis should show undiscounted lease payments to be received annually for at least the first five years and a total amount for any remaining years.
On the other hand, regarding the operating leases, lessors should disclose disaggregated information about each class of property, plant, and equipment subject to operating leases. They should also provide a maturity analysis of lease payments, showing undiscounted lease payments to be received annually for at least the first five years and a total amount for the remaining years.
Disclosures for defined benefit and defined contribution pension plans are typically provided in the notes to the financial statements, with disclosures for defined benefit plans being more detailed.
International Accounting Standard 19 (IAS 19) requires issuers to disclose the amount recognized on the income statement during the period for defined contribution plans. However, regulators may mandate more extensive disclosures.
IAS 19 outlines the following objectives for disclosures of defined benefit pension plans:
While IAS 19 is principles-based and allows issuers discretion in meeting disclosure objectives, it specifies several required disclosures, such as:
Companies are mandated to disclose information about their share-based compensation programs to help users of the financial statements understand the nature and scope of these arrangements, including current and expected future cash flows and expenses.
These disclosures are typically included in the notes to the financial statements. According to IFRS 2, required disclosures include:
Question #1
Which of the following disclosures is required for lessees under IFRS 16?
- The details of net interest expense on lease liabilities.
- The depreciation charges for right-of-use assets by asset class.
- The future market value projections of leased assets.
Solution
The correct answer is B.
Under IFRS 16, lessees are required to disclose depreciation charges for right-of-use assets by asset class as part of their current reporting period disclosures.
Question #2
Which of the following is generally a goal of a share-based compensation plan?
- Recruiting new staff members
- Increasing executive pay
- Aligning employees’ interests with managerial objectives
Solution
The correct answer is A.
Share-based compensation plans are typically designed to attract new employees by offering them a share in the company’s future success as part of their compensation package. These plans also aim to retain and motivate existing employees by aligning their interests with the goals of the company. By giving employees a stake in the company, share-based compensation plans encourage employees to contribute to the company’s growth and profitability, benefiting both the employees and the company in the long term.