Presentation of Long-Term Liabilities and Share-based Compensation

Presentation and Disclosure of Leases

Both IFRS and US GAAP aim to disclose lease information, enabling users to assess cash flow amount, timing, and uncertainty. The balance sheet’s non-current part typically holds “right of use” assets and lease liabilities. Depending on lease size, some companies might report leases under “Other assets” or “Other liabilities.”

Both lessees and lessors must also disclose quantitative and qualitative lease details, judgments, recognized amounts, and their placement on financial statements.

Lessee Disclosure

Under IFRS 16, lessee disclosures include the following for the current reporting period:

• Carrying amount of right-of-use assets by asset class.
• Total cash outflows for leases
• Interest expense on lease liabilities
• Depreciation charges for right-of-use assets by asset class
• Additions to right-of-use assets

Additionally, lessees must reveal:

• Maturity analysis of lease liabilities (separate from other liabilities)
• Further quantitative/qualitative lease activity details
• Nature of leasing activities
• Future cash outflows not in lease liability measurement
• Lease-imposed restrictions or covenants
• Sale and leaseback transactions

Lessor Disclosure

IFRS 16 sets distinct disclosure rules for lessors. Similar to lessees, lessors must provide information enabling financial statement users to evaluate lease impact on financial position, performance, and cash flows. Essential lessor disclosures encompass:

• For finance leases: selling profit/loss, finance income on net lease investment, and income tied to non-measured variable payments.
• For operating leases: lease income, with separate disclosure for non-index/rate variable payments.

Additional qualitative/quantitative info about leasing activities and risk management is needed. For finance leases, explain net investment changes with a maturity analysis of lease payments. For operating leases, disclose details on each equipment class and maturity analysis of lease payments.

Presentation and Disclosure of Postemployment Plans

Disclosures for pension plans (defined benefit and contribution) are included in financial statement notes, with defined benefit plans requiring more extensive details. IAS 19 mandates the disclosure of the recognized income statement amount for defined contribution plans. Regulators can impose additional requirements, like the US SEC’s Form 11-K. IAS 19 outlines disclosure goals for defined benefit plans:

• Explain plan characteristics and associated risks.
• Identify financial statement amounts (net pension asset/liability).
• Describe how plans affect future cash flows.

While IAS 19 offers discretion, specific prescriptions are present:

• Nature of benefits, regulatory framework, governance, and risks.
• Reconciliation from opening to closing net pension asset/liability balance.
• Sensitivity analysis for significant assumptions’ impact.
• Composition of plan assets by category.
• Defined benefit plans’ effect on future cash flows.

Presentation and Disclosures of Share-Based Compensation

Companies must disclose share-based compensation program details for financial statement users to comprehend the plans’ nature, cash flows, and expenses. Usually included in a financial statement note, IFRS 2 specifies disclosures like:

• The description of each type of share-based arrangement, including terms and vesting.
• The details about options: numbers, average exercise prices, status changes during the period.
• For other equity instruments: the numbers, average fair value, and measurement details.

Question #1

Which of the following disclosures is required for lessees under IFRS 16?

1. The details of net interest expense on lease liabilities.
2. The depreciation charges for right-of-use assets by asset class.
3. 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?

1. Recruiting new staff members
2. Increasing executive pay
3. 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.