Hey everyone,
We’re starting this month’s issue with an article from the Footnotes Analyst team who examine share-based payment accounting from an investor’s perspective. We also cover updated guidance on climate-related accounting considerations, going concern disclosures, and more.
Let’s dive in.
Technical Publications
Share-based payments: an investors’ perspective
Share-based payment accounting is challenging, particularly for investors without a strong technical accounting background. The distinction between equity-settled and cash-settled arrangements, along with valuation uncertainties and various vesting conditions, makes this a topic many investors (and accountants!) are happy to avoid.
The Footnotes Analyst team tackles some of this complexity in their latest article: Stock-based compensation: Transparency, timing and EPS. It’s well worth a read. Send it on to colleagues in controlling and investor relations as well.
Also, be sure to follow the link in the article to an earlier piece: Dot-com bubble accounting still going strong. It discusses the practice of excluding share-based payment expenses from management performance measures (MPMs/APMs/non-GAAP measures) when communicating with investors. I like how they challenge the rationale behind omitting non-cash, non-core, or volatile costs from performance measures.
Climate-related accounting considerations
EY has released an updated version of its Accounting for Climate Change technical publication, which summarises climate-related accounting considerations by financial reporting area. Plus, numerous extracts from published financial statements around the world add helpful context.
Alongside this, Fabio Fabiani, EY UK Financial Services IFRS Leader, has written a short article on the impact of climate risk on banks and expected credit losses. This piece includes illustrative disclosures from European banks.
Going concern educational material
The IFRS Foundation has updated its educational material on going concern to reflect upcoming changes: once a company adopts IFRS 18, the going concern requirements will move from IAS 1 to IAS 8. The revised version also removes references to the Covid-19 pandemic and related economic pressures. Interestingly, there is no mention of the developing global trade tensions sparked by Donald Trump’s fixation on tariffs.
On that note, you may remember from the March edition of Reporting Period that the UK FRC also recently updated its guidance on going concern.
Accounting implications of turbulent times for insurers
On the topic of geopolitical risks and global trade tensions, KPMG has updated its analysis of how these uncertainties may affect insurers. The publication considers potential impacts such as increased costs of claims, changes in policyholder behaviour, and a broader range of possible insurance outcomes.
Work in Progress at the IASB
The IASB held a four-day meeting in May, covering a number of topics. Although no major decisions were reached, the Board advanced discussions on a potential overhaul of accounting for intangible assets. This is likely to be a multi-year project, with limited developments in the coming months, but it’s one to keep on your radar. Summaries of the key issues being considered are available in the staff papers for the meeting:
Also relevant is a recent CFA Institute research paper – Investor Perspectives: Intangible Assets – published earlier this year. Peter Clark’s commentary, We call too many things ‘intangible assets’, adds an interesting perspective, too.
Miscellany
EFRAG recommends endorsing IFRS 19 for use in the EU
Many non-public entities have been waiting for the endorsement of IFRS 19 in their jurisdiction to reduce the disclosure burden. Good news for European companies: EFRAG has tentatively recommended that the European Commission endorses IFRS 19 for use in the EU. EFRAG’s draft endorsement letter is now open for comment. Interestingly, EFRAG estimates that around 89,000 entities within the EU could benefit from the reduced disclosure burden.
PS. Need a refresher on IFRS 19? The IASB’s summary and disclosure tracker are a good place to start.
That’s all for this edition of Reporting Period. Thanks for reading!
Best regards,
Marek