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Business combinations, share-based payments and accounting considerations…

- - - - all three must be present to conclude that control exist
    - - i. Power over the investee
        
        owning a majority of the voting rights is not always necessary to have control.
        
        Instead, control requires that the investor’s power/rights are sufficient for it to unilaterally direct the relevant activities that most affect the investee’s returns
        
        For example, who makes the operating, financing and capital decisions, and who appoints key management personnel
        
        more analysis and judgement is required to determine whether an investor with a significant minority of voting or other rights has control.
        
        For example, power over an investee can still exist even when another entity has significant influence
      - ii. Exposure, or rights, to variable returns from its involvement with the investee, and
        
        returns should be interpreted broadly, for example, to include synergy benefits as well as financial returns
        
        returns can be negative or positive
        
        a right to returns that is fixed is not normally consistent with control
      - iii. The ability to use its power over the investee to affect the amount of the investors returns
        
        in more complex control assessments, IFRS 10 requires identification of the activities that most affect the investee’s returns and how they are directed
        
        in simple assessments, it is sufficient to consider activities at the financial and policy level.
  - - - therefore, since the financing decision is a joint decision-making between the two entities, they have joint control over the company
      - if however, it is determined that the most significant activity if from the management activities and the appointment of KMP, then only one entity has control over the company
- - - - pre-combination/acquisition period
        
        Amounts attributable to the pre-acquisition period should be accounted for as part of the purchase consideration
      - the post-combination/acquisition period,
        
        Amounts attributable to the post-acquisition period should be recognised as a cost of that period
      - both
        
        Amounts attributable to both the pre- and post- acquisition periods should be allocated to the purchase consideration and post-acquisition costs accordingly
  - - - attributable to pre- acquisition services is determined
        
        multiplying the fair value of the original award by the ratio of the vesting period completed at the date of the business combination to the greater of
        
        The total vesting period, as determined at the date of the business combination, and
        
        The original vesting period
      - after the pre-acquisition replacement has been measured, the post acquisition is just the replacement amount less the pre acquisition
        
        this is accounted for as a cost for the year ended when the share based payment vest
- - - - Assessment of the ability to continue as a going concern
        
        If going concern is an issue, consider preparing financial statements on NRV/Net Settlement Value
        
        Disclose uncertainties
        
        Things that need to be disclosed
        
        Significant judgment
        
        Source of estimation/uncertainty
        
        This will also have impacts on the going concern assessments if judged material.
    - - Inventories must be valued at lower of cost and NRV
      - However, NRV is uncertain due to
        
        no market prices
        
        no demand for product
      - Entities may need to reassess their practices for fixed overhead cost allocation as production levels fall materially.
      - Obsolete inventory considerations, especially perishable inventory
    - - The evaluation of Covid-19 information that becomes available after the end of the reporting period but before the date of authorisation of the financial statements
      - Entities will need to judge how much of the impact of Covid‑19 should be considered to arise from adjusting or non‑adjusting events given the dates when knowledge of the pandemic became known and events like travel bans, lockdowns and similar took effect.
    - - recovery of deferred tax asset is depending on future taxable profits or tax planning opportunities or whether sufficient DT liabilities which are expected to reverse.
      - Will entities have to restrict the Dt Asset recognised
      - Consequences of adjustments to the carrying amounts of assets and liabilities will have DT impact
        
        Some examples will include the Impact of impairment losses or decreases in the value of a pension surplus
    - - Adjustments/provisions for severance (amount paid for early termination)
      - Falls in interest rates and plan asset portfolios may require significant adjustments requiring the services of actuaries to reflect changes in any defined benefit schemes.
    - - Government assistance to help entities that are experiencing financial difficulty.
      - Reimbursement of employment costs is recognised in profit or loss. Disclosure of aid such as short-term debt facilities.
    - - Suspension of capitalisation of borrowing costs if Covid-19 has interrupted the acquisition, construction or production of a qualifying asset.
      - Any borrowing costs incurred during such periods should be expensed through P/L
    - - Assess whether the impact of Covid-19 has potentially led to an asset impairment
        
        for example, tangible, intangibles and financial assets
        
        effectively Covid-19 is a trigger event that indicates an impairment review is required
      - Management may face significant challenges in preparing the budgets and forecasts necessary to estimate the recoverable amount of an asset (or CGU) because of decreased demand, business interruptions, cancelled orders and similar issues.
      - Difficulty assessing fair values when no active market or market participants
    - - Potential restructuring provisions and onerous contract provisions may need measured and recognised and insurance recoveries disclosed (need to assess certainty of these recoveries).
      - If material expenses or income for example restructuring and onerous contract provisions and impairment losses) should they be disclosed separately?
    - - Vesting conditions for share-based payments with performance conditions may not be met
    - - An asset (or a disposal group) no longer meets the conditions for ‘held for sale’
        
        for example an entity may now face difficulties in identifying a buyer or in completing the sale within the 12-month period from classification.
      - Ceased operations that meet the definition of discontinued operations will require separate presentation and disclosure
    - - Allowance for expected credit losses (ECL) - reductions in forecasts in economic growth increase the probability of default and entities will need to revisit the provision matrix approach for trade receivables
      - Classification of financial assets – consider whether there has been a change in the entity’s business model. An entity may decide or need to sell receivables classified as ‘held to collect’ which will therefore change classification
      - Hedge accounting – entities may need to consider whether the transaction is still a 'highly probable forecasted transaction'
      - Hedge accounting – entities may need to consider whether the transaction is still a 'highly probable forecasted transaction'
    - - Companies need to look at the decisions, assumptions and inputs to fair value measurement as market-based measures are likely to change significantly and perhaps in unpredictable ways
      - If using level 2 or 3 inputs will require more extensive disclosure
    - - Contract enforceability - may not be able to approve a contract under an entity’s normal business practices
      - Collectability – may be a significant deterioration of a customer’s ability to pay.
      - Contract modifications – entity may grant a price concession to a customer.
      - Variable considerations – an entity may need to consider updating its estimated transaction price
      - Significant financing component -an entity may provide extended payment terms
      - Revenue recognition - an entity may need to reconsider the timing of revenue recognition if it is unable to satisfy its performance obligations on a timely basis.
    - - Impairments to right-of use assets
      - Economic stimulus measures have led to lower interest rates and changes to lease terms – lease liabilities may need remeasured.
      - Impairments of lease receivables for lessors
  - - - Many central banks have cut their base rates – this will affect the measurement of many assets and liabilities
    - - Entities may consider providing new alternative performance measures (APMs) or adjust existing APMs – adequate/extensive disclosures will be required to ensure they do not mislead