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Project Six: Acquisition Contingencies

Background

In 2011, a construction materials manufacturing company (Construct) purchased a tract of property located in New York City from BigMix, Inc. (BigMix). BigMix was a privately held manufacturer of bituminous concrete. The property was the site of one of BigMix?s manufacturing facilities. The purchase and sale agreement for the property included an indemnification provision for potential environmental liabilities. However, Construct did not require a portion of the purchase price to be placed in escrow because it concluded that such a provision would adversely affect the purchase negotiations. Construct intended to use the site to produce construction materials, which would be delivered in New York City. Construct believed that the proximity of the site would give it a competitive advantage in the local market.

In 2012, subsequent to the purchase, BigMix filed under Chapter 11 of the United States Bankruptcy Code. Construct immediately attempted, without success, to secure an interest in the assets of the shareholders of BigMix.

In 2013, Construct was notified by a government agency that the Environmental Protection Agency (the EPA) was investigating the property acquired from BigMix for potential water contamination. Construct, being proactive, contacted an environmental agency to do some testing related to the potential contamination. The agency estimated the probability of the EPA actually assessing Construct penalties would be approximately 60%, and the costs associated would be $250,000, including legal fees.

In 2014, Construct was notified by the EPA that the property acquired from BigMix was placed on the EPA?s National Priorities List. The EPA named Construct, BigMix and the former shareholders of BigMix as responsible parties (PRPs). Knowing the financial position of the other PRPs, the EPA issued a unilateral administrative order to Construct to undertake the remedial investigation and feasibility study (RI/FS). Understanding the significance of the potential penalties associated with non-compliance of the unilateral administrative order, Construct began the RI/FS and filed suit against BigMix?s former shareholders for an unspecified amount. In 2014, Construct estimated its legal fees related to administering the remediation action would be $100,000 and the total estimated amount of the RI/FS would be $300,000. The legal proceedings with BigMix were in the discovery stages at the end of 2014. In addition, Construct was unable to reasonably estimate the total cost of the remediation effort.

Upon completion of the RI/FS in June 2015, Construct was advised by the contractors performing the RI/FS that the soil at the location was contaminated but the contamination had not affected water supplies. The contractors provided their recommended remediation plan which was presented to the EPA in late 2014. As of 2015, the plan was estimated to cost $1.5 million to implement.

In August 2016, Construct?s attorneys believed that they had a 75% chance of obtaining a $1 million settlement of their claim against BigMix?s former shareholders.

Required

Answer each of the questions below using both US GAAP and IFRS.

?Question 1: In 2011, at the time of the purchase, should Construct record a liability for environmental liabilities? If so, how much? If no, please explain it.

?Question 2: In 2012, should the company record any liability due to BigMix filing for Chapter11? If so, how much? If no, please explain it.

?Question 3: In 2013, should the company record any liability for the potential environmental liability? If so, how much?Explain it

?Question 4: In 2014, should the company record any liability for the potential environmental remediation? If so, how much? Explain it

?Question 5: In 2015, should the company record any additional liability for the potential environmental remediation? If so, how much? Explain it

?Question 6: In 2016, should the company record any gain contingency/contingent asset for the potential settlement? If so, how much? Explain it

?What?s your recommendation for US GAAP or IFRS? Please explain.

Project Six: Acquisition Contingencies Background In 2011, a construction materials manufacturing company (Construct) purchased a tract of property located in New York City from BigMix, Inc. (BigMix). BigMix was a privately held manufacturer of bituminous concrete. The property was the site of one of BigMix's manufacturing facilities. The purchase and sale agreement for the property included an indemnification provision for potential environmental liabilities. However, Construct did not require a portion of the purchase price to be placed in escrow because it concluded that such a provision would adversely affect the purchase negotiations. Construct intended to use the site to produce construction materials, which would be delivered in New York City. Construct believed that the proximity of the site would give it a competitive advantage in the local market. In 2012, subsequent to the purchase, BigMix filed under Chapter 11 of the United States Bankruptcy Code. Construct immediately attempted, without success, to secure an interest in the assets of the shareholders of BigMix. In 2013, Construct was notified by a government agency that the Environmental Protection Agency (the EPA) was investigating the property acquired from BigMix for potential water contamination. Construct, being proactive, contacted an environmental agency to do some testing related to the potential contamination. The agency estimated the probability of the EPA actually assessing Construct penalties would be approximately 60%, and the costs associated would be $250,000, including legal fees. In 2014, Construct was notified by the EPA that the property acquired from BigMix was placed on the EPA's National Priorities List. The EPA named Construct, BigMix and the former shareholders of BigMix as responsible parties (PRPs). Knowing the financial position of the other PRPs, the EPA issued a unilateral administrative order to Construct to undertake the remedial investigation and feasibility study (RI/FS). Understanding the significance of the potential penalties associated with non-compliance of the unilateral administrative order, Construct began the RI/FS and filed suit against BigMix's former shareholders for an unspecified amount. In 2014, Construct estimated its legal fees related to administering the remediation action would be $100,000 and the total estimated amount of the RI/FS would be $300,000. The legal proceedings with BigMix were in the discovery stages at the end of 2014. In addition, Construct was unable to reasonably estimate the total cost of the remediation effort. Upon completion of the RI/FS in June 2015, Construct was advised by the contractors performing the RI/FS that the soil at the location was contaminated but the contamination had not affected water supplies. The contractors provided their recommended remediation plan which was presented to the EPA in late 2014. As of 2015, the plan was estimated to cost $1.5 million to implement. In August 2016, Construct's attorneys believed that they had a 75% chance of obtaining a $1 million settlement of their claim against BigMix's former shareholders. Required Answer each of the questions below using both US GAAP and IFRS. Question 1: In 2011, at the time of the purchase, should Construct record a liability for environmental liabilities? If so, how much? If no, please explain it. Question 2: In 2012, should the company record any liability due to BigMix filing for Chapter 11? If so, how much? If no, please explain it. Question 3: In 2013, should the company record any liability for the potential environmental liability? If so, how much? Explain it Question 4: In 2014, should the company record any liability for the potential environmental remediation? If so, how much? Explain it Question 5: In 2015, should the company record any additional liability for the potential environmental remediation? If so, how much? Explain it Question 6: In 2016, should the company record any gain contingency/contingent asset for the potential settlement? If so, how much? Explain it What's your recommendation for US GAAP or IFRS? Please explain. (Source: Ernst & Young) Provisions and Share-based payments Provisions Overview of Key Concepts -IAS 37 Definition Liability A present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits Provision A liability of uncertain timing or amount Contingent Liability A contingent liability is: a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity; or a present obligation that arises from past events but is not recognized because: -It is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; or -the amount of the obligation cannot be measured with sufficient reliability. Contingent Asset A possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity. Pensions and other employee benefits Academic Resource Center 2 Page 2 Overview of Key Concepts -IAS 37 Definition Constructive Obligation An obligation that derives from an entity's actions where: -by an established pattern of past practice, published policies or a sufficiently specific current statement, the entity has indicated to other parties that it will accept certain responsibilities; and -as a result, the entity has created a valid expectation on the part of those other parties that it will discharge those responsibilities. Pensions and other employee benefits Academic Resource Center 3 Page 3 Overview of Key Concepts -IAS 37 Concept Recognition Discussion A provision shall be recognized when: -an entity has a present obligation (legal or constructive) as a result of a past event; -it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; -a reliable estimate can be made of the amount of the obligation. An entity shall not recognize: -a contingent liability or -a contingent asset. Pensions and other employee benefits Academic Resource Center 4 Page 4 Short-term obligations expected to be refinanced US GAAP IFRS Permits the reclassification of short-term obligations to long-term obligations if a company intends to refinance the short-term debt on a long-term basis, and the company can demonstrate its ability to consummate the refinancing. Pensions and other employee benefits Academic Resource Center Similar Page 5 Short-term obligations expected to be refinanced US GAAP IFRS Requires refinancing to be in place before the audited financial statements are issued. Requires the refinancing to be consummated by the balance sheet date. Pensions and other employee benefits Academic Resource Center Page 6 Refinancing short-term obligations example Example 1: Park Company had two short-term obligations. On December 1, 2012, the treasurer of Park Company was asked to refinance these obligations so they would appear as long-term obligations on the December 31, 2012, year-end balance sheet. Obligation A - This note for $10,000 was due on January 31, 2013. The treasurer was able to convince the noteholder to extend the maturity date until January 31, 2014. All required paperwork to reflect this change was signed on December 20, 2012. Obligation B - This note for $20,000 was due on December 31, 2012. Due to vacations, the treasurer was unable to contact the noteholder until January 2, 2013. The treasurer was only able to get the noteholder to extend the maturity until January 3, 2014. All required paperwork to reflect the extension was in place before the audited financial statements were issued. Based on the following information, how should these two obligations be recorded at year-end using both US GAAP and IFRS? Show any required journal entries. Pensions and other employee benefits Academic Resource Center Page 7 Refinancing short-term obligations example Example 1 solution: US GAAP Both obligations can be classified as long term in Park Company's December 31, 2012, audited financial statements since the company was able to demonstrate its ability to refinance the short-term obligations prior to issuing its audited financial statements. Obligation A - term Obligation A - term $10,000 Obligation B - term Obligation B - term $20,000 $10,000 $20,000 IFRS Obligation can be classified as long term because the refinancing was completed before year. Obligation must be classified as short term because the refinancing was not complete year end . No entry is required for obligation since it is already classified as current. Obligation A - term Obligation A - term $10,000 $10,000 Pensions and other employee benefits Academic Resource Center Page 8 Contingencies Definition US GAAP IFRS ASC 450-10-20 defines a contingency as \"an existing condition, situation, or set of circumstances involving uncertainty as to possible gain (gain contingency) or loss (loss contingency) to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur.\" Pensions and other employee benefits Academic Resource Center Similar, according to IAS 37. Page 9 Contingencies Gain contingency US GAAP IFRS Gain contingencies are defined as possible assets that arise from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity. Requires that certainty exists regarding its realization before a gain contingency can be recorded. Pensions and other employee benefits Academic Resource Center Similar, although the term \"contingent assets\" is used for \"gain contingencies.\" Similar Page 10 Contingencies Gain contingency US GAAP IFRS A gain contingency for environmental liabilities can be recorded when it is probable it will be received. Probable in this instance means the recovery is likely to occur. Likely to occur has been generally interpreted as a chance greater than 70%. A contingent asset, including a reimbursement such as for an environmental liability, is only recorded when it is virtually certain to be realized. Pensions and other employee benefits Academic Resource Center Page 11 Contingencies Loss contingency - definition of probable US GAAP IFRS Defines probable as \"likely\" (this has been generally interpreted as greater than a 70% chance of occurring). Probable is defined as \"more likely than not\" (more than a 50% chance of occurring). Pensions and other employee benefits Academic Resource Center 12 Page 12 Probable liability example Example 2: After a wedding in 2012, 10 people died as a result of food poisoning from products sold by Kiss Catering Inc. (KCI). Legal proceedings started, seeking damages from the company. Up to the date of authorization of the financial statements for the year ended December 31, 2012, the company's lawyers advised that it was 40% probable that the company would not be found liable. However, when the company prepared its financial statements for the year ended December 31, 2013, its lawyers advised that, owing to developments in the case, it was 85% probable that the company would be found liable. Assuming the attorneys can arrive at a reasonable estimate of the potential damages, should KCI recognize a provision using US GAAP in 2012 and in 2013? Should KCI recognize a provision using IFRS in 2012 and in 2013? Pensions and other employee benefits Academic Resource Center Page 13 Probable liability example Example 2 solution: US GAAP: In 2012, you would not recognize a provision for this situation. The proability that KCI would be found liable at this point is 60%. The definition of probable is likely to occur >70%. There fore, the 60% falls below the threshold. In 2013, you would recognize a provision fot this situation. Due to new development, the probability of a negative outcome rose to 85%, which is above the threshold. In 2013, you would recognize a provision for this situation. IFRS: In 2012 and 2013, you recognize a provision for this situation. Pensions and other employee benefits Academic Resource Center 14 Page 14 Overview of Key Concepts -IAS 37 Concept Measurement Changes in Provisions Use of Provisions Discussion Best Estimate -The provision shall be the best estimate of the expenditure required to settle the obligation at the end of the reporting period. Risks and Uncertainties -Shall be taken into account in arriving at the provision amount Present Value -Where the effect of the time value of money is material, the amount of a provision shall be discounted to present value -Discount rate shall be a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability Provisions shall be reviewed at the end of each reporting period and adjusted to reflect the current best estimate Shall be used only for expenditures for which the provision was originally recognized Pensions and other employee benefits Academic Resource Center 15 Page 15 Contingencies Loss contingency - range of possible outcomes US GAAP IFRS Where there is a continuous range of possible outcomes and each point in the range is as likely as any other to occur, under ASC 450-20-30-1, the minimum amount in the range is used to measure the provision. The midpoint of the range is used to measure the provision. Pensions and other employee benefits Academic Resource Center 16 Page 16 Range of possible outcomes example Example 3: An entity sells webcams with a warranty under which customers are covered for the cost of repairs of any manufacturing defects that become apparent within the first six months after purchase. The company has only recently started operations and thus cannot estimate what percentage of webcams will likely be returned. They do know that if defects were detected in all products sold, repair costs would range from $2 million for minor repairs to $4 million for major repairs. Assuming all other criteria are met, how much should the entity book related to warranty repairs using US GAAP and IFRS? Show any required journal entries. Pensions and other employee benefits Academic Resource Center 17 Page 17 Range of possible outcomes example Example 3 solution: US GAAP The minimum point of the range, $2.0 million, should be recorded. Warranty expense 2,000,000 Warranty expense 2,000,000 IFRS The midpoint of the range, $3.0 million, should be recorded. Warranty expense 3,000,000 Warranty expense 3,000,000 Since the entity only had a range to work with, the treatment using the two sets of standards is different. If no particular Pensions and other employee benefits Academic Resource Center 18 Page 18 Range of possible outcomes example Example 4: Use the same facts in example 3, except now assume the entity is able to perform an analysis on the historical data of returns and estimates (based on historical data), finding that 75% of the goods sold will have no defects, 20% of the goods sold will have minor defects and 5% of the goods sold will have major defects. Assuming all other criteria are met, how much should the entity book related to warranty repairs using US GAAP and IFRS? Show any required journal entries. Pensions and other employee benefits Academic Resource Center 19 Page 19 Probable liability example Example 4 solution: For both US GAAP and IFRS, $ 600k should be recorded. The most likely outcome is $600k explained as follows: 20% of 2million for minor repairs =400k+(5% of 4million for major repair =200k)+(75% without defects and, therefore, no impact on estimate) Warranty expense Warranty liability 600k$ 600k$ Pensions and other employee benefits Academic Resource Center 20 Page 20 Contingencies Loss contingency US GAAP IFRS Provisions may be discounted only when the amount of the liability and the timing of the payments are fixed or reliably determinable. Provisions should be recorded at the estimated amount to settle or transfer the obligation, taking into consideration the time value of money (utilizing a pretax discount rate). Pensions and other employee benefits Academic Resource Center 21 Page 21 Discounting provisions example Example 5: The CFO of Out of Luck Company (OLC) has determined OLC needs a $100,000 provision for a contingent liability. The CFO is uncertain when OLC must make this payment but believes it will be sometime in the next year. The current pretax discount rate is 8%. Show the required journal entries using both US GAAP and IFRS. Pensions and other employee benefits Academic Resource Center 22 Page 22 Discounting provisions example Example 5 solution: US GAAP: The payment is not fixed nor reliably determinable, therefore, the undiscounted liability should be recorded. Legal expense Legal liability $100k $100k IFRS: The time value of money needs to be considered if it is material. Based on the information provided, it is reasonable to use the midpoint (six months) as the expected payment date. The provision should be made for $96,154 , as shown below: $100,000/(1+(8%x year)) Legal expense Legal liability $96,154 $96,154 Pensions and other employee benefits Academic Resource Center 23 Page 23 Pensions and other employee benefits Academic Resource Center 24 Page 24 Provisions and Contingent Liabilities Recognition Disclosure There is a present obligation that probably requires an outflow of resources A provision is recognized Disclosures are required for the provision There is a possible obligation or a present obligation that may, but probably will not, require an outflow of resources No provision is recognized Disclosures are required for the contingent liability There is a possible obligation or a present obligation where the likelihood of an outflow of resources is remote No provision is recognized No disclosure is required Pensions and other employee benefits Academic Resource Center 25 Page 25 Application of IAS 37 Concept Discussion Future operating losses No provision is recognized Onerous contracts The present obligation under the contract is recognized and measures as a provision Restructuring A constructive obligation to restructure arises only when an entity: (a) has a detailed formal plan for the restructuring identifying at least: (i) the business or part of a business concerned; (ii) the principal locations affected; (iii) the location, function, and approximate number of employees who will be compensated for terminating their services; (iv) the expenditures that will be undertaken; and (v) when the plan will be implemented; and (b) has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement that plan or announcing its main features to those affected by it. A restructuring provision shall include only the direct expenditures arising from the restructuring, which are those that are both: -necessarily entailed by the restructuring; and -not associated with the ongoing activities of the entity Pensions and other employee benefits Academic Resource Center 26 Page 26 Onerous contracts Both US GAAP and IFRS require consideration of the accounting for a contract when the costs exceed the expected future benefits as follows: For IFRS, IAS 37, paragraph 12, defines an onerous contract as \"a contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it.\" In order to recognize an obligation under an onerous contract, the entity generally would cease benefiting under such contract. Once the conditions for recognition are satisfied, a provision will be recognized for the unavoidable costs of the contract, which are the lower of the cost of fulfillment and the penalty that would result from nonfulfillment under the contract. IAS 37 currently provides little guidance as to when a provision for an onerous contract should be recognized. If a contract becomes onerous as a result of an entity's own actions, the liability should be recognized when that action is taken. For US GAAP, ASC 420-10-25 requires recognition of a liability for the cost that an entity will continue to incur under a contract without economic benefit when the entity has ceased using the right conveyed by the contract. The resulting provision is measured at its fair value. Pensions and other employee benefits Academic Resource Center 27 Page 27 Onerous contracts US GAAP Timing of recognition: IFRS A provision can only be recorded when the entity ceases to use the rights conveyed by the contract. Amount of recognition: A provision is recorded at its fair value. Timing of recognition: A provision can only be recorded when the costs exceed the expected benefits. Amount of recognition: The unavoidable costs (the lower of the cost of fulfilling the contract and any penalties that result from nonfulfillment) are recorded. Pensions and other employee benefits Academic Resource Center 28 Page 28 Onerous contracts example Example 6: Company Best's (CB) Board approved a restructuring plan on November 1, 2011. On December 1, 2011, CB issued a press release announcing it was consolidating its facilities. The New Jersey facility to be shut down is currently leased. CB accounts for the facility as an operating lease with annual lease payments of $10,000. CB is currently in the fifth year of a 10-year lease. The restructuring plan has committed CB to using the New Jersey facility through January 1, 2013, which completes the sixth year under the lease term, at which time the remaining lease rentals will be $40,000 ($10,000 per year for the remaining four years). Due to the specialization of the manufacturing process, there are no options to sublease the facility. The present value of the remaining lease rental at December 1, 2011, is $45,000. The present value of the remaining lease rentals at January 1, 2013, is $36,000. Using US GAAP and IFRS, when and what amount, if any, should be recorded for this operating lease? Show any required journal entries. Pensions and other employee benefits Academic Resource Center Page 29 Onerous contracts example Example 6 solution: US GAAP: The liability is recognized upon the cessation date of january , at its then fair value. On 01/01/2013 , record the following entry: Restructuring expense Operating lease liability IFRS: $ 36,000 $36,000 The liability is recognized when the company has knowledge of and has committed to no longer use the facility (i.e., December 1, 2011). Again, the general recognition provisions of IAS 37 apply: The entity has a present obligation as a result of a past event. It is probable that an outflow of resource will be required to settle the obligation A reliable estimate can be made of the amount of the obligation. On December 1, 2011 , record the following journal entry: Restructuring expense Operating lease liability $ 45,000 $45,000 Pensions and other employee benefits Academic Resource Center 30 Page 30 Restructuring costs US GAAP IFRS ASC 420 limits restructuring programs to those that relate to exit or disposal activities. IAS 37 similarly limits restructuring programs to those that either change how business is conducted or change the scope of the business. Pensions and other employee benefits Academic Resource Center Page 31 Restructuring costs ASC 420 establishes an accounting model for costs associated with exit or disposal activities: A liability for the costs should be recognized and initially measured at fair value only when it is incurred Costs covered include, but are not limited to, the following: Contract termination and associated costs Costs to terminate a contract before the end of its term. Costs that will continue to be incurred under the contract for its remaining term One-time involuntary termination benefits provided to employees, which has been communicated to employees Pensions and other employee benefits Academic Resource Center Once management is \"demonstrably committed\" to a detailed exit plan and the plan and its main features have been communicated, the general provisions of IAS 37 apply: Provision is recognized when an entity is committed to a restructuring plan, has raised a valid expectation in those affected, the cost must be reasonably estimable and the plan must be carried out within a reasonable period of time. Page 32 Restructuring costs US GAAP IFRS Costs covered by ASC 420 (continued): One-time involuntary termination benefits (continued): The timing and amount of liability recognition are dependent on whether employees are required to render future service in order to receive the termination benefits. If employees are required to render service until they are terminated and that service period extends beyond a \"minimum retention period,\" the liability (expense) should be recognized ratably over the future service period, even if the benefit formula used to calculate the termination benefit is based on past service. Pensions and other employee benefits Academic Resource Center Page 33 Restructuring costs US GAAP IFRS Focus is on the individual cost components and, as a result, costs are generally recognized later. Focus is on the exit plan as a whole and, as a result, costs are generally recognized earlier. Pensions and other employee benefits Academic Resource Center 34 Page 34 Restructuring costs example Example 7: In the fourth quarter of 2012, management and the board of directors publicly announced a plan to close its telemarketing division in Chicago and move it to India. The impacted employees in Chicago were notified that their jobs would be eliminated. To ensure an orderly transition, management promised \"stay pay\" of $10,000 to any Chicago office employee who remained until they were terminated by the Company in the third quarter of 2013. How should the stay pay be accounted for using US GAAP and IFRS? For purposes of this example, ignore any impact of the present value since it would be immaterial. Pensions and other employee benefits Academic Resource Center Page 35 Restructuring costs example Example 7 solution: US GAAP: ASC 420-20-25-9, states in part, \"If employees are required to render service until they are terminated in order to receive the termination benefits and will be retained to render service beyond the minimum retention period, a liability for the termination benefits shall be measured initially at the communication date based on the fair value of the liability as of the termination date. The liability shall be recognized ratably over the future service period.\" The minimum retention period is generally defined as 60 days. The stay pay, thus, should be accrued in the fourth quarter of 2012 with an offsetting debit to a deferred expense account. The stay pay would then be amortized to expense over the period from the announcement to the termination period in the third quarter of 2013. IFRS: The formal restructuring plan would appear to create a constructive obligation using IAS 37. Thus, the estimated stay pay should be accrued and expensed in the fourth quarter of 2012 . Pensions and other employee benefits Academic Resource Center 36 Page 36 Overview of Key Potential Differences ITEM ALTERNATIVE MORE JUDGMENT DIFFERENT DISCLOSURE Recognition threshold Measurement of provisions * Discounting of provisions Measurement of decommissioning provisions Timing of restructuring provisions * Pensions and other employee benefits Academic Resource Center 37 Page 37 Recognition -Example 8 OBLIGATION FOR FUTURE COSTS Ships and aircraft are required to undergo major work at regular intervals due to maritime and aviation law. Question: Should an entity, which recognizes these ships and aircraft as assets, accrue an obligation for these future costs?. Answer: no, there is no present obligation created by the legal requirement to do the major work until the requisite number of the hours or days have been completed. The cost of the major work is not recognized because, at the balance sheet date, no obligation to undergo such major work exists independently of the company's future actions, the entity could avoid the future expenditure by its future actions, for example by selling the ship or aircraft. Pensions and other employee benefits Academic Resource Center 38 Page 38 Recognition -Example 9 LEASE TERMINATION Pharma Co. is in the process of restructuring a business line. On December 15, 2006, Pharma Co. has not made any announcement to the press but has entered into an oral agreement with the lessor to terminate the lease of the premises where the manufacturing plant of the business to be restructured is located. The settlement fee is $1M. The manufacturing plant is vacated on January 31, 2007 and the termination of the lease is signed on the same date. Question: Should Pharma Co. recognize a provision for the termination of the lease as of December 31, 2006 under (a) IFRS (b) US GAAP? Answer: IFRS - Yes US GAAP - No Pensions and other employee benefits Academic Resource Center 39 Page 39 Measurement -Example 10 WARRANTY LIABILITY An entity sells goods with a warranty under which customers are covered for the cost of repairs of any manufacturing defects that become apparent within the first six months after purchase. If minor defects were detected in all products sold, repair costs of 1 million would result. If major defects were detected in all products sold, repair costs of 4 million would result. The entity's past experience and future expectations indicate that, for the coming year, 75 per cent of the goods sold will have no defects, 20 per cent of the goods sold will have minor defects and 5 per cent of the goods sold will have major defects. Question: How should the liability be measured? Answer: The expected value of the cost of repairs is: (75% of nil)+(20% of 1m)+(5% of 4m)=400,000 Pensions and other employee benefits Academic Resource Center 40 Page 40 Share-based payments Typical coverage of US GAAP Share-based payments (SBP): Scope Stock compensation Measurement Cost allocation Employee stock purchase plans SBP to non-employees Earnings per share (EPS): Basic Diluted Presentation and disclosure Pensions and other employee benefits Academic Resource Center Page 41 Executive summary SBP: The accounting for SBP is fairly well converged at this point. While there are a number of detailed differences discussed below, the basics of accounting for SBP are the same under both IFRS and US GAAP. In the case of graded vesting, IFRS must recognize compensation expense by measuring each tranche separately. Under US GAAP, companies have the choice between this accelerated approach or the straight-line approach, which does not separate the tranches. EPS: The accounting and disclosure requirements for IFRS and US GAAP are substantially the same. Both require presentation of basic and diluted EPS on the face of the income statement. Both IFRS and US GAAP specify that diluted EPS shall include incremental shares in the calculations, including the effects of stock options and warrants using the treasury-stock method and the effects of contingently issuable shares using the if-converted method. For diluted EPS, incremental shares, using IFRS, are computed as if the entire year-to-date period was \"the period.\" There is no averaging of the current period (quarter) with each of the prior periods (quarters). Pensions and other employee benefits Academic Resource Center Page 42 Primary pronouncements US GAAP IFRS ASC 260, Earnings Per Share IFRS 2, Share-based Payments ASC 718, Compensation - Stock Compensation IAS 33, Earnings Per Share ASC 505-50, Equity-Based Payments to Non-Employees Pensions and other employee benefits Academic Resource Center Page 43 SBP Scope US GAAP IFRS Guidance applies to transactions with employees and non-employees and the accounting is applicable to all companies. Similar Guidance applies to transactions whereby an entity: (1) acquires goods or services in exchange for issuing shares or share options or other equity instruments, or (2) incurs liabilities that are based, at least in part, on the price of its shares or that may require settlement in its shares. Similar Pensions and other employee benefits Academic Resource Center Page 44 SBP Stock compensation: measurement US GAAP IFRS Requires a fair value-based approach in accounting for share-based payment arrangements. The fair value of the shares to be measured is the amount at which the asset or liability could be bought or sold in a current transaction between willing parties, if available, or is estimated using an option-pricing model. The intrinsic value can be used if the market value cannot be determined. Pensions and other employee benefits Academic Resource Center Similar Page 45 SBP Stock compensation: measurement Difference in accounting for SBPs when the performance target is achieved after the service period. US GAAP IFRS In June 2014, ASU 2014-12 Compensation - Stock Compensation (Topic 718) was issued by the FASB. This ASU requires that a performance target that could be achieved after the service period be treated as a performance condition and not reflected in the grant date fair value of the award. In December 2013, IFRS 2 was amended to specify performance targets that extend beyond the service period are not performance conditions. Instead these targets should be accounted for as non-vesting conditions in the grant date fair value of the award. Pensions and other employee benefits Academic Resource Center Page 46 SBP Stock compensation: measurement Entities that grant stock options or SBP, in many cases, decide to make modifications to the vesting terms for a variety of reasons, such as to maintain high employee morale or reward outstanding employees. This is especially true when it is improbable that the vesting conditions will be met and the entity wants to provide compensation to an employee. For this scenario: US GAAP IFRS The original grant-date fair value is no longer used to measure compensation cost under any circumstances. Rather, the fair value of the options at the modification date is used to measure the compensation expense. If an entity modifies stock option vesting terms, then the entity must, at a minimum, recognize the original amount of the expense of the award under its original terms. If the fair value of the award at the modification date is less than the fair value at the grant date, then there is no reduction in cost. Pensions and other employee benefits Academic Resource Center Page 47 SBP Stock compensation: measurement Entities that grant stock options or SBP, in many cases, decide to make modifications to the vesting terms for a variety of reasons, such as to maintain high employee morale or reward outstanding employees. This is especially true when it is improbable that the vesting conditions will be met and the entity wants to provide compensation to an employee. For this scenario: US GAAP IFRS Modification of terms (continued): However, if the fair value at the modification date is greater than the fair value of the award at the grant date, then the incremental fair value (the difference between the fair value at the original grant date and the fair value at the modification date) must be recognized at cost. Pensions and other employee benefits Academic Resource Center Page 48 Modification of vesting terms that are improbable of achievement example Example 1 - Bull's Eye Inc. (BEI) granted 1,000 share options to certain sales employees on January 1, 2014. The share options vest at the end of three years (cliff vesting) but are conditional upon selling 150,000 dartboard units over the threeyear service period. The grant-date fair value of each option is $15.00. No forfeitures are expected to occur, unless the sales target of 150,000 units is not met. BEI is expensing the cost of the options on a straight-line basis over the three-year period at $5,000 per year (1,000 options x $15 3 = $5,000). On January 1, 2015, BEI's management believes the original sales target of 150,000 units will not be met because only 30,000 dartboard units were sold in 2014, and there has been a general economic business decline. Management modifies the sales target to 100,000 units, which it believes is achievable. No other terms or conditions of the grant are modified. The fair value of each option at January 1, 2015, is $8.00. How should BEI account for the compensation expense under US GAAP and IFRS in 2014, 2015 and 2016? Show the necessary journal entries. Pensions and other employee benefits Academic Resource Center Page 49 Modification of vesting terms that are improbable of achievement example Example 1 solution: US GAAP: With the modification, there is a remeasurement of the fair value of the grant at the modification date, which leads to a fair value compensation cost of $8,000 (1000 share x $8.00 =$8,000) over the vesting period or $ 2,667 (8,000 /3=2,667) per year. Since BEI already recognized $5,000 of compensation cost in 2014, the only costs to be recognized in 2015 and 2016 would be 1,500 (8,000-5,000=3,000/2=1500), for a total recognized compensation cost of 8,000. IFRS: BEI must recognize at minimum, the original amount of the expense under the award, even if the modification reduces the fair value of the award. In this example, under IFRS, BEI would continue to recognize the original expense of 15,000 as 5,000 per year for each of the three years. Pensions and other employee benefits Academic Resource Center Page 50 Modification of vesting terms that are improbable of achievement example Example 1 solution: (continued): US GAAP IFRS 2014 Compensation expense $ Additional paid-in capital $ Compensation expense $ Additional paid-in capital $ 2015 Compensation expense $ Additional paid-in capital $ Compensation expense $ Additional paid-in capital $ 2016 Compensation expense $ Additional paid-in capital $ Compensation expense $ Additional paid-in capital $ Total expense $ Total expense Pensions and other employee benefits Academic Resource Center $ Page 51 SBP Stock compensation: cost allocation US GAAP IFRS Compensation expense is recognized over the service period. The service period is assumed to be the vesting period, unless specified otherwise. Similar In the case of cliff vesting (the entire award vests at the end of the vesting period), the expense is recognized using a straight-line approach. Pensions and other employee benefits Academic Resource Center Page 52 SBP Stock compensation: allocation US GAAP IFRS In the case of graded vesting (portions of the award vest at different dates throughout the vesting period), for awards containing only service conditions, entities make an accounting policy election to recognize compensation expense either on a straight-line basis (the award is valued as a single award with an average expected life) or on an accelerated basis (each tranche is measured as a separate award with its own expected life). In the case of graded vesting, companies must recognize compensation expense on an accelerated basis. Pensions and other employee benefits Academic Resource Center Page 53 Graded vesting of stock compensation expense example Example 2 On January 2, 2014, ABC's Board of Directors approved granting 3,000 stock options to a select group of senior employees. The requisite service period is three years, with 33% of the options vesting each calendar year in 2014, 2015 and 2016 (graded vesting). An option-pricing model was used (Black-Scholes-Merton) to calculate fair value, which was determined to be $10 on the grant date. No forfeitures are assumed. How should ABC account for the compensation expense under US GAAP (assuming the straight-line election has been made) and IFRS in 2014, 2015 and 2016? Show the necessary journal entries. Pensions and other employee benefits Academic Resource Center Page 54 Graded vesting of stock compensation expense example Example 2 solution: Year US GAAP: Compensation expense 2014 ABC would recognize $ of compensation expense calculated as 2015 2016 . The expense each year would be as follows under the straight-line method ( per year). Pensions and other employee benefits Academic Resource Center Page 55 Graded vesting of stock compensation expense example Example 2 solution (continued): IFRS: ABC would recognize the same total expense of $30,000 as under US GAAP. ABC would allocate the expense to three tranches equally since there are three vesting periods. Each tranche is then allocated equally over its vesting period as follows: Year Compensation expense 2014 2015 2016 2014 2015 2016 Note that these amounts have been rounded for presentation purposes. The 2014 tranche is % expensed in 2014 since it is wholly vested at the end of year one. The 2015 tranche is % expensed in 2014 and 2015 since it vests in two years. The 2016 tranche is % expensed in 2014, 2015 and 2016 since it vests in three years. Pensions and other employee benefits Academic Resource Center Page 56 Graded vesting of stock compensation expense example Example 2 solution (continued): US GAAP IFRS 2014 Compensation expense $ Additional paid-in capital 2015 Compensation expense $ Additional paid-in capital 2016 Compensation expense $ Additional paid-in capital Total expense $ $ Compensation expense $ Additional paid-in capital $ $ Compensation expense $ Additional paid-in capital $ $ Compensation expense $ Additional paid-in capital $ Total expense $ * Rounded for presentation purposes. Pensions and other employee benefits Academic Resource Center Page 57 SBP Employee stock purchase plans US GAAP IFRS Addresses employee share purchase plans, which allow employees to purchase shares of an entity, at a discount, less than market price. Pensions and other employee benefits Academic Resource Center Similar Page 58 SBP Employee stock purchase plans US GAAP IFRS If a plan is deemed to be non-compensatory, no compensation expense is recorded. A plan would be deemed non-compensatory if: The proceeds received by the employer are not less than the proceeds it would receive in an offering of shares through an underwriter (or the discount is consistent with that offered to all shareholders 5% is generally accepted as the usual discount). Substantially all eligible employees may participate on an equitable basis. The plan does not include option features to allow employees to cancel their participation. All employee purchase plans are deemed to be compensatory, thus compensation expense is recorded for the amount of the discount. Pensions and other employee benefits Academic Resource Center Page 59 Noncompensatory share purchase plans example Example 3 The Delicious Doughnuts Company (DDC) adopted an employee share purchase plan effective January 1 of the current year. The plan provides all DDC employees who have worked for DDC more than 90 days, the right to purchase DDC common stock ($1 par value per share) at a 5% discount from the market price at the end of each payroll period, based on the average market price of the common stock during the same period. The plan does not allow cancellation of any purchase subsequent to the payroll period. During the first quarter of the current year, 4,500 employees elected to participate in the plan (75% of eligible employees) and purchased 45,000 shares of common stock at an average market price of $50 per share, with an average discount of $2.50 per share. How should DDC account for the compensation expense under US GAAP and IFRS during the first quarter of the current year? Show the necessary journal entries. Pensions and other employee benefits Academic Resource Center Page 60 Noncompensatory share purchase plans example Example 3 solution: US GAAP: ASC210-20-25-9, state in part, if employee are required to render service until they are terminated in order to receive the termination benefit and will be retained to render service beyond the minimum retention period, a liability for the termination benefit shall be measure As the plan is deemed non-compensatory, DDC does not record any compensation expense. Common stock: Cash $ Common stock Additional paid-in capital $ Pensions and other employee benefits Academic Resource Center Page 61 Noncompensatory share purchase plans example Example 3 solution (continued) IFRS: All employee purchase plans are deemed compensatory so DDC must record an expense for the amount of the discount for the shares issued, or $ Common stock: Cash $ Compensation expense Common stock $ Additional paid-in capital Pensions and other employee benefits Academic Resource Center Page 62 SBP SBP to nonemployees US GAAP IFRS Share-based awards to non-employees should be measured and recognized using the fair value method. Pensions and other employee benefits Academic Resource Center Similar Page 63 SBP SBP to non-employees US GAAP IFRS The share-based award should be valued at either the fair value of the goods or services received or the fair value of the equity instruments issued, whichever is more reliable. If the fair value of the equity instruments issued is used, then the fair value is measured at the earlier of: (a) The date at which a commitment for performance by the counterparty is reached. (b) The date at which the counterparty's performance is complete (i.e., goods or services fully received). The fair value of the transaction should be based on the fair value of the goods or services received and only on the fair value of the equity instruments if the fair value of the goods or services cannot be reliably determined. If using the fair value of the equity instruments, the measurement date is based on a service model approach using the date the entity obtains the goods or as the counterparty renders the services. If the goods or services are received on a number of dates over a period, the fair value at each date should be used. There is no performance commitment concept under IFRS. Pensions and other employee benefits Academic Resource Center Page 64 Measurement basis for non-employees example Example 4 - On January 15, 2014, the purchasing manager of a large computer manufacturer, Supercomputer (Super), obtained approval from management and the Board of Directors to enter into a contract with a manufacturing software supplier to issue 1,000 shares of Super's common stock ($1.00 par value per share) for delivery of a newly completed software program to be used in Super's manufacturing process. The fair market value of the common stock was $50 per share on January 15, 2014. The purchasing manager reached an agreement with the vendor on January 31, 2014, and a contract was signed that day. The fair market value of the common stock was $52 per share on January 31, 2014. The vendor agreed to deliver the completed software on February 28, 2014. The vendor has sold similar software to other manufacturers, sometimes for common stock and sometimes for cash, usually at a negotiated amount. The vendor believes the selling price of the software should be about $75,000, or around that range (which, for this example, is an unreliable estimate). Assuming the software is delivered on February 28, 2014, at which time the fair market value of the common stock was $48 per share, what amount would Super record for this purchase under US GAAP and IFRS? Show the necessary journal entries. Pensions and other employee benefits Academic Resource Center Page 65 Measurement basis for non-employees example Example 4 solution: US GAAP: Because the purchase price of the vendor's software can vary, the fair market value of the manufacturing entity's common stock would seem to be a better indicator of the value. Under US GAAP, according to ASC 505-50-30-11, the Purchased manufacturing software Par value common stock Additional paid-in capital $ $ Pensions and other employee benefits Academic Resource Center Page 66 Measurement basis for non-employees example Example 4 solution (continued): IFRS: The fair market value of the goods or services or the fair market value of the common stock is also used to determine fair value, whichever is more reliable. Again, in this situation, the fair market value of the common stock would appear to be a better measure of fair value. However, Purchased manufacturing software Par value - common stock Additional paid-in capital $ $ If the vendor's estimate was reliable and thus the measure of fair value, the basis of the software would be and Super would prepare the following journal entry using either US GAAP or IFRS: Purchased manufacturing software Par value - common stock Additional paid-in capital $ $ Pensions and other employee benefits Academic Resource Center Page 67 EPS Basic US GAAP IFRS Requires the disclosure of basic EPS in the statement of income. Pensions and other employee benefits Academic Resource Center Similar, although there are a few detailed application differences in the arithmetical model used to calculate the weighted-average shares outstanding. Page 68 EPS Diluted US GAAP IFRS Requires the disclosure of diluted EPS in the statement of income. Diluted EPS includes incremental shares in the calculations, including the effects of stock options and warrants using the treasury-stock method and the effects of contingently issuable shares using the if-converted method. Pensions and other employee benefits Academic Resource Center Similar, although there are a few detailed application differences in the arithmetical model used to calculate the weighted-average shares outstanding. Page 69 EPS Diluted US GAAP IFRS Presumes that contracts that may be settled in cash or shares will be settled in shares unless evidence is provided to the contrary. Such evidence might include a past history of cash settlements of similar instruments or an explicit requirement that the settlement is made in cash. These contracts typically impact the computation of diluted EPS, but could be excluded from the computation of diluted EPS if evidence is provided that the settlement will be made in cash. Always assumes that contracts that may be settled in cash or shares will be settled in shares. Thus, these types of contracts will always impact the computation of diluted EPS. Pensions and other employee benefits Academic Resource Center Page 70 Contracts that may be settled in cash or shares example Example 5 An entity issues 1,000 convertible bonds on January 1, 2010. The bonds have a five-year term, are issued at a $1,000 face value at 5% interest per year and are convertible into 100 shares of stock for each $1,000 bond at any time through December 31, 2014. The entity has the option to settle the principal amount of the bonds for either 100 shares for each bond or the equivalent cash amount. The entity has no evidence that the contracts will be settled in cash. During 2010, the entity earned $20.0 million and had 1.0 million common shares outstanding. There is no tax rate and no tax effect is considered in the adjustment to net income for the interest on the bonds. Calculate the basic and diluted EPS in 2010 under US GAAP and IFRS. Assume that management has evidence that the convertible debt will be settled for cash due to its past history of cash settlements and intent to settle in cash. How would this assumption affect the calculation of diluted EPS under US GAAP and IFRS? Pensions and other employee benefits Academic Resource Center Page 71 Contracts that may be settled in cash or shares example Example 5 solution: Basic EPS The calculation for basic EPS is the same for US GAAP and IFRS. Net income $ Common shares outstanding =$ Pensions and other employee benefits Academic Resource Center Page 72 Contracts that may be settled in cash or shares example Example 5 solution (continued): Diluted EPS Under US GAAP, the convertible debt is presumed to be settled in shares since there is no evidence to the contrary. IFRS always assumes that the convertible debt would be settled in shares; therefore, the calculation is the same. Net income $ Add interest on bonds ( Adjusted net income $ Common shares outstanding Add assumed conversion of bonds ($ Adjusted shares outstanding Adjusted net income $ Adjusted shares outstanding ) ) =$ Pensions and other employee benefits Academic Resource Center Page 73 Contracts that may be settled in cash or shares example Example 5 solution (continued): Cash settlement With the evidence that management has provided regarding its cash settlement history and intentions to settle in cash, for US GAAP, there would be of the bonds on the diluted EPS calculation, resulting in a diluted EPS of $ EPS. Under IFRS, . Pensions and other employee benefits Academic Resource Center Page 74 EPS Diluted - calculation of weighted shares outstanding US GAAP IFRS The number of incremental shares (attributable to options, warrants and contingently issuable shares) is computed using a year-to-date weighted average of the number of incremental shares included in each quarterly calculation. The number of incremental shares is computed as if the entire year-to-date period was \"the period\" (that is, there is no averaging of the current period with each of the other periods). Pensions and other employee benefits Academic Resource Center Page 75 Calculation of weighted shares outstanding example Example 6 Investors Incorporated (Investors) earned $5.0 million per quarter during 2010, for total net income for the year of $20.0 million. The common shares outstanding remained at 2.0 million shares throughout the year. Investors had 400,000 stock options outstanding during the entire year at an exercise price of $25 per option. No options were exercised during the year. There were no incremental shares calculated during the first and second quarters as the market price of the common stock was below the grant or exercise price. However, during the third and fourth quarters, the market price of the stock rose above the grant-date price, thus incremental shares were calculated for these two quarters. The third-quarter average market price was $50 per share and the fourth-quarter average market price was $52.63 per share. The average market price for the year was $34.48 per share. Calculate the basic and diluted EPS for Investors for each quarter, and annually, in 2010 under US GAAP and IFRS. Pensions and other employee benefits Academic Resource Center Page 76 Calculation of weighted shares outstanding example Example 6 solution: US GAAP: As shown in the calculation below, Investors determined the quarterly incremental shares using the average for the quarter; however, the annual incremental shares are determined using the average of the quarterly incremental shares. Q1 Q2 Q3 Q4 Year to date Net income Common shares Incremental shares(1) Dilutive shares Basic EPS * Diluted EPS ** * Calculated as net income divided by common shares. ** Calculated as net income divided by dilutive shares. Pensions and other employee benefits Academic Resource Center Page 77 Calculation of weighted shares outstanding example Example 6 solution (continued): (1) Incremental shares attributable to the price of common stock exceeding the exercise price of common stock options, based on the average price of common stock for the quarter. (2) Third-quarter calculation of incremental shares: Stock options Exercise price Proceeds to company Average market price of stock for third quarter Shares assumed repurchased Incremental shares ( ) Pensions and other employee benefits Academic Resource Center Page 78 Calculation of weighted shares outstanding example Example 6 solution (continued): (3) Fourth-quarter calculation of incremental shares: Stock options Exercise price Proceeds to company Average market price of stock for fourth quarter Shares assumed repurchased Incremental shares ( (4) (5) ) Summation of incremental shares for the quarters divided by four. Does not equal the sum of the quarters due to the effect of average incremental shares for the year. Pensions and other employee benefits Academic Resource Center Page 79 Calculation of weighted shares outstanding example Example 6 solution (continued): IFRS: As shown in the calculation below, Investors determined the quarterly incremental shares in the same manner as US GAAP using the average for each quarter; however, the annual incremental shares are determined using the average for the year. This results in a diluted EPS that is slightly lower ($.03) than US GAAP. Q1 Q2 Q3 Q4 Year to date Net income Common shares Incremental shares 1) Dilutive shares Basic EPS * Dilutes EPS ** * Calculated as net income divided by common shares. ** Calculated as net income divided by dilutive shares. Pensions and other employee benefits Academic Resource Center Page 80 Calculation of weighted shares outstanding example Example 6 solution (continued): (1) Incremental shares attributable to the price of common stock exceeding the exercise price of stock options, based on the average price of common stock for that period. (2) This calculation is the same as US GAAP as the period is one quarter. (3) Calculation of annual incremental shares using the period of one year: common Stock options Exercise price Proceeds to company Average market price of stock for the year Shares assumed repurchased Incremental shares ( ) Does not equal the sum of the quarters due to the effect of the average incremental shares for the year. (4) Pensions and other employee benefits Academic Resource Center Page 81 EPS Diluted - contingently issuable shares US GAAP IFRS Potentially issuable shares are included in diluted EPS using the if-converted method if one or more contingencies exist that relate to the entity's share price. Potentially issuable shares are considered \"contingently issuable\" and are included in diluted EPS using the if-converted method only if the contingencies are satisfied at the end of the reporting period. Pensions and other employee benefits Academic Resource Center Page 82 Contingently issuable shares example Example 7 The EPS Company (EPS) has issued 5% convertible bonds for $1.0 million, which may be converted into 10,000 shares of common stock if the per-share price of the common stock reaches $40 per share. During the year, EPS earned $20.0 million after taxes and had 2.0 million shares of common stock outstanding, of which the average market price for the common stock was $30 per share. At no time during the year did the market price of the common stock exceed $35. EPS' tax rate is 40%. Calculate the diluted earnings per share for EPS for the year under US GAAP and IFRS. Pensions and other employee benefits Academic Resource Center Page 83 Contingently issuable shares example Example 7 solution: US GAAP: The diluted EPS calculation would include the incremental shares attributable to the bond even if the common price was not met. Adjusted Net income net income =$ Add interest on bonds less taxes Adjusted ($ shares ) outstanding Adjusted net income Common shares outstanding Add assumed conversion of bonds Adjusted shares outstanding Pensions and other employee benefits Academic Resource Center Page 84 Contingently issuable shares example Example 7 solution (continued): IFRS: The diluted EPS calculation would not consider the contingently issuable shares as the contingency that gives rise to the conversion feature has not been met. Therefore, the diluted EPS is the Pensions and other employee benefits Academic Resource Center Page 85 Presentation and disclosure SBP US GAAP IFRS Has extensive disclosure requirements related to share compensation plans, including measurement and recognition criteria. The pronouncements contain basic requirements to disclose the: Type and scope of arrangements existing during the period. Description of the agreements (settlement methods, vesting conditions, etc.). Number and average exercise price of share options by category, including: Similar, although the pronouncements are less detailed than those under US GAAP. Options outstanding at the beginning of the period. Options outstanding at the end of the period. Options granted, vested, exercised and forfeited during the period. Options exercisable at the end of period. Pensions and other employee benefits Academic Resource Center Page 86 Presentation and disclosure SBP US GAAP IFRS Basic requirements (continued): Average share price of exercised options. Range of exercise prices and remaining contractual life of options outstanding at the balance sheet da