FASB Topic 842 Accounting For Leases - Presentation & Disclosure
Introduction.
In February 2016, the Financial Accounting Standards Board (“FASB” or “the Board”) issued its highly-anticipated leasing standard in ASU 2016-02 (“ASC 842” or “the new standard”) for both lessees and lessors. Under its core principle, a lessee will recognize right-of-use (“ROU”) assets and related lease liabilities on the balance sheet for all arrangements with terms longer than 12 months. The pattern of expense recognition in the income statement will depend on a lease’s classification. See BDO KNOWS: FASB Topic 842, Leases for an overview of the standard. During deliberations for the standard, many users indicated that the existing disclosure requirements did not provide sufficient information to understand an entity’s leasing activities. As a result, the new standard also introduces an overall disclosure objective together with significantly enhanced presentation and disclosure requirements for leases.
Disclosure Objective
FASB Accounting Standards Codification (ASC) 842-20-50-1 and 842-30-50-1 provide that “the objective of the disclosure requirements is to enable users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.” The standard further indicates that “a lessee [lessor] shall consider the level of detail necessary to satisfy the disclosure objective and how much emphasis to place on each of the various requirements. A lessee [lessor] shall aggregate or disaggregate disclosures so that useful information is not obscured by either the inclusion of a large amount of insignificant detail or by aggregating items that have different characteristics.” [1] With that objective in mind, significant judgment will be required to determine the level of disclosures necessary for an entity. However, as a guiding principle, the basis for conclusions indicates “if leasing is a significant part of an entity’s business activities, the disclosures would be more comprehensive than for an entity whose leasing activities are less significant….” [2] For example, although the new standard does not provide specific quantitative or qualitative disaggregation requirements such as those required under ASC 606, for entities for which leasing is a significant portion of their business, such disaggregation might be appropriate. Entities must make appropriate disclosures for each annual reporting period for which a statement of comprehensive income (statement of activities) is presented and in each year-end statement of financial position. Entities are not required to repeat disclosures if the information is already presented in the financial statements as required by other accounting standards. Although the majority of the disclosures required by ASC 842 only affect an entity’s annual financial statements, the new standard requires that lessors provide a table disclosing lease income for each interim and annual reporting period [3] . Additionally, in the year of adoption, the Securities and Exchange Commission (SEC) requires public companies to include all required annual disclosures in any interim financial statements that are prepared until the next annual financial statements are filed – even if the disclosure requirements are only applicable for annual periods.
Presentation
Lessee A lessee is required to present ROU assets resulting from finance leases separately from ROU assets resulting from operating leases and separately from other assets, either on the face of the balance sheet or in the footnotes. Similarly, lease liabilities for finance leases are required to be presented separately from lease liabilities from operating leases and from other liabilities. In addition, ROU assets are presented as noncurrent in the lessee’s balance sheet, consistent with how other amortizing assets such as PP&E are presented. However, the related lease liabilities are subject to current and long-term presentation requirements in a classified balance sheet, consistent with the way other financial liabilities are presented. If the lessee chooses to report ROU assets and liabilities within other line items on the balance sheet rather than in separate captions, the lessee is prohibited from reporting finance lease ROU assets or finance lease liabilities in the same caption as operating lease ROU assets and operating lease liabilities. Additionally, disclosure of which line items in the statement of financial position include the ROU assets and lease liabilities would be required. For finance leases, a lessee should present the interest expense on the lease liability and amortization of the ROU asset in a manner consistent with how the lessee reports other interest expense and depreciation or amortization expense in the income statement. For operating leases, the lessee must present both components together as lease expense within income from continuing operations, consistent with the presentation of other operating expenses. Lease expense should be classified within cost of sales; selling, general, and administrative expense; or another expense line item depending on the nature of the lease. The new standard does not provide specific guidance on the presentation of variable lease payments (for either finance or operating leases). Paragraph BC271 in the basis of conclusions for ASU 2016-02 indicates that amount recognized in the income statement should be presented within income from continuing operations. We believe that presentation as either lease expense or interest expense may be appropriate, depending on the nature of the lease. In making this determination, lessees should assess whether the payments are more akin to lease payments or interest. The cash flow classification of payments related to finance leases should be consistent with the classification of payments associated with other financial liabilities. Payments of principal should be presented as financing activities, while payments of interest would typically result in operating cash flow presentation. Payments related to operating leases, leases to which the lessee has applied the practical expedient for short term leases, and any variable lease payments for either operating or finance leases should all be classified as operating cash outflows (unless the payment represents a cost of bringing another asset to the condition and location necessary for its intended use, in which case it should be classified within investing activities). Additionally, the establishment of ROU assets and lease liabilities at inception of a lease (or that change as a result of lease modifications or reassessment events) should be disclosed as noncash investing and financing activities. Lessor A lessor is required to present lease assets (i.e., net investment in leases) resulting from sales-type and direct financing leases separately from other assets in the balance sheet. Lease assets are financial assets that are subject to current and long-term presentation requirements in a classified balance sheet. For operating leases, the assets underlying the leases and related depreciation are presented in accordance with other accounting guidance (e.g., ASC 360). Assets subject to lease under operating leases should be presented separately from owned assets that are held and used by the lessor as they are subject to different risks. Any rent receivable, deferred rent revenue (i.e., that results from requirement to recognize rents on a straight-line basis), or prepaid initial direct costs would be subject to current and long-term presentation requirements. Income arising from leases should be presented separately in the income statement or in the footnotes. If presented in the footnotes, a lessor must also disclose which line items include lease income. Revenue and cost of goods sold related to profit or loss on leases recognized at the commencement date should be presented on a gross basis if the lessor uses leases as an alternative means of realizing value from goods that it would otherwise sell. If the lessor uses leasing as a means of providing finance, profit or loss should be presented on a net basis (i.e., as a single line item). The new standard does not provide specific guidance on the presentation of variable lease payments received for direct financing or sales type leases. We believe that presentation as either lease income or interest income may be appropriate, depending on the nature of the lease. In making this determination, Lessors should assess whether the payments are more akin to lease payments or interest. Lessors must classify all cash receipts from leases as operating activities in the statement of cash flows.
As noted previously, the objective of the disclosure requirements in the new leasing standard is to enable users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. To help entities achieve this objective, the leasing standard prescribes quantitative and qualitative disclosures that are required for all entities. [4] The following table summarizes the disclosure requirements of the leasing standard:
Sale and Leaseback
If a seller-lessee enters into a sale and leaseback transaction, it must provide the disclosures required for lessees. Similarly, a buyer-lessor must provide the disclosures for lessors. Additionally, a seller-lessee must disclose the main terms and conditions of the sale and leaseback transaction and must disclose any gains or losses arising from the transaction separately from gains or losses on disposal of other assets.
Leveraged Leases
Although ASC 842 removed leveraged lease accounting, leases that met the definition of a leveraged lease under ASC 840 that commenced before the effective date of ASC 842 are grandfathered in. As such, entities that continue to have leveraged leases must continue to provide disclosures as required by ASC 842-50, which carries forward existing guidance from ASC 840.
Other Disclosure Considerations
Transition The leasing standard requires an entity to provide the general disclosures required by ASC 250 Accounting Changes and Error Corrections. Entities are also required to provide an explanation to users of financial statements about which practical expedients were used in transition. SAB 74 Disclosures In periods prior to adoption of the leasing standard, entities are required to make disclosures under the SEC’s Staff Accounting Bulletin No. 74 (codified in SAB Topic 11.M), Disclosure Of The Impact That Recently Issued Accounting Standards Will Have On The Financial Statements Of The Registrant When Adopted In A Future Period (“SAB 74”). SAB 74 requires that when a recently issued accounting standard has not yet been adopted, a registrant disclose the potential effects of the future adoption in its interim and annual SEC filings. SAB 74 disclosures should be both qualitative and quantitative. According to Center for Audit Quality Alert 2017-03, SAB Topic 11.M – A Focus on Disclosures for New Accounting Standards , the SEC staff expects that SAB 74 disclosures will become more robust and quantitative as the new accounting standard’s effective date approaches. As such, the following types of SAB 74 disclosures are expected in a registrant’s financial statements in the periods before new accounting standards are effective:
A comparison of accounting policies . Registrants should compare their current accounting policies to the expected accounting policies under the new accounting standard(s).
Status of implementation . The status of the process should be disclosed, including significant implementation matters not yet addressed or if the process is lagging.
Consideration of the effect of new footnote disclosure requirements in addition to the effect on the balance sheet and income statement . A new accounting standard may not be expected to materially affect the primary financial statements; however, it may require new significant disclosures that require significant judgments.
Disclosure of the quantitative impact of the new accounting standard if it can be reasonably estimated .
Disclosure that the expected financial statement impact of the new accounting standard cannot be reasonably estimated .
Qualitative disclosures . When the expected financial statement impact is not yet known by a registrant, a qualitative description of the effect of the new accounting standard on the registrant’s accounting policies should be disclosed.
Selected Financial Data – 5 Year Table Some SEC registrants have questioned whether they must recast all periods reflected in the 5 year Summary of Selected Financial Data in accordance with the new leasing standard? In short, the answer is “no”. Registrants are only required to adjust the periods in the financial data table that correspond to the periods adjusted in the registrant’s financial statements. For example, an entity that elects to adopt the new standard as of the effective date (i.e., without restating prior comparative periods), the four prior years in the selected financial data table would not be adjusted. Companies will be required to provide the disclosures required by Instruction 2 to S-K Item 301 regarding comparability of the data presented.
Appendix A – Disclosure Example - LESSEE
Background For purposes of this example, we have assumed that Susie’s Stitch-n-Sew (“Susie’s”) is a national retailer of fabrics and other craft materials which primarily leases its retail locations. We have not presented a statement of financial position, but have assumed that Susie’s has presented the following captions:
Operating lease ROU assets
Fixed assets, net
Current portion of operating lease liabilities
Long-term operating lease liabilities
Current portion of long-term debt
Long-term debt
We have also not presented a statement of comprehensive income, but have assumed that Susie’s has presented Cost of sales, SG&A expense, Depreciation and amortization expense, and Interest expense. This example assumes that the guidance in ASC 842 has been in effect for all periods presented, and that all amounts are in millions. Note X. Leases Susie’s has historically entered into a number of lease arrangements under which we are the lessee. Specifically, of our 250 retail locations, 240 are subject to operating leases and 5 are subject to finance leases. In addition, we lease our corporate headquarters facility, as well as various warehouses and regional offices. We are also a party to an additional 12 leases in which we previously operated a retail location, but which are now subleased to third parties. In addition, we have elected the short-term lease practical expedient related to leases of various equipment used in our retail locations. As of December 31, 20X9, we have entered into eight leases for additional retail locations and one lease for an additional warehouse which have not yet commenced. Although certain of the retail locations are currently under construction, we do not control the building during construction, and are thus not deemed to be the owner during construction. All of our retail leases include multiple optional renewal periods. Upon opening a new retail location, we typically installs brand-specific leasehold improvements with a useful life of eight years. To the extent that the initial lease term of the related lease is less than the useful life of the leasehold improvements, we conclude that it is reasonably certain that a renewal option will be exercised, and thus that renewal period is included in the lease term, and the related payments are reflected in the ROU asset and lease liability. Generally, we do not consider any additional renewal periods to be reasonably certain of being exercised, as comparable locations could generally be identified within the same trade areas for comparable lease rates. All of our leases include fixed rental payments, but many of our leases also include variable rental payments. Specifically, a number of our leases in certain markets require rent payments that are calculated as a percentage of sales in that location. In addition, we also commonly enter into leases under which the lease payments increase at pre-determined dates based on the change in the consumer price index. While the majority of our leases are gross leases, we also have a number of leases in which we make separate payments to the lessor based on the lessor’s property and casualty insurance costs and the property taxes assessed on the property, as well as a portion of the common area maintenance associated with the property. We have elected the practical expedient not to separate lease and nonlease components for all of our building leases. During 20X9, 20x8 and 20x7, we recognized rent expense associated with our leases as follows:
Amounts recognized as right-of-use assets related to finance leases are included in Fixed assets, net in the accompanying statement of financial position, while related lease liabilities are included in Current portion of long-term debt and Long-term debt. As of December 31, 20x9 and 20x8, right-of-use assets and lease liabilities related to finance leases were as follows:
During the years ended December 31, 20x9, 20x8 and 20x7, we had the following cash and non-cash activities associated with our leases:
As of December 31, 20x9 and 20x8, the weighted-average remaining lease term for all operating leases is 3.4 years and 3.5 years, respectively, while the weighted-average remaining lease term for all finance leases is 4.9 years and 5.6 years, respectively. Because we generally do not have access to the rate implicit in the lease, we utilize our incremental borrowing rate as the discount rate. The weighted average discount rate associated with operating leases as of December 31, 20x9 and 20x8 is 4.2% and 4.0%, respectively, while the weighted-average discount rate associated with finance leases is 3.9% and 3.8%, respectively.
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9.1 Chapter overview
9.3 Lessors
Favorited Content
- 9.2 Lessees: Presentation and disclosure
9.2.1 Lessees: Balance sheet presentation
ASC 842-20-45-1
A lessee shall either present in the statement of financial position or disclose in the notes all of the following: a. Finance lease right-of-use assets and operating lease right-of-use assets separately from each other and from other assets b. Finance lease liabilities and operating lease liabilities separately from each other and from other liabilities. Right-of-use assets and lease liabilities shall be subject to the same considerations as other nonfinancial assets and financial liabilities in classifying them as current and noncurrent in classified statements of financial position.
9.2.1.1 Right-of-use asset balance sheet presentation
9.2.1.2 lessees: presentation of finance and operating lease liabilities, 9.2.1.3 current versus noncurrent classification of the lease liability, 9.2.2 lessees: income statement presentation.
ASC 842-20-45-4
In the statement of comprehensive income, a lessee shall present both of the following: a. For finance leases, the interest expense on the lease liability and amortization of the right-of-use asset are not required to be presented as separate line items and shall be presented in a manner consistent with how the entity presents other interest expense and depreciation or amortization of similar assets, respectively. b. For operating leases, lease expense shall be included in the lessee’s income from continuing operations.
9.2.2.1 Lessees: Finance lease income statement presentation
9.2.2.2 lessees: presentation of variable lease payments, 9.2.2.3 lessees: operating lease income statement presentation, 9.2.3 lessees statement of cash flows presentation, 9.2.3.1 lessees: finance lease statement of cash flows presentation.
- Cash payments for the principal portion of the lease liability arising from a finance lease should be classified as financing activities
- Cash payments for the interest portion of the lease liability arising from a finance lease should follow the guidance in ASC 230 . These amounts would generally be classified as operating activities
- Variable lease payments and short-term lease payments not included in the lease liability should be classified as operating activities
- Payments for pre-paid rent for a finance lease are investing activities
9.2.3.2 Lessee: Operating lease statement of cash flows presentation
9.2.3.3 lessees: payments and reimbursements for leasehold improvements, 9.2.3.4 lessees: noncash transactions, 9.2.4 lessees: qualitative disclosures.
ASC 842-20-50-3
A lessee shall disclose all of the following: a. Information about the nature of its leases, including: 1. A general description of those leases. 2. The basis and terms and conditions on which variable lease payments are determined. 3. The existence and terms and conditions of options to extend or terminate the lease. A lessee should provide narrative disclosure about the options that are recognized as part of its right-of-use assets and lease liabilities and those that are not. 4. The existence and terms and conditions of residual value guarantees provided by the lessee. 5. The restrictions or covenants imposed by leases, for example, those relating to dividends or incurring additional financial obligations. A lessee should identify the information relating to subleases included in the disclosures provided in (1) through (5), as applicable. b. Information about leases that have not yet commenced but that create significant rights and obligations for the lessee, including the nature of any involvement with the construction or design of the underlying asset. c. Information about significant assumptions and judgments made in applying the requirements of this Topic, which may include the following: 1. The determination of whether a contract contains a lease (as described in paragraphs 842-10-15-2 through 15-27 ) 2. The allocation of the consideration in a contract between lease and nonlease components (as described in paragraphs 842-10-15-28 through 15-32 ) 3. The determination of the discount rate for the lease (as described in paragraphs 842-20-30-2 through 30-4 ).
9.2.4.1 Discount rate for lessees that are not public business entities
9.2.5 lessees: quantitative disclosures.
ASC 842-20-50-4
For each period presented in the financial statements, a lessee shall disclose the following amounts relating to a lessee’s total lease cost, which includes both amounts recognized in profit or loss during the period and any amounts capitalized as part of the cost of another asset in accordance with other Topics, and the cash flows arising from lease transactions: a. Finance lease cost, segregated between the amortization of the right-of-use assets and interest on the lease liabilities. b. Operating lease cost determined in accordance with paragraphs 842-20-25-6(a) and 842-20-25-7 . c. Short-term lease cost, excluding expenses relating to leases with a lease term of one month or less, determined in accordance with paragraph 842-20-25-2 . d. Variable lease cost determined in accordance with paragraphs 842-20-25-5(b) and 842-20-25-6(b) . e. Sublease income, disclosed on a gross basis, separate from the finance or operating lease expense. f. Net gain or loss recognized from sale and leaseback transactions in accordance with paragraph 842-40-25-4 . g. Amounts segregated between those for finance and operating leases for the following items: 1. Cash paid for amounts included in the measurement of lease liabilities, segregated between operating and financing cash flows 2. Supplemental noncash information on lease liabilities arising from obtaining right-of-use assets 3. Weighted-average remaining lease term 4. Weighted-average discount rate.
- The undiscounted cash flows on an annual basis for a minimum of each of the next five years
- The sum of the undiscounted cash flows for all years thereafter
- A reconciliation of the undiscounted cash flows to the discounted finance lease liabilities and operating lease liabilities recognized in the statement of financial position
9.2.6 Lessees: Interim disclosures
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Your go-to resource for timely and relevant accounting, auditing, reporting and business insights. Follow along as we demonstrate how to use the site
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Assertions in Auditing
Claims that establish whether or not financial statements are true and fairly represented in auditing
What are Assertions in Auditing?
Assertions are claims that establish whether or not financial statements are true and fairly represented in the process of auditing.
Importance of Assertions
Assertions are an important aspect of auditing. Since financial statements cannot be held to a lie detector test to determine whether they are factual or not, other methods must be used to establish the truth of the financial statements.
Assertions are defined as “a statement that is believed to be true by the speaker. “An assertion can be anything, e.g., “I assert that fundamental value investing is the best investing philosophy.”
However, it is difficult to measure whether the statement is indeed true. Similarly, with financial statements, it is difficult to determine what financial information is free from material misstatement.
There are two aspects to material misstatement. Clearly, materiality plays a large role; however, how to measure what information is true and fair or misstated is crucially important.
Assertions play a key role in determining what is true and fair when auditing financial records.
Assertions are characteristics that need to be tested to ensure that financial records and disclosures are correct and appropriate. If assertions are all met for relevant transactions or balances, financial statements are appropriately recorded.
The International Financial Reporting Standards (IFRS) are a set of accounting standards issued by the International Accounting Standards Board (IASB) and the IFRS Foundation aimed towards providing a common set of accounting rules that are consistent, transparent, and comparable internationally.
IFRS developed ISA315, which includes categories and examples of assertions that may be used to test financial records.
There are two types of assertions, each of which relates to different events:
1. Transaction Level Assertions
Transaction level assertions are made in relation to classes of transactions, such as revenues, expenses, dividend payments , etc.
There are five types of transaction-level assertions:
- Occurrence : Transactions that are recognized in the financial records as having occurred, i.e., did it really happen?
- Completeness : Transactions that are completed and supposed to be recorded have been recognized in the financial statements, i.e., did it include all transactions?
- Accuracy : Transactions have been accurately reflected within the financial statements at appropriate amounts, i.e., have correct prices, quantities, and calculations been used?
- Cut-off : Transactions that have been recognized in correct and relevant accounting time periods.
- Classification : Transactions have been classified properly and fairly presented in the financial statements.
2. Account Balance Assertions
Account balance assertions apply to the balance sheet items, such as assets, liabilities, and shareholders’ equity.
There are four types of account balance assertions:
- Existence : The assets, equity balances, and liabilities exist at the period ending time.
- Completeness : The assets, equity balances, and the liabilities that are completed and supposed to be recorded have been recognized in the financial statements.
- Rights and Obligations : The entity has ownership rights or the right to benefit from recognized assets on the financial statements. Liabilities recognized in the financial statements represent the actual obligations of the entity.
- Valuation : The assets, equity balances, and liabilities have been valued appropriately.
3. Presentation and Disclosure Assertions
It is the third assertion type that can fall under both transaction-level assertions and account balance assertions. It relates to the presentation and disclosure of financial statements.
There are four types of presentation and disclosure assertions:
- Accuracy and Valuation : Transactions, balances, and other financial records have been disclosed accurately and at the appropriate valuations.
- Classification and Understandability : Transactions, events, balances, and other financial records have been classified properly and presented in a clear manner that promotes understandability to the users of the financial statements.
- Completeness : Transactions, events, balances, and other financial records have been disclosed completely within the financial statements.
- Occurrence : Transactions, events, balances, and other financial records have occurred and are related to the entity.
Related Readings
Thank you for reading CFI’s guide to Assertions in Auditing. To keep learning and developing your knowledge base, please explore the additional relevant resources below:
- Audited Financial Statements
- IFRS Standards
- Accounting Policies
- Analysis of Financial Statements
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Speaker Disclosure at Presentations
Sample disclosures.
These examples provide sample formats and language for speakers to use on their slides or posters when announcing their course title, financial and nonfinancial disclosures, and learning outcomes at the beginning of courses registered for ASHA CEUs. Please refer to the examples below prior to your presentation in order to understand what needs to be included in your slides or poster for disclosure.
- Example #1 [PDF]
- Example #2 [PDF]
- Example #3 [PDF]
- Example #4 [PDF]
- Example #5 for posters [PDF]
Sample Course Content, Speaker Biographies, and Their Disclosure Statements
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- IASB meeting — 19–21 March 2013
- IAS 41 Agriculture (IASB only)
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- Conceptual framework — Measurements and elements of financial statements (IASB only)
- Fair value measurement (IASB only)
Conceptual framework — Presentation and disclosure; elements of financial statements; capital maintenance (IASB only)
- IAS 19 Defined benefit plans: employee contributions (IASB only)
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- Revenue recognition (IASB only)
- Put written on non-controlling-interests (IASB only)
The IASB discussed an early draft of sections of a Discussion Paper (DP) on the revised Conceptual Framework, addressing:
- presentation and disclosure;
- certain elements of financial statements (distinguishing liabilities from equity particularly in the context of a written put option on own shares; and the definitions of income and expense and whether to define different types of income and expense); and
- a proposed approach to capital maintenance in the DP.
Presentation and disclosure
The IASB discussed presentation and disclosure issues. The existing Conceptual Framework does not have a section on presentation and disclosure, resulting, in the views of some, in disclosure requirements that are not always focused on the right/relevant disclosures and are too voluminous.
The staff prepared a draft section of the DP to discuss the conceptual principles that should underlie the IASB’s decision to provide guidance on presentation and disclosure.
The staff’s draft DP proposed that the objective of primary financial statements is to depict an entity’s financial position, financial performance and cash flows in a summary that is useful to a wide range of users for their assessment of the amount, timing and uncertainty of the entity’s future net cash inflows, and how efficiently and effectively the entity’s management and governing board have discharged their responsibilities to use the entity’s resources. Following from this primary purpose, the staff considered the conceptual principles underpinning:
- Classification and aggregation;
- Offsetting;
- Cohesiveness;
- Scope of information that should be included in the notes to the financial statements (i.e., disclosure).
Board members outlined many views on the staff’s proposed objective of primary financial statements. In particular, the IASB Chair believed the primary objective related to how efficiently and effectively the entity’s management and governing board have discharged their responsibilities to use the entity’s resources – an objective he viewed as synonymous with a stewardship role – as opposed to providing information to users to assess the amount, timing and uncertainty of an entity’s future net cash inflows. Several others, building on this view, noted that the revised Conceptual Framework should make clear that the objective of the primary financial statements should not be to allow users to forecast cash flows.
Beyond the objectives, Board members outlined several recommendations to discussion underpinning the objective. Examples of recommendations included requests to more clearly specify preparer responsibilities in presenting and disclosing risks and uncertainties in the business and further information related to the risks and pitfalls associated with aggregation.
On the topic of disclosure, Board members expressed varying levels of support for the direction of the staff paper – which noted that the notes should be inextricably linked to the primary financial statements and provide relevant information (capable of making a difference to the decisions made by users) that is faithfully represented (complete, neutral and free from error; clear, balanced and understandable; comprehensive; consistent over time; comparable amongst entities; and timely). The staff paper also proposed that notes to the financial statements should be limited to information arising from past and current conditions, transactions and events in order to provide relevant information to financial statement users.
Specific concerns/recommendations expressed by the Board to the staff paper included:
- The revised Conceptual Framework should include discussion about the intent of notes (e.g., disaggregation of information, insight into the business, etc.).
- A view that the revised Conceptual Framework should make clear that disclosures are intended to ‘communicate’ rather than result in a compliance exercise for preparers.
- Concern that some of the principles underlying the concept of faithful representation, such as ‘comprehensive’ and ‘comparable’, are not appropriate as overall objectives.
- Concern with the staff’s commentary that forward-looking information would be disclosed outside of financial statements, for example, in management commentary, so as to limit the financial statements to past and current conditions, transactions and events. The overriding concern with this statement was a discomfort as to what constitutes forward looking information. Therefore, it was requested that the staff more clearly specify what information should be captured in the financial statements (e.g., maturity analyses for items recognised in the primary financial statements are not considered forward looking information).
The staff acknowledged the comments from the Board and will consider such comments in further developing the Conceptual Framework DP.
Presentation in the statement of comprehensive income
The IASB discussed presentation in the statement of comprehensive income, including the purpose of the statement of comprehensive income, principles and concepts for presentation in profit or loss or other comprehensive income (OCI), how these principles and concepts apply to current and proposed OCI items and suggestions for changing the name of the statement of comprehensive income.
The staff, pre-empting the Board discussion, noted that there is no principle in IFRS to determine which items of income or expense should be presented in profit or loss and which should be reported in OCI, and when items initially recognised in OCI should be recycled into profit or loss. Therefore, the staff prepared a draft section of the DP to discuss the conceptual principles that should underlie the IASB’s future decision on these areas. On the basis of its analysis on these two topics, the staff recommended:
- Principle 1 : Items presented in profit or loss communicate the primary picture of an entity’s financial performance for a reporting period.
- Principle 2 : All items of income and expense should be recognised in profit or loss unless presenting an item in OCI provides a better depiction of financial performance (i.e., OCI is an exception to presentation in profit or loss).
- Principle 3 : An item that has previously been presented in OCI should be reclassified to profit or loss if the reclassification results in relevant information about financial performance in that period.
- (Topic 2) Two groups of items would be eligible for presentation in OCI applying the above principles: bridging items and mismatched remeasurements. A bridging item arises where the IASB determines that the statement of comprehensive income would communicate more relevant information about financial performance if profit or loss reflected a different measurement basis from that reflected in the statement of financial position (e.g., reflected changes in fair value in OCI for financial assets measured at fair value through OCI in the proposed limited scope amendments to IFRS 9 ), although the Board would need to determine circumstances that warrant different measurement bases being presented concurrently. A mismatched remeasurement arises where an item of income or expense represents an economic phenomenon so incompletely that, in the opinion of the IASB, presenting that item of income or expense in profit or loss would provide information that has little or no relevance for assessing the entity’s financial performance (e.g., reflecting the effective portion of changes in fair value for cash flow hedging instruments under IAS 39 Financial Instruments: Recognition and Measurement ).
- (Topic 3) The DP should include discussion of an alternative approach in which a single statement of comprehensive income (removing the distinction between profit and loss and OCI) is presented.
These recommendations elicited a long discussion by Board members.
Several Board members expressed significant reservations with the staff paper/early draft of the DP. While they acknowledged the discussion furthered the debate about what should be presented in OCI, they believed it ducked the core questions of defining OCI and financial performance, and instead, tried to optimise presentation and reverse engineer principles based on existing decisions by the Board regarding what should be presented in OCI. These Board members generally sought to provide constituents with a tool kit for identifying items to be reported in OCI. They also noted that as a first step, it was important that the Board decide more conceptually what financial performance is, with a subsequent step of how best to depict financial performance (i.e., through profit or loss or OCI).
Other Board members saw value in the information the staff had prepared. They believed the staff paper adequately portrayed the fact that all the primary financial statements provide relevant information, but acknowledged that profit or loss was generally seen to provide primacy of information (at least from the perspective of a starting point for commonality). They recognised that in its current form, the staff analysis failed to define financial performance, but they believed performance could not be analysed, understood or communicated in only one statistic. Instead, some suggested the Board could develop a ‘by exception’ definition, for example, financial performance is not necessarily driven by recurrence of earnings, controllability or volatility. They also supported the principles developed for determining whether a recognised item of income or expense should be presented in profit or loss or in OCI. While they acknowledged that OCI was being treated as a ‘parking lot’ for certain items/transactions, they were accepting of this solution where profit or loss was not an appropriate recognition measure for movements in equity.
From this general discussion, it become clear to many that the Board could not escape a more thorough discussion of financial performance.
Many Board members expressed concern that the proposed principles failed to capture practice considerations which would ultimately result in a large number of exceptions to the basic principles at a standards level. Some offered alternative suggestions. For example, one Board member believed that the bridging principle was just a construct of the mismatched remeasurements notion. He saw two categories – mismatched remeasurements and disaggregation – where disaggregation may be indicative of bridging and ultimately provide a recognised measurement basis.
Of particular concern to many Board members was the failure of the proposals to appropriate deal with pensions. Applying the staff proposed principles, it was unclear whether a remeasurement of a net defined benefit pension asset or liability would be presented in OCI.
Other Board members expressed support for the direction of the staff paper. One Board member noted that he could accept the bridging principle for many of the items where OCI is currently allowed on the basis that bridging responds to environments where a different valuation basis makes sense in the statement of financial position as compared to the profit or loss (e.g., value through usage may dictate a profit or loss valuation basis). He pointed to value realisation as the basis for recycling. When asked how he would explain the pensions quandary, he noted a belief that the correct profit and loss treatment would be the locked-in rate because that is the methodology the Board has chosen. He noted that if the Board chooses to make an exception for this, he believed an override should be included in the revised Framework which says if we make an exception that flows through, preparers must follow through with that exception.
Speaking specifically to the proposed value realisation basis for recycling, some were troubled by this basis, believing it contradicted some of the earlier Board discussions, and others were not convinced a mismatched remeasurement basis worked well in determining when items should be recycled.
Others outlined alternative views about applying a mixed measurement model, such as showing both a pure cost-based and pure fair valued-based model in the primary financial statements, but this proposal was swiftly refuted by others on the basis of relevance of information communicated.
Summarising the discussion, the IASB Chair noted a lot of concerns about the bridged items notion. He saw a general need for broad principles so as to avoid a significant number of model exceptions, but noted that the principles could not be so broad so as to introduce use of OCI for all remeasurements.
Most Board members were supportive of including in the DP discussion of an alternative approach in which a single statement of comprehensive income is presented. However, some individual concerns were expressed. The most significant of these concerns was a fear that a single statement was code for the elimination of profit or loss, which contradicted earlier discussions on the primacy of this measure. The Board member raising this issue believed much more work would be required to develop this approach, in particular, determining a sensible disaggregation of performance measures. He preferred that the DP merely ask whether the Board should look to redefine the statement of comprehensive income, but leave open the possible approaches. One approach he mentioned was the further disaggregation of the statement of comprehensive income by presenting the remeasurement of the net defined benefit pension asset or liability as a separate line item within profit or loss.
Other recommendations
Subsequent to this long discussion, the staff noted that it had one additional proposal in the staff paper. Citing confusion to use of the term ‘comprehensive income’ given that financial reporting is far from comprehensive, the staff recommended that the term ‘comprehensive income’ should be changed. Suggested replacement names included ‘Statement of income and expenses’ rather than ‘Statement of comprehensive income’, ‘Total income and expenses’ rather than ‘Total comprehensive income’ and ‘Remeasurements outside profit or loss’ rather than ‘Other comprehensive income’. The staff noted that it had received a number of offline comments from Board members at this recommendation, and thus, requested that any other Board comments be forwarded offline so as to determine the most appropriate path forward.
No formal votes were taken following any of the above discussions. Instead, the staff was directed to consider Board discussions in further developing the draft DP.
Elements of financial statements
Distinction between liabilities and equity instruments.
At its February 2013 meeting, the Board began discussions of the boundary between liabilities and equity. At that meeting, it was noted that the existing Conceptual Framework defines equity as the residual interest in the assets of the entity after deducting all its liabilities. The existing definition of a liability focuses on whether the entity has an obligation to transfer economic benefits. However, some standards, such as IAS 32 , use complex exceptions to these basic definitions when distinguishing between liabilities and equity instruments which many view as difficult to understand and apply. Therefore, the IASB discussed a possible approach that retained the existing definition of a liability and remeasured equity claims through a statement of changes in equity to show wealth transfers between different classes of equity holders.
At this meeting, the staff presented illustrative examples of the approach discussed at the February 2013 meeting, including discussion of implications and corollary issues which would need to be considered in standards level decisions (e.g., how should an issuer measure written put options on its own shares, how should changes in the carrying amount of obligations arising under written put options on an entity’s own shares be treated, etc.).
In response to the staff analysis, many Board members were supportive of the outcome derived by the approach. Board members did seek clarification of certain aspects of the model (primarily in an attempt to understand how different transaction types, such as redeemable shares, would be treated) and communicated a number of recommendations and observations. Examples of some of the comments shared during the meeting include:
- Concern with including the examples included in the staff paper within the DP out of fear that it may be perceived as an amendment to IAS 32. However, others were concerned with the absence of examples as they feared the approach/concepts were too abstract otherwise. It was suggested that the staff could include certain examples with a caveat to say that the examples indicate the possible consequences if this approach is taken as a standards level project.
- Concern with the complexity of the approach. Board members noted many complexities in the model, including how to address binary situations and how to report/analyse wealth transfer (particularly from a dilution perspective).
- Concern with the uncertainty introduced in the statement of financial position when applying the possible approach.
No vote was taken in support of the staff’s analysis or its inclusion in the DP, nor was it agreed whether certain issues underlying the possible approach would be considered in standards level decisions. Instead, the staff was left to consider Board discussions in further developing the draft DP.
Elements: income and expense
The Board discussed the elements of the statement of comprehensive income; namely, income and expense. The staff noted that very few problems have been identified with the existing definitions of income and expense. However, there have been requests for the revised Conceptual Framework to define different types of income and expense. In particular, definitions to differentiate revenue from gains and expenses from losses, and income and expense items that should be reported in profit or loss from items that should be reported in OCI, have been suggested. However, in analysing the issue, the staff ultimately suggested that the existing definitions of income and expense remain largely unchanged (although the staff did suggest that the revised Conceptual Framework should clarify whether an expense arises when an entity issues an equity instrument in exchange for services), with no definition differentiating types of income or expense.
Board members expressed very little feedback to the staff proposal. While no formal vote was taken on the proposals, Board members appeared generally agreeable to the staff recommendations.
Capital maintenance
The existing Conceptual Framework describes the concepts of financial and physical capital maintenance. However, the existing Conceptual Framework does not prescribe a particular model of capital maintenance – requiring the use of judgement in selecting the concept of financial maintenance that provides the most useful information to the users of financial statements.
As the concepts of capital maintenance are most relevant for entities operating in high inflation economies (with the concepts used in IAS 29 Financial Reporting in Hyperinflationary Economies ), the staff recommended that the issues associated with capital maintenance are best dealt with at the same time as a possible standards level project on accounting for high inflation rather than as part of the Conceptual Framework project.
The staff also evaluated the current revaluation model in IAS 16 and IAS 38 Intangible Assets ; noting that the current model is inconsistent with both the bridging concept described earlier today and a form of capital maintenance adjustment. Therefore, the staff suggested the IASB may wish to consider whether the revaluation model in IAS 16 and IAS 38 should be amended for consistency with either of those concepts, although the staff proposed not doing so as part of the Conceptual Framework DP.
Several Board members expressed support for not exploring further the capital maintenance concept at this stage. They noted that hyperinflation, in particular, is on the IASB’s research agenda, and therefore, further consideration of capital maintenance in relation to hyperinflation may be considered at a later date. With this view, however, there was a general discussion as to what information should be included in the revised Conceptual Framework about this concept. In particular, should existing content in the Conceptual Framework be carried forward (as some felt the existing discussion did little to help standard setting development) or eliminated, and if the latter, is it too integral to eliminate entirely? Very little feedback was provided on the revaluation model proposals, but Board members generally supported not evaluating further at this stage.
No formal vote was taken to confirm agreement with the staff discussion, but the Board generally appeared supportive with the staff’s direction.
Related Topics
- Conceptual Framework — Comprehensive IASB project
Related news
Updated iasb work plan — analysis.
30 Apr 2018
IASB publishes revised Conceptual Framework
29 Mar 2018
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18 Dec 2017
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06 Oct 2017
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Ifrs in focus — iasb issues a revised conceptual framework.
14 May 2018
EFRAG endorsement status report 29 March 2018
Deloitte comment letter on updating references to the conceptual framework.
25 Nov 2015
Deloitte comment letter on the Conceptual Framework
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What are Management Assertions?
Management assertions are claims made by members of management regarding certain aspects of a business. The concept is primarily used in regard to the audit of a company's financial statements , where the auditors rely upon a variety of assertions regarding the business. The auditors test the validity of these assertions by conducting a number of audit tests . Management assertions fall into the following three classifications.
Transaction-Level Assertions
The following five items are classified as assertions related to transactions , mostly in regard to the income statement :
Accuracy . The assertion is that the full amounts of all transactions were recorded, without error.
Classification . The assertion is that all transactions have been recorded within the correct accounts in the general ledger .
Completeness . The assertion is that all business events to which the company was subjected were recorded.
Cutoff . The assertion is that all transactions were recorded within the correct reporting period.
Occurrence . The assertion is that recorded business transactions actually took place.
Account Balance Assertions
The following four items are classified as assertions related to the ending balances in accounts, and so relate primarily to the balance sheet :
Completeness . The assertion is that all reported asset , liability , and equity balances have been fully reported.
Existence . The assertion is that all account balances exist for assets, liabilities, and equity.
Rights and obligations . The assertion is that the entity has the rights to the assets it owns and is obligated under its reported liabilities.
Valuation . The assertion is that all asset, liability, and equity balances have been recorded at their proper valuations.
Presentation and Disclosure Assertions
The following five items are classified as assertions related to the presentation of information within the financial statements, as well as the accompanying disclosures:
Accuracy . The assertion is that all information disclosed is in the correct amounts, and which reflect their proper values.
Completeness . The assertion is that all transactions that should be disclosed have been disclosed.
Occurrence . The assertion is that disclosed transactions have indeed occurred.
Rights and obligations . The assertion is that disclosed rights and obligations actually relate to the reporting entity.
Understandability . The assertion is that the information included in the financial statements has been appropriately presented and is clearly understandable.
There is a fair amount of duplication in the types of assertions across the three categories; however, each assertion type is intended for a different aspect of the financial statements, with the first set related to the income statement, the second set to the balance sheet, and the third set to the accompanying disclosures.
If the auditor is unable to obtain a letter containing management assertions from the senior management of a client, the auditor is unlikely to proceed with audit activities. One reason for not proceeding with an audit is that the inability to obtain a management assertions letter could be an indicator that management has engaged in fraud in producing the financial statements.
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What Is a Disclosure? Definition in Business and How They Work
What is a disclosure explained in plain english.
Disclosure is the process of making facts or information known to the public. Proper disclosure by corporations is the act of making its customers, investors, and any people involved in doing business with the company aware of pertinent information.
Disclosures are at the center of the public's crisis of confidence when it comes to the corporate world. They should be viewed as a very important and informative part of doing business with or investing in a company. This article will define disclosure and show why it's important as it relates to companies and investors.
Key Takeaways
- Disclosure is the process of making facts or information known to the public.
- Proper disclosure by corporations is the act of making its customers, investors, and analysts aware of pertinent information.
- Companies often place disclosures that protect them in case their financial forecasts are wrong due to changing economic conditions.
- Corporate disclosures also state that investors speak with a financial advisor before investing in the stock since it might not be right for them.
How Disclosures Work
In the investing world, corporations issue disclosures to provide investors and investment analysts with information that could influence an investor's decision whether to buy a company's stock or bonds . The disclosure statement can reveal negative or positive news and financial information about the company.
Investment research reports also disclose the nature of the relationship between the equity analysts, their employer, such as the investment firm, and the company that is the subject of the research report–called the subject company . It also provides critical facts that investors should be aware of, such as warning-like statements.
The Securities and Exchange Commission (SEC) requires that all research reports contain a disclosure statement. If you are reading a research report that does not have a disclosure statement, you should disregard it, as it can not be trusted.
Why Disclosures Are Important
The disclosure is as important to a research report as footnotes are to a corporate financial report. Footnotes are used by corporations to provide investors with details of specific financial line items within the company's financial statements .
Disclosures appear at the end of a research report and usually in very small print, like footnotes to a 10-K , which is a company's annual financial report. It may take a magnifying glass and a strong cup of coffee, but when reading a disclosure, investors should be able to determine who "paid" for the research report and the degree of objectivity that may, or may not, be present.
Disclosures that are written clearly and succinctly help investors to better trust the data and findings being shared in a research report.
Disclosures in Plain English
Unfortunately, disclosure statements are quite often written by lawyers who are more concerned with protecting the brokerage firm than providing easy-to-read information for investors. Lawyers use legal boilerplate clauses that make disclosures verbose and hard to read—hence the need for the strong coffee. Disclosures are often published in small type because they tend to be lengthy.
Below are some of the key points covered, or stated, in most disclaimers:
"This report contains forward-looking statements... actual results may differ from our forecasts."
In plain English, "This is our best guess, but we may be wrong." Companies and investment analysts often forecast revenue , sales, and business development. However, things can change, such as economic conditions could deteriorate. Anytime a company or analyst makes an oral or written statement about the company's future financial performance, it'll typically include a forward-looking statement disclosure.
"This report is based on information from resources that we believe to be correct, but we haven't checked it."
In other words, we may assume that corporate financial statements contain true information about a company's operations, but no analyst can audit a company's books to verify the truth of that assumption. That is the job of the accountants .
"This report is being provided for informational purposes only, and on the condition that it will not form a primary basis for any investment decision."
Equity analysts can't provide investment advice suggesting that investors buy a company's stock. Companies will also use this disclosure. Both analysts and company executives don't know the specific financial situation of investors, such as whether they're a retiree or a millennial.
A retiree, for example, might be better off investing bonds or safe investments. There are many factors that go into an investment decision of whether to buy a stock besides the financial performance of the company. Economic conditions , the investor's risk tolerance , and asset allocation can all impact the decision.
As a result, companies and investment firms often put this disclosure to protect them from appearing that they're suggesting that an investor buy the stock solely on the information in the report.
"Investors should make their own determination of whether or not to buy or sell this stock-based upon their specific investment goals, and in consultation with their financial advisor."
This disclosure is very similar to the previous one and probably is the best bit of advice for a disclaimer. In other words, investors should consider all possible scenarios, including their financial situation and seek the help of a financial adviser in determining whether this stock is good for them.
Nature of Relationship
Investors should look for any conflicts of interest in the disclosure statements by looking for answers to these questions.
- What is the nature of the relationship between the subject company and the brokerage firm?
- Does the firm make a market in the stock and have they done investment banking for the subject company?
Brokerage firms do not produce research reports for free. Historically, income generated from trading, or investment banking, has funded research departments.
- Do the analysts and other members of the firm trade or own shares in the subject company?
It's not necessarily bad that an analyst owns a security that is being touted by the investment firm. However, it's important to disclose this information since stock ownership could impact the analyst's opinion of whether someone should buy the stock.
U.S. Securities and Exchange Commission. " Report on Review of Disclosure Requirements in Regulation S-K ," Page 8.
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Transparency through disclosure of relationships with companies is one step in the Academy’s process of ensuring that all its educational activities are fair, balanced, and not commercially biased. The Academy's Board of Trustees supports the position that having a financial relationship should not restrict expert scientific, clinical, or non-clinical presentation or publication or participation in Academy leadership or governance, provided that appropriate disclosure of such relationship is made, and mitigation occurs. As an ACCME accredited provider of accredited Continuing Education (CE) activities, the Academy has established policies and processes to ensure balance, independence, objectivity, and scientific rigor in all individual and jointly provided CME activities.
Who Should Disclose?
All Academy presenters, authors and other contributors to educational and leadership activities. If your role in an educational activity includes planning, directing, writing, editing, commenting or otherwise controlling the content that is presented to learners, you should disclose.
What Relationships do You Need to Disclose?
All financial relationships with Companies that you have had within the previous 24 months . A Company, or ACCME-defined “ineligible company” is a company whose primary business is producing, marketing, selling, re-selling, or distributing healthcare products used by or on patients.
Types of Financial Relationships
If you have a type of financial or non-financial relationship with a company or organization that does not fall into any of the categories above, email [email protected] for assistance.
When and How to Disclose
Financial disclosures must involve both the following steps:
- Each presenter must have a first slide pertaining to financial interests. This first slide must either:
- Disclose all financial interests , or
- If there is nothing to disclose, the slide must state, “I have no financial interests or relationships to disclose.”
- Presenters are required to verbally state at the start of the talk any financial interests that specifically pertain to their presentation. If there is nothing to disclose or your financial disclosures are not relevant to the content of the CME activity, verbally state that you do not have any financial interests or relationships to disclose.
Even with these acknowledgements, the Academy’s Annual Meeting Program Committee expects that all presenters will give a fair and unbiased scientific talk.
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Assessing Financial Statement Presentation and Disclosure
Auditing for dummies.
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As an auditor you have to assess management’s financial statement presentation and disclosure . The financial statements (income statement, balance sheet, and statement of cash flows) and notes to the financial statements must contain all the necessary information a user needs to avoid being misled. Users of the financial statements are those who obtain the documents in order to make a decision, like whether to invest in a company or to loan it money.
You can’t form an educated opinion about a business’s financial statements without notes that explain what’s going on. Common footnotes to the financial statements, or disclosures , are explanations of how or why a company handles a transaction, including how it writes off its assets, how it values its ending inventory, and how it reconciles the income taxes it owes.
For example, a company can’t opt to exclude an income statement or balance sheet account from the financial statements. So if short-term payables are larger than the cash on hand available to pay them (not a good thing), the company can’t “forget” to list the payables on the balance sheet.
Four specific types of management assertions relate to the presentation and disclosure of the financial statements:
Occurrence, rights, and obligations: Transactions or events actually took place and relate to the company. For example, a shoe manufacturing company is in the process of selling its tennis shoe segment. In order for information on this segment’s sale to be included in the notes to the financial statements, the sale has to be closed as of the end of the year under audit. Additionally, if the sale is in process at year-end, it can still be an event that the company should disclose. The disclosure requirement rests on how material (significant) getting rid of the tennis shoe segment is to the overall company function.
Completeness: The financial statement notes include all the relevant information that users need to properly analyze and understand the financials. No disclosures are missing, either by mistake or on purpose. Using the tennis shoe segment as an example, the complete terms of the sale are disclosed.
Classification and understandability: The disclosures are understandable to users of the financial statements. They can’t be vague or ambiguous. For example, the company can’t merely disclose that it’s selling a segment; it has to identify the segment and explain the current impact on the business, as well as the potential future impact.
Accuracy and valuation: The disclosures are accurate, and the proper amounts are included in the disclosures. Using the tennis shoe segment as an example, the correct dollar amount of the sale is listed, and major balance sheet and income statement categories that are affected are identified.
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Invention Disclosure: Everything You Need to Know
An invention disclosure is the completion of a form that represents the first recording of the invention and establishes the date and scope. 8 min read
What Is an Invention Disclosure?
An invention disclosure is the completion of a form that represents the first recording of the invention and establishes the date and scope.
Invention disclosures should include a comprehensive description of something novel and nonobvious explained in a way that allows anyone of ordinary skill in that particular field or industry to reproduce the invention on their own.
Invention disclosure documents have been used to defeat challenges to dates of invention, inventorship, invention scope, and prior art . If you improperly write your invention disclosure, it can result in a complete loss of your patent rights down the road.
What to Include in an Invention Disclosure
Invention disclosures should include:
- The title of the invention
- The inventor's name, address, and phone number
- When and how you thought of the invention
- Date of the actual reduction to practice (this may be the same as the date of invention)
- Date of public disclosure of the invention
- What makes it novel, useful, and better than any prior art
- The purpose of the invention (what will it be used for?)
- Drawings, sketches, or photos of the invention with all the parts labeled
- How the invention is used
- What features of the invention are different from prior art and how do they offer better results?
- The advantages of this invention over other prior art
- Any results you have from testing the invention
- A set of keywords to help the patent attorney find the right classification for the patent
- Research funding sources if there were any
- References to related patent searches done by the inventor
- A list of potential competitors
- Witnesses who are scientifically competent and understand the details of the invention
- Signatures of all inventors involved
- An electronic receipt of the filed invention disclosure form
How to Prepare Your Staff For Invention Disclosures
- Educate inventors before they disclose
If you have a business where people are inventing, researching, or creating new products that may eventually require a patent, you should be sure to educate your staff on the invention disclosure process from the beginning. You should have a program that explains the policies, practices, and practical understanding of the patent process . The program is not a one-off explanation but a continuous education process.
- Duty to disclose
Make sure that all of your employees are aware of and follow the policy related to duty to disclose and invention. Most companies have a policy that says employees need to disclose all inventions that they make during the course of their employment with that company.
- Support your inventors
Inventors need to feel confident that their inventions are going to be thoroughly evaluated for their patentability and commercialization potential. You do not want to alienate your inventors by treating them as unimportant. Be sure that you give careful attention to each invention disclosure, no matter what the content.
- Understand your company's intellectual property policies and your country's intellectual property laws
The Intellectual Property (IP) official at your company needs to be the expert on all IP policies and practices. They then need to explain these policies to each inventor.
- Understand the inventor's timing of public disclosures
A common complication of invention disclosures is a publication or pending publication. If a publication is about to happen, you need to file a provisional patent application to avoid loss of patent rights.
It is important that you completely understand the nature and content of the intended publication so that you can figure out whether it will contain a disclosure of the invention. It's also vital to know when the invention will be disclosed. You can do this by questioning each inventor to find out when a publication or abstract might happen.
- Inventorship versus ownership
Disclosure of an invention means that the invention has been described in complete detail. Assignment means that the ownership and legal title to the invention have been given to another party.
Companies generally combine the duty to disclose and the assignment of inventions on one form that is then signed by any new employees when they first report for work.
- When an invention is co-owned
Projects between two separate companies or organizations are a common way to collaborate on ideas and inventions. These projects should be clearly described in a contract, grant, or inter-institutional agreement. The document should address co-inventorship and co-ownership of any intellectual propertyi developed during the term of the project.
Never assume that ownership will be shared without expressing it in writing. If something ish invented by co-inventors from two different companies and there was no contractual agreement, then a decision has to be made about how the invention will be disclosed.
When to Disclose an Invention
You should disclose an invention as soon as it is deemed an invention. Even if a patent application never gets filed, an invention disclosure can often offer the invention some protection against other patent applications. This is particularly helpful in the U.S. where first-to-invent takes precedence over first-to-file.
Keeping Invention Disclosure Forms Updated
Usually, when an invention disclosure is submitted, it represents continuing research. This means that it might not meet the standards of patentability or commercialization potential to call for a patent filing. If research continues and the invention changes in any way, you need to make sure that you complete and updated invention disclosure form; otherwise you risk your first form becoming obsolete. If the original disclosure no longer represents the current state of the invention, there is no protection.
If the second invention disclosure has the best method of practicing the invention, then the date of invention will change to become that of the second invention disclosure form and not the first.
Where to Submit an Invention Disclosure
If an inventor is working for a company and has signed a duty to disclose, then the invention disclosure needs to be submitted where the employer's policy says to. You used to be able to submit an invention disclosure to the U.S. Patent and Trademark Office (USPTO). They had a program that allowed investors to submit invention disclosures directly to them. The USPTO decided that this program was no longer needed. Many inventors believed that filing an invention disclosure gave them the legal protection of a patent pending status.
If you are an individual investor, you can now simply file a provisional patent application instead of an invention disclosure, which actually gives your invention a patent pending status.
Confidentiality of Invention Disclosures
All invention disclosures should be submitted confidentially to avoid any potential undesired publication of the invention before you file the patent application . When the disclosure is made by an employee to another employee, it should be clearly understood that the disclosure is confidential.
In very large companies and organizations, the presumption of confidentiality might not exist. This means that if the disclosure is challenged by an outside party, it may be deemed a publication. To avoid this happening, it is always important to verify confidentiality before disclosing any information.
Inventor's Certificate
An inventor's certificate can sometimes be filed instead of a patent application and is similar to an invention disclosure form. The certificate includes a detailed description of the invention and a lot of the same components as a patent application.
Unlike an invention disclosure form, an inventor's certificate is part of a legal process that publicly recognizes the inventor for a particular invention on a specific date.
An inventor's certificate is not a patent and doesn't offer any of the intellectual property protection provided by a patent. Most countries use the certificate as a monetary award to the inventor when they don't plan on patenting the invention.
Sample Invention Disclosure Form
Name of Inventor(s):
Name of Invention:
Brief Description:
- Give a short explanation of the invention.
Details of the Invention:
- What parts or steps make the invention?
- What does each step or part contribute to the invention?
- Which parts are new to this invention and which are old?
- How do the parts interact to make the invention work?
- For each part, explain if it is essential to the invention.
- Use labeled sketches if possible.
Alternatives:
Consider the alternative ways of building or operating your invention. Explain them here.
- Discuss the structural alternatives such as ways the parts could be changed, substituted, or left out.
- Can the invention be used for something other than what you created it for?
Limitations:
- When will the invention not work?
- Are there any ranges of size, weight, or pressure that prevent the invention from working properly?
- Do certain parts need to be made of specific substances?
Frequently Asked Questions
- Why should I submit an invention disclosure?
In many institutions and companies, researchers are required to disclose all intellectual property that could constitute an invention or a copyrighted work. This is especially true if any part of the funding comes from that institution or company. Federal law requires you to disclose inventions that have been federally funded. If you do not disclose your inventions promptly, you could lose significant rights to your invention.
- How do I know if my discovery is an invention?
It is recommended that you submit disclosures for anything that you think might solve a problem or offer significant value. If you feel that it is something new, even if it is not a fully formed invention, you should consider disclosing it to your organization.
- What is the legal definition of an invention?
United States patent law defines an invention as something that meets the following three criteria:
- Novel: The invention needs to be different from ideas that already exist. This doesn't necesserily mean that every aspect of the invention needs to be novel.
- Useful: For an invention to be patentable , it needs to have a use or application or be an improvement on something that already exists.
- Non-obvious: The invention can't be obvious to someone of ordinary skill in the same field. It is usually demonstrated by showing that the practice of the invention yields surprising or unexpected results.
Should I list visiting scientists or collaborators from other organizations on my Invention Disclosure Form?
Anyone who contributed ideas that lead to a discovery should be mentioned in your disclosure.
Should I disclose my research tools?
Yes. Any research tools, including antibodies, vectors, plasmids, cell lines, mice, as well as any materials used as tools should be disclosed.
- When is the conception of an invention?
The conception of an invention is when someone has developed an idea that is novel, nonobvious, and exists in enough detail that another person could recreate it.
It doesn't necessarily need to exist in actual physical form yet, but it does need to be fully thought through.
- Can laboratory notebooks be used as an invention disclosure?
While most laboratory notebooks are relied on to figure out the actual date of invention and to determine the inventor, they can't usually be used as an invention disclosure. They don't contain enough information, they are often illegible, and they are not witnessed.
If the lab notebook is kept properly with enough information, proper witnessing, and is clear and easy to read, then it can be used as an invention disclosure. If you would like to use your laboratory notebook as an invention disclosure, make sure to include a detailed description of the invention and that those pages are dated and signed by the inventor and witnesses.
- What is considered a public disclosure of an invention?
Anything that makes it easily available to the public such as a journal, a conference presentation, a publication on the internet, or a dissertation indexed at the library. If the published work describes the basic ideas in enough detail that someone else would be able to make and use the invention, then this is seen as a public disclosure of the invention.
If you need help with invention disclosures, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or for companies like Google, Menlo Ventures, and Airbnb.
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Presentation and disclosure
IFRS 16 requires lessees and lessors to provide information about leasing activities within their financial statements. The Standard explains how this information should be presented on the face of the statements and what disclosures are required. In this article we identify the requirements and provide a series of examples illustrating one possible way the note disclosures might be presented.
Download IFRS 16 - Presentation and disclosure [ 227 kb ]
When it comes to the notes, the Standard tends to focus on the details of the information to be provided, leaving it to preparers to decide on the most meaningful way to present it. As a result, your specific disclosures may not look exactly the same as the ones we’ve chosen.
Download this article
Presentation
For a lessee, a lease that is accounted for under IFRS 16 results in the recognition of:
- a right-of-use asset and lease liability
- interest expense (on the lease liability)
- depreciation expense (on the right-of-use asset).
The right-of-use asset and lease liability must be presented or disclosed separately from other, non-lease assets and liabilities (except for investment property right-of-use assets which are presented as investment property). Where a lessee chooses not to present its right-of-use assets separately on the face of the balance sheet, they must be presented in the same line item that would be used if the underlying asset were owned. In many, but not all, cases this will be property, plant and equipment.
In the statement of cash flows, lease payments are classified:
- as a financing activity for amounts relating to the repayment of the principal portion of the lease liability
- in the same classification as interest paid on other forms of financing (ie, as either a financing or operating activity) for amounts relating to interest charged on the lease liability
- as operating activities for amounts relating to short-term and low-value asset leases that are accounted for off-balance sheet and for variable payments not included in the lease liability.
For a lessor, the requirements are largely the same as IAS 17’s:
- for finance leases the net investment is presented on the balance sheet as a receivable, and
- assets subject to operating leases continue to be presented according to the nature of the underlying asset.
Disclosures
IFRS 16 requires different and more extensive disclosures about leasing activities than IAS 17. The objective of the disclosures is to provide users of financial statements with a basis to assess the effect of leasing activities on the entity’s financial position, performance and cash flows. To achieve that objective, lessees and lessors disclose both qualitative and quantitative information. For lessees, this information is required to be presented in a single note or as a separate section of the financial statements. Information already included in other notes need not be repeated as long as it is appropriately cross-referenced.
For more detail on the disclosure requirements and for illustrative disclosures download the full IFRS 16 - Presentation and disclosure article. [ 227 kb ]
We hope you find the information in this article helpful in giving you some detail into aspects of IFRS 16. If you would like to discuss any of the points raised, please speak to your usual Grant Thornton contact or your local member firm .
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Definition of a lease, share this page.
Accounting for leases: presentation and disclosures
The adoption of Accounting Standards Codification (ASC) 842, Leases, makes accounting much more complex for traditional operating leases. Not surprisingly, the disclosure requirements are quite extensive. Additionally, the new leases standard has specific requirements as to how leasing activity is to be presented in the basic financial statements.
Presentation matters
Statement of financial position ASC 842 requires each type of lease, operating or finance type, to be displayed in the statement of financial position. The related right to use asset must be presented separately from other assets, as well as from each other. The corresponding lease liabilities also must be presented separately from other liabilities and from each other.
The classification of the assets and liabilities as current or noncurrent will be subject to the same considerations as other assets and liabilities.
If an entity chooses not to provide the display noted above, the entity may disclose which line items in the statement of financial position contain the related assets and liabilities for operating leases and finance type leases, and the relevant balances.
An entity is prohibited from combining the assets and liabilities of the different types of leases in the same line item.
Statement of comprehensive income There are no substantive changes from current practice related to display in this statement. For finance type leases, the related interest expense need not be separately stated and the amortization of the right to use asset may be combined with other amortization expense.
The rent expense from operating leases needs to be included in the income from continuing operations.
Statement of cash flows Repayments of the principle portion of finance leases are classified as financing activities and related interest expense is classified in the same manner as interest paid as required in Topic 230. Operating lease payments are classified within operating activities, except for expenditures to make the asset ready for use – such as moving and related set up costs, which should be classified as investing activities. Related variable lease payments and payments related to short term leases will be classified in operating activities.
The overall objective of the disclosure requirements is to enable users of the financial statements to understand the “…amount, timing, and uncertainty of cash flows arising from leases.”1 A lessee will need to disclose quantitative and qualitative information about its leases, the related significant judgments made in measuring leases and the amounts recognized in the financial statements. An entity needs to consider the required level of detail to meet this objective, including the extent of aggregation or disaggregation used in the disclosures.
Required disclosures Although ASC 842 is considered to be a principle based standard there are specific required disclosures as follows:
a) Information about the nature of its leases, including:
- A general description of those leases
- The basis and terms and conditions on which variable lease payments are determined
- The existence and terms and conditions of options to extend or terminate the lease
- The existence and terms and conditions of residual value guarantees provided by the lessee
- The restrictions or covenants imposed by leases (for example, those relating to dividends or incurring additional financial obligations)
- A lessee should provide narrative disclosure about the options that are recognized as part of its right-of-use assets and lease liabilities and those that are not
b) A lessee should identify the information relating to subleases included in the disclosures provided in (a.1) through (a.5), as applicable.
c) Information about leases that have not yet commenced but that create significant rights and obligations for the lessee, including the nature of any involvement with the construction or design of the underlying asset.
d) Information about significant assumptions and judgments made in applying the requirements of this Topic, which may include the following:
- The determination of whether a contract contains a lease (as described in paragraphs 842-10-15-2 through 15-27)
- The allocation of the consideration in a contract between lease and nonlease components (as described in paragraphs 842-10-15-28 through 15-32)
- The determination of the discount rate for the lease (as described in paragraphs 842-20-30-2 through 30-4)2
Total lease cost An entity shall also disclose information related to its total lease cost, including amounts recognized in the income statement and costs capitalized related to leases and the related cash flows. This is accomplished by providing the following disclosures:
- Finance lease cost, segregated between the amortization of the right-of use assets and interest on the lease liabilities
- Operating lease cost determined in accordance with paragraphs 842-20-25-6(a) and 842-20-25-7
- Short-term lease cost, excluding expenses relating to leases with a lease term of one month or less, determined in accordance with paragraph 842-20-25-2
- Variable lease cost determined in accordance with paragraphs 842-20-25-5(b) and 842-20-25-6(b)
- Sublease income, disclosed on a gross basis, separate from the finance or operating lease expense
- Net gain or loss recognized from sale and leaseback transactions in accordance with paragraph 842-40-25-4
- Amounts segregated between those for finance and operating leases for the following items:
- Cash paid for amounts included in the measurement of lease liabilities, segregated between operating and financing cash flows
- Supplemental noncash information on lease liabilities arising from obtaining right-of-use assets
- Weighted-average remaining lease term
- Weighted-average discount rate3
Future lease payment requirements A lessee must also disclose the future lease payment requirements, undiscounted, for the first five years and the total for the remaining lease term. This requirement, of course, is a requirement of the current lease standard.
Related parties If relevant, a lessee will separately disclose its lease transactions with related parties and information related to its short term leases commitments. If an entity elects the practical expedient for not separately accounting for nonlease components in a lease contract, this policy and information for which classes of assets the election has been made must be disclosed.
The new disclosure requirements will potentially require new process and controls, especially related to the accounting for operating leases. ASC 842, provides an example of how the quantitative disclosure could be displayed in Example 6, ASC 842-20-55-4. Examples of related qualitative disclosures are not provided.
Entities will need to consider how and in what format the required information should be provided, possibly using its current lease footnote as a starting point and building from there. The disclosures are subject to audit and, for issuers, will be in scope for management’s report on internal controls.
For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team .
1 ASC 842-20-5--1 2 ASC 842-20-50-3 3 ASC 842-20-5-4
Related sections
- Financial Statement Audit
- Board & Audit Committee Governance
- Lease Accounting (ASC 842 and GASB 87)
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Disclosure: Supervisor security vulnerability
- Public-Service-Announcement
We were made aware of a security issue impacting installations using the Home Assistant Supervisor. A fix for this security issue has been rolled out to all affected Home Assistant users via the Supervisor auto-update system and this issue is no longer present.
You can verify that you received the update on the Home Assistant About page and verify that you are running Supervisor 2023.03.1 or later. If you do not see a Supervisor version on your About page, you do not use one of the affected installation types and have not been vulnerable.
The issue has also been mitigated in Home Assistant 2023.3.0. This version was released on March 1 and has since been installed by 33% of our users .
Affected version
The security issue affected installation types Home Assistant OS and Home Assistant Supervised. This includes installations running on the Home Assistant Blue and Home Assistant Yellow.
The two other installation types, Home Assistant Container (Docker) and Home Assistant Core (own Python environment), have not been affected.
The security issue was found by Joseph Surin from elttam . Many thanks for bringing this to our attention.
About the issue
The Supervisor is an application that is part of Home Assistant OS and Home Assistant Supervised installations and is responsible for system management. The issue allowed an attacker to remotely bypass authentication and interact directly with the Supervisor API. This gives an attacker access to install Home Assistant updates and manage add-ons and backups. Our analysis shows that this issue has been in Home Assistant since the introduction of the Supervisor in 2017.
We have published security advisory CVE-2023-27482 on GitHub .
Has this vulnerability been abused?
We don’t know. We have not heard any reports of people being hacked.
Is there a workaround?
In case one is not able to upgrade the Home Assistant Supervisor or the Home Assistant Core application at this time, it is advised to not expose your Home Assistant instance to the internet.
IMAGES
VIDEO
COMMENTS
Presentation and Disclosure The final financial statement assertion is presentation and disclosure. This is the assertion that all appropriate information and disclosures are included in a...
The presentation and disclosure requirements discussed in this guide presume that the related accounting topics are considered to be material and applicable to the reporting entity. That assumption applies throughout the guide and will not be restated in every instance.
FASB Topic 842 Accounting For Leases - Presentation & Disclosure Introduction In February 2016, the Financial Accounting Standards Board ("FASB" or "the Board") issued its highly-anticipated leasing standard in ASU 2016-02 ("ASC 842" or "the new standard") for both lessees and lessors.
9.2 Lessees: Presentation and disclosure Publication date: 31 Jan 2023 (updated 31 Jan 2021) us Leases guide 9.2 Although a lessee is required to present assets and liabilities for all leases in a similar manner, presentation of expenses and cash flows will differ based on how a lease is classified. 9.2.1 Lessees: Balance sheet presentation
Presentation and Disclosure Assertions It is the third assertion type that can fall under both transaction-level assertions and account balance assertions. It relates to the presentation and disclosure of financial statements. There are four types of presentation and disclosure assertions:
Speaker Disclosure at Presentations Sample Disclosures These examples provide sample formats and language for speakers to use on their slides or posters when announcing their course title, financial and nonfinancial disclosures, and learning outcomes at the beginning of courses registered for ASHA CEUs.
presentation and disclosure; certain elements of financial statements (distinguishing liabilities from equity particularly in the context of a written put option on own shares; and the definitions of income and expense and whether to define different types of income and expense); and
Presentation and Disclosure Assertions The following five items are classified as assertions related to the presentation of information within the financial statements, as well as the accompanying disclosures: Accuracy. The assertion is that all information disclosed is in the correct amounts, and which reflect their proper values. Completeness.
Disclosure is the process of making facts or information known to the public. Proper disclosure by corporations is the act of making its customers, investors, and analysts aware of pertinent...
Financial disclosures must involve both the following steps: Each presenter must have a first slide pertaining to financial interests. This first slide must either: Disclose all financial interests, or If there is nothing to disclose, the slide must state, "I have no financial interests or relationships to disclose."
Common footnotes to the financial statements, or disclosures, are explanations of how or why a company handles a transaction, including how it writes off its assets, how it values its ending inventory, and how it reconciles the income taxes it owes.
An invention disclosure is the completion of a form that represents the first recording of the invention and establishes the date and scope. Invention disclosures should include a comprehensive description of something novel and nonobvious explained in a way that allows anyone of ordinary skill in that particular field or industry to reproduce ...
Presentation and disclosure 31 Jul 2019 IFRS 16 requires lessees and lessors to provide information about leasing activities within their financial statements. The Standard explains how this information should be presented on the face of the statements and what disclosures are required.
The disclosures are subject to audit and, for issuers, will be in scope for management's report on internal controls. For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team. 1 ASC 842-20-5--1. 2 ASC 842-20-50-3. 3 ASC 842-20-5-4.
6. The existing Conceptual Framework contains very little guidance on presentation and disclosure in financial statements. IAS 1 Presentation of Financial Statements sets out overall presentation and disclosure requirements for entities. Specific presentation and disclosure requirements are set out in relevant Standards. 7.
Disclosure Slide Samples for Presentations at ACCME-Accredited Conferences NOTE: This should be the first slide after the title page slide. Disclosure • I have no actual or potential conflict of interest in relation to this program/presentation.
Presentation and disclosure: Presentation and disclosure: Presentation and disclosure: Financial statements are presented in a form unstainable by the public. Sufficient and appropriate disclosures have been made on related transactions, events and account balances. Example.
Presentation of Financial Statements. Objective. This Standard prescribes the basis for presentation of general purpose financial statements to ensure comparability both with the entity's financial statements of previous periods and with the financial statements of other entities. It sets out overall requirements for the presentation of financial
About the issue. The Supervisor is an application that is part of Home Assistant OS and Home Assistant Supervised installations and is responsible for system management. The issue allowed an attacker to remotely bypass authentication and interact directly with the Supervisor API. This gives an attacker access to install Home Assistant updates ...