The Grant Thornton International IFRS team has published COVID-19 – Accounting Considerations for CFOs: Government Grants.

As a response to the COVID-19 global pandemic, governments around the world are implementing measures to help businesses and economies get through it. The nature of government grants can take on various forms, such as below market rate loans, short-time working subsidies, relief funds, income-based tax credits, to name just a few.

While many forms of government assistance should be accounted for by applying IAS 20 Accounting for Government Grants and Disclosure of Government Assistance, others should be addressed by other standards, such as IAS 12 Income Taxes. Entities will therefore need to assess the economic substance of any government assistance they are receiving to determine what is the appropriate accounting treatment.

The publication COVID-19 – Accounting Considerations for CFOs: Government Grants addresses four key questions to consider prior to determining the appropriate accounting treatment for government grants:

  • Is the government assistance in the scope of IAS 20 or another standard?
  • What is the correct recognition and measurement?
  • Is it recognized in the correct period?
  • How should the assistance received from governments be presented in the financial statements?

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The International Accounting Standards Board (IASB) has issued a collection of narrow scope amendments to IFRS. The collection includes amendments to three standards as well as Annual Improvements to IFRS Standards, which addresses non-urgent (but necessary) minor amendments to four standards.

The changes are summarised in this Adviser Alert.

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Christiane Caisse
Senior Manager | CPA, CA, M. Sc. | Financial advisory

Costing improves profitability and is therefore of paramount importance for any business, including service companies. This is particularly true in these times of uncertainty.

Like manufacturing companies, service companies are constantly evolving and will need to arm themselves better than ever to stay the course and consolidate their operations in order to face the uncertainties of the coming months. Managers must have all the information they need to make informed decisions and ensure the company’s financial performance.

By definition, costing is the sum of all expenses needed for producing a good and finalizing a service.

Establishing costs for informed decisions

There are several advantages to knowing and controlling the cost of your services, such as:

• Determining the sales price of services;
• Making informed decisions about contracts (because in negotiations with the client, the manager is better able to understand the available margins);
• Recognizing the difference between profitable and non-profitable services.

In many companies, costing is a neglected management tool, either because of lack of time or lack of knowledge.

As a result, many managers navigate rough waters and cannot rely on costing in the many strategic decisions they must make.

Here are some points indicating that you would need to update or review your costs:

  • You have had to review your priorities because of the pandemic;
  • Your costs were last updated more than a year ago;
  • Significant changes were made within your business;
  • Your range of services has increased and you don’t know how to price your new services;
  • You’re not sure you included all of the relevant costs in your costing;
  • Your profit margin does not reflect the estimated profit margin at the time of a tender.

Calculating costs

To evaluate the cost of a service, you have to understand that it is composed of several elements:

  • Salaries;
  • Subcontracting;
  • Operating costs;
  • Sales expenses;
  • Administration expenses.

When determining your costs, one of the most common pitfalls is to evaluate a resource’s hourly rate based on hours worked rather than taking into account productive hours (vacation and other days off, breaks and training).

For example, if we take an employee with a $25 hourly rate including benefits, this is equivalent to an annual salary with benefits of $52,000 per year. This annual expense, based on the number of productive hours per year ($52,000/1,660 hours in our example), gives us a productive hourly rate of $31.33. It is this rate that should be taken into account when assessing a service contract and not the $25 hourly rate.

When assessing your services, you will be confronted with several traps . One of the most important ones to avoid is postponing the project or waiting for 100% accurate information to determine the cost price. Remember that, like your company, costing is a constantly evolving process.

22 Jun 2020  |  Written by :

Christiane Caisse is your expert in Financial advisory for the Sherbrooke office. Contact her today!

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Flash – February 2019 (updated: June 2020) – ASPE

Retractable or Mandatorily Redeemable Shares Issued in a Tax Planning Arrangement

Section 3856, Financial Instruments, currently provides an exception in paragraph 23 that requires retractable preferred shares issued in a tax planning arrangement under specific sections of the Canadian Income Tax Act (ITA) to be presented as equity and measured at par, stated or assigned value.

Following publication of two Exposure Drafts in 2014 and 2017 and various discussions on the comments received, in December 2018, the Accounting Standards Board of Canada (AcSB) published the definitive amendments to Sections 3856 and 3251, Equity, to amend the balance sheet classification of retractable preferred shares issued in a tax planning arrangement. These amendments will result in significant changes in the accounting for these shares.

Accordingly, some of the preferred shares now classified as equity under the previously described liability classification exception will remain classified as equity if they meet certain conditions. However, we expect many preferred shares will be reclassified as liabilities and measured at their redemption amount.

These amendments are relevant to private enterprises that report under Part II of the CPA Canada Handbook – Accounting and apply ASPE and are applicable for fiscal years beginning on of after January 1, 2021 (in April 2020, the AcSB deferred the application date from 2020 to 2021).

Download the document below.