Equity-Based Compensation with Case Study

Equity-based Compensation with Case
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From the e-Activity, discuss the impact of adopting IFRS reporting on equity-based accounting for financial reporting and tax payments.
The method of equity accounting is utilized in case the parent company controls the investee. The Equity accounting refers to the accounting method by which equity investment is recorded at cost. The subsequent under this accounting is usually adjusted so that it focuses on the shares of the assets of the investee. The AIS28 dictates that there is a significant influence when a company holds 20% of the company’s voting power. The recording of the initial investment is done at cost while investor’s percentage shares are recorded at either net profit or loss (Chan, 2010). There is a difference between the ways tax benefits are recorded under IFRS compared to the GAAP. The tax benefit under IFRS relies upon the approximated future deduction on the date of reporting. Under IFRS, the deferred tax assets are not recognized especially during the granting period.
Disclosures in financial reporting
The firms that adopt accounting equity under IFRS have to categories the associates as non-current assets. The share of investors’ profits or losses is disclosed separately in the financial statements. There is also associate’s summary of information regarding the finances based on assets, revenues, liabilities as well as profits and losses. There are also uniform policies between investors and dates of reporting.

Also, in IFRS, there is no fair value option compared to GAAP. The compensation cost is usually analyzed at the date of grant under FASB statement 23. This date is recognized over the period of service. I, therefore, recommend companies to utilize option pricing models in case of getting the current theoretical value. This would aid in reducing the distortions at the fair amount. Also, these models would be applicable when determining latest stock value as well as stock volatility.
Equity-based Compensation
The tax payments and overall financial improvements have a direct bearing on the necessity of equity-based accounting. The above enhancements occur as a result of utilizing IFRS reporting technique. This method has the standard way of accounting transactions. The transactions have their basis on fair value market. In typical cases, entities gain tax deductions from the awards payments based on shares. Under IFRS, the fair value of the awards during the day of exercise and at vesting date can be used as deduction criteria. The SEC staff guarantees that firms have to enhance MD&A disclosure with relation to payments based on shares. Also, it suggests that assumption input has to be disclosed and the technique applied in estimating fair value. I recommend the application of option pricing models when promoting the comprehending of stock options. There is need to analyze the stock options thoroughly to make sure that any distortions at the grant date are given priority. The method will reduce any distortions in the fair market value of equity-based compensation discussed.
SECTION 2
From the case study, examine the significant differences between the Harley-Davidson 2008 securitization and the 2009 securitization and the manner in which these differences are indicators of the financial health of the company.
One can observe from exhibit 4 that in 2008, a total of $1904.95 million of the receivables amount was used for investment. During the year 2009, $4916.89 million was used for investment. There was no opportunity to sell the receivables between the mid of the year 2008 and 2009 because of the global financial crisis that affected companies worldwide. There was the tremendous sub-prime crisis which adversely affected the commercial market. The result was deterioration I the financial health of the firm as one can observe. If one compares the long-term debt for the year 2008 and 2009, there is a clear indication that the figures are nearly doubling, just because of 2008-2009 global financial crisis. Therefore, one can conclude that the sub-prime crisis had a negative impact on the security market of the USA.
Examine the impact of the sub-prime mortgage on the securitization of Harley-Davidson.
The sub-prime mortgage can be used to finance the company. However, the rates would be very high; meaning the cost of funding of the loan would pose financial issues to the company. Also, the debt to equity ratio for the company is high, saying there is a risk of default. However, the loan can be utilized to finance the operations of the company, and if it is well managed, it will increase the market value of the company.
Analyze the debt-to-equity ratio of Harley-Davidson for 2008 and 2009, and discuss the impact these ratios had on the market value of the company. Propose at least two alternatives to new securitization to finance current receivables, and justify each.
The debt-to-equity ratio for the year 2008-2009
The debt to equity ratio compared the total debts of a company to its total equity. It shows the percentage of financing in a company that comes from investors. Debt to equity ratio=total liabilities/total equity (Fitri,Supriyanto & Oemar,2016)
The total debt-equity ratio for Harley-Davidson for the year 2008
=6780838/9,155,518=0.74
For year 2009= 6786405/7828625=0.867
The total debt-equity ratio for this company in the year 2008 was 0.74 or 74%. In year 2009, the debt-equity ratio increased to 0.867 or 86.7%. Therefore, one can conclude that the company is facing high risk. Also, the firm was aggressive in financing the business through leveraging. The ratios were important in measuring the market value of this company because they indicated the risk levels of the firm. The cost of financing these debts would be high and would easily lead to default or dissolution of the company.
Alternatively, I propose two other methods of financing current receivables
a) Traditional factoring-The firm can utilize this method through selling the account receivables to a funder, whereby the payment paid initially is less compared to total receivables amount. The process is applicable in that the firm will have an opportunity to select receivables to trade.
b) Selective receivables Financing-It will allow the company to choose the kind of receivables to advance in case of early payment. It will also enable the compare to get advanced payment for each receivable’s full amount. The rates are usually lower compared to other alternatives, meaning the company will benefit a lot from this deal.

References
Chan, K. M. (2010). Harley Davidson Inc.–a case in international accrual accounting analysis on the risk, profitability and cash flow from estimation and management discretion. International Journal of Managerial and Financial Accounting, 2(4), 401-430.
Fitri, M. C., Supriyanto, A., & Oemar, A. (2016). Analysis of debt to equity ratio, firm size, inventory turnover, cash turnover, working capital turnover and current ratio to profitability company (study on mining companies listed in the period 2010-2013). Journal of accounting, 2(2).