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Significant Accounting Policies | 3 Months Ended
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Mar. 31, 2023
Significant Accounting Policies |
Significant Accounting Policies | 2. Significant Accounting Policies (a) Basis of Preparation These unaudited condensed consolidated interim financial statements have been prepared in accordance with United States generally accepted accounting principles (“US GAAP”). They include the accounts of Ritchie Bros. Auctioneers Incorporated and its subsidiaries from their respective dates of formation, acquisition or control. All significant intercompany balances and transactions have been eliminated. Certain information and footnote disclosure required by US GAAP for complete annual financial statements have been omitted and, therefore, these unaudited condensed consolidated interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2022, included in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”). These unaudited condensed consolidated interim financial statements follow the same accounting policies and methods of application as our most recent annual audited consolidated financial statements except as described in Note 2(b) “New Accounting Standards and Accounting Policies”. In the opinion of management, these unaudited condensed consolidated interim financial statements reflect all adjustments, consisting of normal recurring adjustments, which are necessary to present fairly, in all material respects, the Company’s consolidated financial position, results of operations, cash flows and changes in temporary equity and equity for the interim periods presented. The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. ​ Unless otherwise indicated, all amounts in the following tables are in millions except share and per share amounts. ​ ​ 2. Significant Accounting Policies (continued) ​ (a) Basis of Preparation (continued) ​ Reclassifications ​ The following reclassifications have been made in the presentation of prior period financial statements to conform to the presentation of the current period financial statements: ​
(i) | reclassification in 2022 of $23.3 million from trade and other liabilities to auction proceeds payable relating to amounts payable to consignors from our auctions and marketplaces, which are held for various reasons beyond the typical payment terms of 21 days;
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(ii) | reclassification in 2022 of $122.9 million from other non-current assets to operating lease right-of-use assets, $12.7 million from trade and other liabilities to current operating lease liabilities, and $111.9 million from other non-current liabilities to long-term operating lease liabilities; and
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(iii) | reclassification of $0.2 million foreign exchange gain for the three-month period ended March 31, 2022, from operating income to below operating income.
​ (b) New Accounting Standards and Accounting Policies ​ The Company does not believe that any recently issued, but not yet effective, accounting pronouncements, if adopted, would have a material impact on its consolidated financial statements or disclosures. ​ These unaudited condensed consolidated interim financial statements should be read in conjunction with the audited annual financial statements, including the following accounting policies which have been disclosed to reflect the significant accounting policies of the combined Company following its business combinations (Note 5) and changes in the nature of the business and its operations: ​ Prepaid Consigned Vehicle Charges ​ Prepaid consigned vehicle charges include the inbound tow, titling costs and enhancement charges associated with a consigned vehicle. These prepaid charges are recorded in cost of services at the date the vehicle is sold and revenue is recognized. ​ Redeemable Non-controlling Interest ​ Redeemable non-controlling interest is classified as temporary equity on the consolidated balance sheet, as the holder may demand cash and put the non-controlling interest to the Company. Redeemable non-controlling interest is initially carried at its acquisition date fair value. If it becomes probable that the redeemable non-controlling interest will be redeemed, the Company then will recognize any change in its estimated redemption value immediately to retained earnings and adjust the carrying amount to equal the estimated redemption value at the end of each reporting period. ​ Redeemable Convertible Preferred Stock ​ Redeemable convertible preferred stock is classified as temporary equity on the consolidated balance sheet because it could become redeemable due to a change in control which would be outside of the Company’s control and requires a cash payment upon redemption. The redeemable convertible preferred stock is initially carried at fair value, and if redemption becomes probable, the Company will recognize any change in its estimated redemption value immediately to retained earnings and adjust the carrying amount to equal the estimated redemption value at the end of each reporting period. Direct and incremental costs incurred in connection with the issuance of redeemable convertible stock are recorded against the proceeds received and included in its initial carrying amount. ​ On February 1, 2023, the Company sold an aggregate of 485.0 million of redeemable convertible preferred stock, convertible into common stock, designated as Series A Senior Preferred Shares (“Series A Senior Preferred Shares”). ​ ​ ​ 2. Significant Accounting Policies (continued) ​ (b) New Accounting Standards and Accounting Policies (continued) ​ Earnings Per Share ​ Basic earnings per share (“EPS”) is calculated based on the two-class method, given that the Company’s Series A Senior Preferred Shares are considered a participating security as it contractually entitles its holders to participate in the Company’s earnings. The two-class method is an earnings allocation method for computing earnings or losses per share when a Company’s capital structure includes common stock and participating securities. The two-class method determines earnings per share between holders of common stock and the Company’s participating preferred stock based on dividends declared and their respective participation rights in undistributed earnings. Net income available to common stockholders is computed as: net income attributable to controlling interests less cumulative dividends on Series A Senior Preferred Shares and allocated earnings to participating securities. Basic EPS is calculated by dividing net income available to common stockholders by the weighted average common stock outstanding. Diluted EPS is calculated similarly, except that it is computed based upon the lower of the two-class method or the if-converted method, which includes the effects of the assumed conversion of the Series A Senior Preferred Shares, and the effect of shares issuable under the Company’s stock-based incentive plans if such effect is dilutive. ​ Revenue ​ Revenues are comprised of:
● | Service revenue, including the following:
i. |  | Revenue from commissions earned when the Company sells consigned assets at live and online bidding auctions or online marketplaces, and from private brokerage services where the Company acts as an agent for consignors of assets; and
ii. |  | Revenue from buyer fees earned on the purchase of consigned assets or inventory at live and online bidding auctions or online marketplaces, and from private brokerage services, which are typically based on a tiered structure that increases with the sales price of the assets; and
iii. |  | Revenue from marketplace services fees earned from auction related activities, such as document, listing and title search services, and from additional marketplaces services provided to customers, such as buyer towing, refurbishment, logistical and electronic title and liens processing, financing, appraisals, subscriptions for data, parts and software services, and other ancillary and transactional service fees.
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● | Inventory sales revenue which consists of revenue relating to assets that are purchased by the Company and then resold through either our live and online bidding auctions, online marketplaces, or our private brokerage services.
​ The Company recognizes revenue when control of the promised goods or services is transferred to our customers, or upon completion of the performance obligation, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. A performance obligation is a promise in a contract to transfer a distinct good or service, or a series of distinct goods or services, to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The transaction price is reduced by estimates of variable consideration such as volume rebates and discounts. All estimates, which are evaluated at each reporting period, are based on the Company’s historical experience, anticipated volumes, and best judgment. For auctions, revenue is recognized when the auction sale is complete, and the performance obligation is satisfied at the end of the auction process. Revenue is measured at the fair value of the consideration received or receivable and is shown net of value-added tax and duties. ​ ​ 2. Significant Accounting Policies (continued) ​ (b) New Accounting Standards and Accounting Policies (continued) ​ Revenue (continued) ​ The Company offers consignors several contract options:
● | Straight commission contracts, where the consignor receives the gross proceeds from the sale less a pre-negotiated commission rate;
● | Fixed fee commission contracts, where the consignor receives the gross proceeds from the sale less a fixed flat fee;
● | Guarantee contracts, where the consignor receives a guaranteed minimum amount plus an additional amount if proceeds exceed a specified level; and
● | Inventory contracts, where we purchase, take custody, and hold used equipment and other assets before they are resold in the ordinary course of business.
​ Service Revenue The Company’s commissions are earned as a pre-negotiated fixed percentage rate of the gross selling price or as a fixed fee. Commissions are calculated as a percentage of the winning bid price of the property sold at auction or are fixed in value. Fixed fees are earned in auction contracts for sellers relating to the sale of vehicles and includes the remarketing of vehicles, including the inbound tow, processing, storage, titling, enhancing and sale at auction. Related costs are deferred and recognized at the time of sale. Other commissions from sales at the Company’s auctions are earned from underwritten commission contracts when the Company typically guarantees a certain level of proceeds to a consignor. The Company accepts assets on consignment and stimulates buyer interest through professional marketing techniques by matching sellers (also known as consignors) to buyers through the auction or private sale process. Prior to offering an item for sale on its online marketplaces, the Company also performs inspections. Buyer fees are calculated based on a tiered structure that increases with the sales price of the item sold. Marketplace services fees earned in the process of conducting the Company’s auctions include administrative, documentation, and advertising fees as well as fees charged to sellers for listing and inspecting equipment. The Company also offers other services to customers such as transportation and logistics, storage, vehicle condition reporting, parts, data, inspections, appraisals, financing, and other ancillary services such as refurbishment, repairs, paint, make ready, towing, listings, and title and liens processing. Marketplace services fees also includes fixed registration fees from buyers of vehicles to access the auctions for a one- or two-year term in addition to the buyer fees paid upon the purchase of a vehicle. With the final acceptance of the winning bid, the highest bidder becomes legally obligated to pay the full purchase price, which is the winning bid of the property purchased and the seller is legally obligated to relinquish the property in exchange for the winning bid less any seller’s commissions. Commission and fee revenue are recognized on the date of the auction sale upon the final acceptance of the winning bid. Registration fees to access certain vehicle auctions for a one- or two-year term are recognized ratably over the contract term. Under the standard terms and conditions of its auction sales, except for contracts for the sale of vehicles, the Company is not obligated to pay a consignor for property that has not been paid for by the buyer, provided the property has not been released to the buyer. Under the standard terms and conditions of its vehicle auction sales, the Company in certain arrangements may have to pay a consignor for property that has not been paid for by the buyer. If the buyer defaults on its payment obligation, also referred to as a collapsed sale, the sale is cancelled in the period in which the determination is made, and the property is returned to the consignor or placed in a later event-based or online auction. The Company recognizes a provision for expected collapsed or cancelled sales, which is the Company’s best estimate of the service revenues relating to transactions which may not complete and where the buyer may default on its obligation. The Company determines the provision based on historical collapse experience, customer data and reasonable and supportable forecasts of the outcome of such transactions. ​ 2. Significant Accounting Policies (continued) ​ (b) New Accounting Standards and Accounting Policies (continued) ​ Service Revenue (continued) ​ Commission revenue is recorded net of commissions owed to third parties, which are principally the result of situations when the commission is shared with a consignor in an auction guarantee risk and reward sharing arrangement. Underwritten commission contracts can take the form of guarantee contracts. Guarantee contracts typically include a pre-negotiated percentage of the guaranteed gross proceeds plus a percentage of proceeds in excess of the guaranteed amount. If actual auction proceeds are less than the guaranteed amount, commission is reduced; if proceeds are sufficiently lower, the Company can incur a loss on the sale. Losses, if any, resulting from guarantee contracts are recorded in the period in which the relevant auction is completed. If a loss relating to a guarantee contract held at the period end to be sold after the period end is known or is probable and estimable at the financial statement reporting date, the loss is accrued in the financial statements for that period. The Company’s exposure from these guarantee contracts fluctuates over time. Marketplace services fees are recognized in the period in which the service is provided or the product is delivered to the customer. Inventory Sales Revenue Underwritten commission contracts can take the form of inventory contracts. Revenue related to inventory contracts is recognized in the period in which the sale is completed, title to the property passes to the buyer and the Company has fulfilled any other obligations that may be relevant to the transaction. In its role as auctioneer, the Company auctions its inventory to buyers through the auction process. Following the sale of the item, the Company invoices the buyer for the purchase price of the asset, taxes, and, if applicable, the buyer transaction fee, and collects payment from the buyer. With the final acceptance of the winning bid, the highest bidder becomes legally obligated to pay the full purchase price, which is the winning bid of the property purchased. Title to the property is transferred in exchange for the winning bid price, and if applicable, the buyer transaction fee plus applicable taxes. In a private treaty transaction where inventory is sold in a private process or inventory contracts are sold on our online marketplaces, commission and fee revenue is recognized on the date the buyer has obtained control of the asset. ​ ​ 2. Significant Accounting Policies (continued) ​ (b) New Accounting Standards and Accounting Policies (continued) ​ Costs of Services ​ Costs of services incurred in earning revenue are comprised of expenses incurred in direct relation to conducting auctions (“direct expenses”), earning online marketplace revenue, and earning marketplace services fee revenue. Direct expenses include direct labor, buildings and facilities charges, subcontract services such as towing, service contract claims, and travel, advertising and promotion costs and fees paid to unrelated third parties who introduce the Company to equipment sellers who sell property at the Company's auctions and marketplaces. Direct expenses at auction yards which conduct regular weekly events include cost of full-time employees, part time labour, lease expense and maintenance. Costs of services to operate our online marketplace revenue excludes hosting costs where we leverage a shared infrastructure that supports both our internal technology requirements and external sales to our customers. ​ Costs of services incurred to earn online marketplace revenue in addition to the costs listed above also include inspection costs. Costs of earning online marketplace revenue also include costs for the Company’s customer support, online marketplace operations, logistics, and title and lien investigation functions. Costs of services incurred in earning marketplace services revenue include ancillary and logistical service expenses, direct labor (including commissions on sales), cloud infrastructure and hosting costs, software maintenance fees, and materials. Costs of services exclude depreciation and amortization expenses. ​ Cost of Inventory Sold ​ Cost of inventory sold includes the purchase price of assets sold for the Company’s own account and is determined using a specific identification basis. Inventories are stated at the lower of cost or estimated realizable value. Cost includes the Company’s cost of acquiring ownership of the vehicle. ​ Trade and Other Receivables ​ Trade receivables principally include amounts due from customers as a result of live onsite and online auctions and online marketplace transactions and services. The recorded amount reflects the purchase price of the item sold, including the Company’s commission. The amounts due with respect to any consigned sales are generally deducted from the sales proceeds upon the eventual auction or other disposition of the asset. For vehicle sales, advance charges paid on a seller’s behalf are also included in trade receivables. ​ The allowance for credit losses is the Company’s best estimate of the amount of probable credit losses in existing accounts receivable. The Company determines the allowance based on historical write-off experience, customer economic data and reasonable and supportable forecasts of future economic conditions. The Company regularly reviews the allowance for credit losses and past due balances for collectability. Account balances are charged against the allowance when the Company believes that the receivable will not be recovered. Self-insurance Reserves ​ The Company self-insures a portion of employee medical benefits, as well as a portion of its automobile, general liability and workers’ compensation claims. The Company has insurance coverage that limits the exposure on individual claims. The cost of the insurance is expensed over the contract periods. Utilizing historical claims experience, the Company records an accrual for the claims related to its employee medical benefits, automobile, general liability and workers’ compensation claims based upon the expected amount of all such claims, which includes the cost of claims that have been incurred but not reported.

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- Definition The entire disclosure for all significant accounting policies of the reporting entity. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section 50 -Paragraph 1 -URI https://asc.fasb.org/extlink&oid=126899994&loc=d3e18726-107790 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI https://asc.fasb.org/topic&trid=2122369 + Details
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