As the implementation date for three major accounting standards closing in, management and board of directors may face challenges not only in implementing these changes but also in reporting and disclosures in their financial statements.
The major accounting standards are:
- – AASB 9 Financial Instruments (applies from years commencing 1 January 2018, early adoption is permitted);
- – AASB 15 Revenue from Contracts with Customers (applies from years commencing 1 January 2018, early adoption is permitted); and
- – AASB 16 Leases (applies from years commencing 1 January 2019, early adoption is permitted)
These standards can significantly affect the reporting of values of financial instruments, loan loss provisions, revenue and accounting of lease arrangements. For some companies, the impact on their reported results will be even more significant than was the case with the first time adoption of IFRS back in 2005.
What does it means to companies:
IFRS 9 Financial Instruments (AASB 9 in Australia) is a project completed in stages over the past decade, to replace IAS 39 (AASB 139 in Australia), is one of the most complex standard and will have an impact on the recognition and measurement of financial instruments. For example, under AASB 139, there are four categories of financial assets, whereas under AASB 9, only two. The new impairment requirements for financial assets are based on a forward looking “expected loss model” (rather than the current “incurred loss” model).
Under AASB 15, the revenue will be recognized when control of goods or services is transferred, rather than on transfer of risks and rewards, under AASB 118 Revenue.
AASB 16 will supersede AASB 117, the main implication of the changes will be that all leases (subject to certain exceptions) will be capitalized i.e. no more operating leases (subject to certain exceptions) under the new standard.
The management and board of directors should plan in advance for these changes. The matters to consider for any implementation plan may include required changes in system (eg. how the required information will be captured by the accounting system), business impact, disclosure required in financial reports prior to the effective dates of the standards, disclosure upon adoption of the standards on effective date, impact on any fundraising and compliance with the financial requirements.
DSV Partners can provide you with a range of financial audit and assurance services that will assist the management and board of directors in managing their responsibilities. Our partners are ex Big 4 partner and senior manager with extensive experience in audit and assurance services. For any further information on the upcoming changes in the accounting standards or any other financial audit and assurance related needs, contact Deepak Saboo or Michael Collinson on 02 9633 489 or email directly to firstname.lastname@example.org.
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