| Over the last few years, the ‘what’s new’ article in our newsletters have brought more good news than bad, with most financial reporting amendments impacting only a limited number of areas. However, this ‘calm before the storm’ is now over, with two ‘Big Bangs’ of new standards to impact for-profit and not-for-profit entities (NFPs) over the next two years as follows: |
| Reference Number | Name | 31 December 2018 year-ends | 31 December 2019 year-ends | ||
| For-profit entities | NFPs | For-profit entities | NFPs | ||
| AASB 9 | Financial Instruments | ✔ | ✔ | ||
| AASB 15 | Revenue from Contracts with Customers | ✔ | ✔ | ||
| AASB 1058 | Income of Not-for-Profit Entities | ✔ | |||
| AASB 16 | Leases | ✔ | ✔ | ||
| Interpretation 23 | Uncertainty over Income Tax Treatments | ✔ | ✔ Likely to have limited application to NFPs | ||
You can see from the table above that the effects of the ‘Big Bang’ will impact for-profit entities both now and in 2019, while for NFPs, the effects will be mostly be felt next year as they will need to apply the new standards for revenue, income, and also leases.
Indeed, we have not seen such a ‘Big Bang’ since 2013 when the new consolidations, joint arrangements and fair value standards were applied for the first time, all in the same year.
As noted above, the new financial instruments standard, AASB 9 Financial Instruments, will apply for the first time to all entities, and the new revenue standard, AASB 15 Revenue from Contracts with Customers, will apply for the first time to for-profit entities. These standards are complex, with new concepts and principles not previously seen in IFRS.
In addition, decisions about which of the various transition methods in AASB 15 is best for your business can be tricky, because different methods can have a different impact on assets, liabilities and retained earnings, which in turn can have a significant impact on an entity’s ability to pay dividends and meet bank covenants. Please refer to our December 2016 Accounting News article which illustrates the impact of the different transition methods for AASB 15.
It is expected that most entities will make any transition adjustments on first-time adoption of the classification and measurement, and impairment requirements, on transition date via opening retained earnings on 1 January 2018 (i.e. comparatives not being restated).
In addition to the new disclosures required by AASB 7 and AASB 15 on an ongoing basis, entities will also need to, at transition date, consider how to present the effects of changes in accounting policies resulting from the new standards. In this regard, entities should refer to the requirements in:
In addition to AASB 15 and AASB 9, the following amending standards and interpretations apply for the first time to all entities (for-profit and not-for-profit entities) with December 2018 year-ends (except as noted below):
| Standard/ Interpretation Number | Standard/Interpretation Name | Covers… |
| AASB 2016-5 | Amendments to Australian Accounting Standards – Classification and Measurement of Share-based Payment Transactions | Clarifies the accounting under AASB 2 Share-Based Payment:
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| AASB 2016-6 | Amendments to Australian Accounting Standards – Applying AASB 9 Financial Instruments with AASB 4 Insurance Contracts |
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| AASB 2017-1 - For-profit entities only | Amendments to Australian Accounting Standards – Transfers of Investment Property, Annual Improvements 2014-2016 Cycle and Other Amendments |
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| AASB 2017-3 | Amendments to Australian Accounting Standards – Clarification to AASB 4 | This amendment confirms that in Australia, compliance with AASB 1023 General Insurance Contracts and AASB 1038 Life Insurance Contracts ensure simultaneous compliance with AASB 4 Insurance Contracts. |
| Interpretation 22 - For-profit entities only | Foreign Currency Transactions and Advance Consideration | Clarifies the ‘date of the transaction’ for the purposes of translating foreign currency transactions where consideration is received or paid in advance under AASB 121 The Effects of Changes in Foreign Exchange Rates. |
Listed entities and other disclosing with December 2018 year-ends should have already completed interim financial reports for the half-year ended 30 June 2018 applying these new standards.
The above noted amendments also impact listed and disclosing entities with June year-ends when they compile interim financial statements for the half-year ending 31 December 2018. Please refer to our June 2018 Accounting News article on transition disclosures required about first-time adoption of AASB 9 and AASB 15 in interim financial statements.
While the second ‘Big Bang’ (2019) is still a year away for December annual reporters, and six months away for December half-year reporters, the Australian Securities and Investments Commission (ASIC) has indicated in its recent Media Release (MR 18-364) that it intends to focus on disclosures made by entities in December 2018 financial statements about the impacts of the next wave of new standards. This will include focus on the lack of disclosure, and the lack of quantification of the impacts.
Changes that are likely to have the most impact include: