What’s new for 31 December 2018 financial statements?

What’s new for 31 December 2018 financial statements?

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.

Transition – AASB 15

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.

Transition – AASB 9

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). 

Disclosure

AASB 9 Financial Instruments (via AASB 7 Financial Instruments: Disclosures) and AASB 15 Revenue from Contracts with Customers both include a significant amount of new disclosures. Just rolling over old reporting templates from prior years will not suffice.

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:

  • AASB 7 Financial Instruments: Disclosures, paragraphs 42I to 42S for transition disclosures on financial instruments
  • AASB 15, Appendix C, paragraphs C6 and C7A regarding the use of practical expedients, and paragraph C8 to provide information for each line item comparing the ‘old’ and ‘new’ bases of accounting for revenue, and
  • AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors, paragraph 28.

Other amending standards and interpretations

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:
  • The impact of vesting and non-vesting conditions when measuring cash-settled share-based payment (SBP) transactions
  • Net settlement features for withholding tax obligations, and
  • Changing the classification of SBP transactions from cash-settled to equity-settled.
AASB 2016-6 Amendments to Australian Accounting Standards – Applying AASB 9 Financial Instruments with AASB 4 Insurance Contracts
  • Provides insurers with a temporary exemption to continue to apply AASB 139 Financial Instruments: Recognition and Measurement for annual periods beginning before 1 January 2021
  • Permits an ‘overlay approach’ to designated financial assets.
AASB 2017-1
- For-profit entities only
Amendments to Australian Accounting Standards – Transfers of Investment Property, Annual Improvements 2014-2016 Cycle and Other Amendments
  • Amendments to AASB 140 Investment Property to clarify when transfers can take place into, and out of, investment property
  • Various amendments to AASB 128 Investments in Associates and Joint Ventures.
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.

Please refer to Section A of our six-monthly Financial Reporting Standards Update for further discussion on all the amendments impacting 31 December 2018 annual financial statements for the first time.

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.

Disclosing the impact of new standards that only apply from 2019

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:

  • For all entities - the new leases standard, AASB 16 Leases, and
  • For entities with uncertain tax positions such as transfer pricing issues, Interpretation 23 Uncertainty over Income Tax Treatments.

Please refer to Section B of our six-monthly Financial Reporting Standards Update for more information on all the new and amending standards and interpretations applicable to December 2019 financial years and beyond.