Clicky

This site uses cookies to provide you with a more responsive and personalised service. By using this site you agree to our use of cookies. Please read our PRIVACY POLICY for more information on the cookies we use and how to delete or block them.

Count down to adopting AASB 9, 15 & 16 – Time is running out

The effective date for AASB 9 & 15 is fast approaching

For entities with 30 June year ends, the transition date for adopting AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers is fast approaching. For those entities with December, March or June year ends, the transition date has already passed.

AASB 9 & 15 key dates for ASX listed entities (as at 31 July 2017)

Transitional Impacts Dec Year Ends March Year Ends June Year Ends
Transition date – full transition 1 Jan 2017
-7 months
1 Apr 2017
-4 months
1 Jul 2017
-1 month
Transition date – partial transition 1 Jan 2018
5 months
1 Apr 2018
8 months
1 Jul 2018
11 months
First reporting date: Half-year reporting 30 Jun 2018
11 months
30 Sept 2018
14 months
31 Dec 2018
17 months
Deadline for submitting half-year report 31 Aug 2018
13 months
30 Nov 2018
16 months
28 Feb 2019
19 months
First full financial year 31 Dec 2018
17 months
31 Mar 2019
20 months
30 Jun 2019
23 months
Deadline for submitting preliminary full year report 28 Feb 2019
19 months
31 May 2019
22 months
31 Aug 2019
25 months
Deadline for submitting full year financial report 31 Mar 2019
20 months
30 Jun 2019
23 months
30 Spet 2019
26 months
<12 months <24 months >24 months

We caution anyone contemplating delaying AASB 15 transition to the last moment by utilising the partial retrospective method. This route comes with one major draw-back. In order to give users comparative information, in the year of adoption, those entities electing to apply the partial retrospective method will have to maintain two sets of books:

  • One applying AASB 15, and
  • One continuing to apply AASB 118 Revenue and AASB 111 Construction Contracts.

By 31 August 2018, all listed Australian entities with December year ends should have lodged their half-year financial reports, which include applying AASB 9 and AASB 15. This is only 13 months away.

AASB 9 Financial Instruments

AASB 9 significantly changes the financial reporting landscape for how entities account for financial instruments.

Entities will need to determine which of the four AASB 9 categories their financial assets belong to. In a number of instances, the use of amortised cost will be restricted, resulting in both difficulties in measuring an asset’s fair value, and increased earnings volatility.

Financial assets will also be subject to a new ‘expected loss’ impairment model, which means entities could be recognising impairment losses earlier than under AASB 139. This will likely result in additional losses being recognised on transition, with a positive impact on post adoption reported earnings.

New hedging rules also make it easier for many entities to qualify for hedge accounting, reducing volatility in profit or loss movements from period to period. The relaxed rules could well see entities revisiting their treasury policies.

The challenges of implementing this standard should not be underestimated. One area of complexity is collating historical and forward-looking data for determining expected losses, particularly in respect of intercompany loans and loans to associates.

Another area is documenting hedge relationships. Even though the effectiveness testing requirements are less onerous, entities wishing to apply hedge accounting will need to set up processes and systems to meet the documentation requirements for hedge accounting. The new hedging rules also mean entities may start to issue more exotic hedging products such as swaptions, zero cost collars, etc. This in turn will lead to increased complexity.

AASB 15 Revenue from Contracts with Customers

The challenge of adopting AASB 15 cannot be underestimated. The standard will change the pattern of revenue recognition for most entities. In a significant number of cases, adoption of AASB 15 will result in the recognition of revenue in a pattern that does not correspond to the amount invoiced to the customer.

Changes to processes and systems may be required so that the accounting system can recognise revenue in accordance with AASB 15 rather than when invoiced to the customer.

The introduction and ongoing compliance with AASB 15 requires coordination between an entity’s sales team, the accounting team and those responsible for business systems and processes, requiring detailed analysis of sales contracts and any modifications to those contracts.

AASB 16 Leases

The mandatory adoption of AASB 16 is one year later than AASB 9 and 15. However, entities should consider whether to early adopt the standard and have one ‘big bang’ in 2018 to provide a stable reporting platform going forward.

The accounting headlines of applying AASB 16 are:

  • There is no such thing as rental expense
  • All leases come on balance sheet
  • An entity’s net current assets will decrease, and
  • An entity’s EBITDA will improve.

Again, the implementation challenges should not be underestimated. One area of complexity is determining which contracts contain leases, as the requirements are pervasive and require a review of service contracts to see if they contain assets that are within the scope of AASB 16.

For contracts that contain leases, companies are required to set up a right-of-use asset register and calculate the lease liability for each leased asset. Systems and processes are required to calculate asset amortisation and the finance costs arising from leased assets.

AASB 16 key dates for ASX listed entities (as at 31 July 2017)

Transitional Impacts Dec Year Ends March Year Ends June Year Ends
Transition date – full transition 1 Jan 2018
5 months
1 Apr 2018
8 months
1 Jul 2018
11 months
Transition date – partial transition 1 Jan 2019
17 months
1 Apr 2019
20 months
1 Jul 2019
23 months
First reporting date: Half-year reporting 30 Jun 2019
23 months
30 Sept 2019
26 months
31 Dec 2019
29 months
Deadline for submitting half-year report 31 Aug 2019
25 months
30 Nov 2019
28 months
29 Feb 2020
31 months
First full financial year 31 Dec 2019
29 months
31 Mar 2020
32 months
30 Jun 2020
35 months
Deadline for submitting preliminary full year report 29 Feb 2020
31 months
31 May 2020
34 months
31 Aug 2020
37 months
Deadline for submitting full year financial report 31 Mar 2020
32 months
30 Jun 2020
35 months
38 Spet 2020
28 months
<12 months <24 months >24 months

If you require assistance

If you require assistance transitioning to AASB 9, 15 and 16, please contact your engagement partner or BDO IFRS Advisory Services.