What’s new for June 2018 half-years – New revenue and financial instruments standards are now ‘live’
For entities reporting 30 June 2018 half-year results, the new revenue and financial instruments standards, AASB 15 Revenue from Contracts with Customers, and AASB 9 Financial Instruments are now ‘live’. All your systems, processes, contracts and bank covenants should, by now, have been updated to cater for any changes in the pattern of your revenue and profit recognition.
What does this mean for 30 June 2018 half-year financial statements?
First and foremost, by now you should be in a position to prepare your interim financial statements using accounting policies in AASB 9 and AASB 15. ASIC has also indicated in its Media Release (MR18-159) outlining its focus areas for 30 June 2018 financial reporting surveillance that it will be reviewing a selection of 30 June 2018 half-year financial reports, focussing on compliance with these new standards.
AASB 134 disclosures
Interim financial statements are only intended to provide an update on the latest complete set of annual financial statements, resulting in only minimum prescribed disclosures in AASB 134. However, regarding the first-time adoption of these two new standards, AASB 134 does require disclosure of the following:
If accounting policies and methods of computation have changed since the end of the last annual period, AASB 134, paragraph 16A(a) requires a description of the nature and effect of the change. We would therefore expect to see as a minimum:
- New accounting policy descriptions for financial instruments and revenue (in plain English and specific to the entity) if these have changed, and
- Narrative disclosure about the impacts on the financial statements.
AASB 134, paragraph 16A(l) also requires disclosure of revenue from contracts with customers as required by AASB 15, paragraphs 114-115, i.e.:
- Revenue by categories (applying the guidance in B87-B89), and
- For entities including segment disclosures under AASB 8 Operating Segments, information to understand the relationship between disaggregated revenue categories and segment revenue.
Although AASB 134 does not specifically require disclosures regarding changes in accounting policies resulting from adopting new standards (refer AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors, paragraph 28), where there is a material impact on balance sheet categories at 1 January 2018, as well as on profit or loss going forward, and given the AASB 134, paragraph 16A(a) requirement to disclose the ‘effect’ of changes in policies, entities will need to consider the AASB 108, paragraph 28 requirements in determining what information to disclose about first-time adoption of AASB 9 and AASB 15.
Transition disclosures – AASB 9
In general, AASB 9 does not require restatement of comparatives, with any adjustments arising on transition (1 January 2018) being made via opening balances of retained earnings on this date. The comparative balance sheet presented in June 2018 interim financial statements is therefore the same as that presented in the 31 December 2017 annual report. On 1 January 2018:
- Financial assets will be classified and measured using AASB 9 requirements, and
- Impairment losses may increase to include the effect of expected credit losses.
AASB 7 Financial Instrument: Disclosures requires various detailed transition disclosures (paragraphs 42I to 42S) in the ‘reporting period’ that the entity first applies the AASB 9 requirements. It is not clear whether ‘reporting period’ refers to the annual period only, or includes the half-year. As such, entities should apply judgement when determining if, and how much, transition information is required.
Transition disclosures – AASB 15
AASB 15 permits either of the following approaches on first-time adoption of AASB 15:
- Full retrospective restatement where comparatives are restated for the half-year ended 30 June 2017, including the balance sheet at 31 December 2017, or
- Modified retrospective approach, where comparatives are not restated and adjustments on first-time adoption are made via opening balances of retained earnings on 1 January 2018.
If applying the retrospective approach, AASB 134, paragraph 16A(a) does require some disclosure about the effect of changes in accounting policies in the half-year financial report. Entities should apply judgement as to how much disclosure is appropriate, and can refer to the following sources in making this assessment:
- AASB 108, paragraph 28, and
- AASB 15, paragraph C6 (information about practical expedients used on transition).
It is not clear whether the AASB 15 transition disclosures (paragraph C6) apply to the annual accounts, the interim accounts, or both. Nevertheless, paragraph C6 may serve as a useful source when determining the extent of disclosure about the effect of changes required by AASB 134, paragraph 16A(a).
Modified retrospective approach
The modified retrospective approach for AASB 15 would have a similar impact to entities applying AASB 9 for the first time, with no restatement of comparatives, and all transition adjustments processed on 1 January 2018.
To comply with the requirement to disclose the effect of any changes in accounting policies for revenue recognition, entities should refer to AASB 108, paragraph 28, as well as transition disclosures outlined in AASB 15, paragraphs C6 and C8 (effectively disclosing the current half-year results using the ‘old’ accounting policies, including the impact on each line item).
Additional disclosures on AASB 9 and AASB 15
AASB 15 and AASB 7 require extensive disclosures in the December 2018 annual financial statements that would not have been presented at 31 December 2017. Preparers should apply judgement to determine if any of these disclosures would be material for users to understand the extent of the impact of the new revenue and financial instrument policies in the half-year accounts.
What else is new?
Not to be forgotten for 30 June 2018 half-years is the following amending standards and interpretations that apply to annual periods beginning on or after 1 January 2018:
|AASB standard number
||Amendments to Australian Accounting Standards – Classification and Measurement of Share-based Payment Transactions
||Amendments to Australian Accounting Standards – Transfers of Investment Property, Annual Improvements 2014-2016 Cycle and Other Amendments
||Foreign Currency Transactions and Advance Consideration
Please refer to Table B of our recently issued Financial Reporting Standards Update document for more information on these amendments.