In December 2016, the Australia Securities and Investments Commission (ASIC) issued Media Release 16-442, reminding companies that there are three new accounting standards effective during 2018 and 2019 that are expected to have the biggest impact on financial reporting since we first adopted International Financial Reporting Standards (IFRS) in 2005:
|AASB 9 Financial Instruments||Annual periods beginning on or after 1 January 2018|
|AASB 15 Revenue from Contracts with Customers||Annual periods beginning on or after 1 January 20181|
|AASB 16 Leases||Annual periods beginning on or after 1 January 2019|
The new standards could have a significant impact on how companies recognise revenue (how much and when), and how they measure financial instruments (more at fair value). Also, most companies have operating leases which will be capitalised on the balance sheet as right-of-use assets with the related lease liabilities.
‘We remind directors and management of the importance of planning for the new standards and informing investors and other financial report users of the impact on reported results.
Given the extent of changes to financial reporting, it is important to determine the extent of any impact now and to put in place implementation plans for these new standards. Public disclosure on the impact of the standards and timely implementation is important to investors and to retain market onfidence.’
ASIC Commissioner, John Price (ASIC MR 16-442)
The Media Release reminds directors and management that implementation plans are vital to ensure a timely and smooth implementation process, and these plans should cover:
ASIC considers it reasonable for the market to expect quantitative information about the impacts of the three new standards to be included at the start of the first comparative period (‘opening balance sheet’ date) that will be affected once the new standards are implemented. This means that ASIC expects the impacts of the new standards to be quantified in financial statements from:
|Year end||AASB 9 - Financial instruments||AASB 15 – Revenue2||AASB 16 - Leases|
|December||31 December 2016||31 December 2016||31 December 2017|
|June||30 June 2017||30 June 2017||30 June 2018|
If the directors/management believe that there will be no material impact on application of the new standards, or the entity has not yet considered the impact of the new standards, this is also important information to include.
ASIC’s view is based on the AASB 108, paragraph 30 requirement for information to be disclosed in the financial statements of the impact of accounting standards issued but not yet effective, including ‘known or reasonably estimable information’.
| In complying with paragraph 30, an entity considers disclosing:
AASB 108, paragraph 31
Many entities have not yet commenced their implementation process, or are still early in the process. Entities not fully appreciating the complexities associated with these three standards, or entities intending to adopt the modified retrospective transition approach where comparatives will not be restated, will struggle to meet ASIC’s expectations that entities should be able to quantify the impacts for AASB 9 and 15 at ‘opening balance sheet date’ (31 December 2016/30 June 2017).
Even though the entity may choose the modified retrospective restatement approach permitted (i.e. transition adjustments are made via opening retained earnings on 1 January 2018/1 July 2018 rather than on opening balance sheet date), ASIC’s view is that quantifiable information should be available because retrospective adjustments are required back to the ‘opening balance sheet date’.
Please contact BDO IFRS Advisory Services for more information on transitioning to AASB 9, 15 and 16.
The Media Release also reminds directors and management that they should consider their continuous disclosure obligations and provide adequate information to the market on:
Fundraising and other transaction documents should also include disclosure about the future impact of the new standards, with more detailed information provided if such documents are prepared closer to the effective dates of these new standards.