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 or March year ends, the transition date has already passed.
| Transitional Impacts | Dec Year Ends |
March Year Ends |
June Year Ends |
|---|---|---|---|
| Transition date – full transition | 1 Jan 2017 -4 Months |
1 Apr 2017 -1 Month |
1 Jul 2017 2 Months |
| Transition date – partial transition | 1 Jan 2018 8 Months |
1 Apr 2018 11 Months |
1 Jul 2018 14 Months |
| First reporting date: Half-year reporting | 30 Jun 2018 14 Months |
30 Sept 2018 17 Months |
31 Dec 2018 20 Months |
| Deadline for submitting Half-year report | 31 Aug 2018 16 Months |
30 Nov 2018 19 Months |
28 Feb 2019 22 Months |
| First full financial year | 31 Dec 2018 20 Months |
31 Mar 2019 23 Months |
30 Jun 2019 26 Months |
| Deadline for submitting preliminary full year report | 28 Feb 2019 22 Months |
31 May 2019 25 Months |
31 Aug 2019 28 Months |
| Deadline for submitting full year financial report | 31 Mar 2019 23 Months |
30 Jun 2019 26 Months |
30 Spet 2019 29 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:
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 16 months away.
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 difficulty 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.
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.
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:
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 in 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.
| Transitional Impacts | Dec Year Ends |
March Year Ends |
June Year Ends |
|---|---|---|---|
| Transition date – full transition | 1 Jan 2018 8 Months |
1 Apr 2018 11 Months |
1 Jul 2018 14 Months |
| Transition date – partial transition | 1 Jan 2019 20 Months |
1 Apr 2019 23 Months |
1 Jul 2019 26 Months |
| First reporting date: Half-year reporting | 30 Jun 2019 26 Months |
30 Sept 2019 29 Months |
31 Dec 2019 32 Months |
| Deadline for submitting Half-year report | 31 Aug 2019 28 Months |
30 Nov 2019 31 Months |
28 Feb 2020 34 Months |
| First full financial year | 31 Dec 2019 32 Months |
31 Mar 2020 35 Months |
30 Jun 2020 38 Months |
| Deadline for submitting preliminary full year report | 28 Feb 2020 34 Months |
31 May 2020 37 Months |
31 Aug 2020 40 Months |
| Deadline for submitting full year financial report | 31 Mar 2020 35 Months |
30 Jun 2020 38 Months |
30 Spet 2020 41 Months |
| ≤12 Months | ≤24 Months | ≥24 Months |
For more information, please contact your engagement partner or BDO IFRS Advisory Services.