Anyone contemplating delaying Australian Accounting Standards Board (AASB) 15 transition to the last moment by utilising the partial retrospective method should be cautious as 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 eight months away.
||Dec Year Ends
||June Year Ends
|Transition date – full transition
|1 Jan 2017
|1 Jul 2017
|Transition date – partial transition
|1 Jan 2018
|1 Jul 2018
|First reporting date – half-year reporting
||30 Jun 2018
|31 Dec 2018
|Deadline for submitting half-year report
||31 Aug 2018
|28 Feb 2019
|First full financial year
||31 Dec 2018
|30 Jun 2019
|Deadline for submitting preliminary full year report
||28 Feb 2019
|31 Aug 2019
|Deadline for submitting full year financial report
||31 Mar 2018
|30 Sep 2018
< 12 months >12 months and < 24 months
AASB 9 Financial Instruments
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 under the new impairment model, 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 Customer
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.
For more information on transitioning to AASB 9, 15 and 16, contact BDO’s IFRS Advisory Services team.
Watch BDO partner Aletta Boshoff explain the AASB changes