Have You Assessed the New Accounting Standards Yet?
As we enter into another financial reporting season, financial report preparers are in the process of drafting their annual reports.
It is this time of the year when the Australian Securities and Investments Commission (ASIC) release its media release which sets out the top seven focus areas for 30 June 2018 financial reports of listed entities and other entities of public interest. These have generally been consistent over the last few media releases, being:
- Impact of the new standards(1);
- Impairment testing and asset values;
- Revenue recognition;
- Expense deferral;
- Off-balance sheet arrangements;
- Tax accounting; and
- Estimates and accounting policy judgements.
(1) The new standards referred to are AASB 9 Financial Instruments, AASB 15 Revenue from Contracts with Customers, and AASB 16 Leases.
These have been based on the previous accounts surveillance program that ASIC conduct, and are expecting to review more than 200 full year financial reports at 30 June 2018 and selected half-year reports.
Currently, the topical focus has been on the first of these, as you would have noticed within recent financial press articles, there have been numerous comments from various regulatory and accounting bodies made in relation to the unpreparedness of companies with the upcoming commencement of the new accounting standards. In particular, comments have been made on the following new Accounting Standards:
ASIC reiterated that it is the responsibility of directors and management to ensure that entities are ready for these standards and inform stakeholders of the impact of the standards in notes to the financial reports as required by AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors. The expectation is that the disclosures will include quantification of the impacts for the reporting date that coincides with the start of the first comparative period, depending on the chosen transitional method.
The appropriate disclosures that the standard requires:
- A detailed description of how key concepts will be implemented, and where relevant, that differs to the current approaches;
- An explanation of the timeline of implementation, including expected use of any of the transition practical expedients;
- If known or reasonably estimable, quantification of the possible impact; and
- When the quantitative information is not disclosed because it is unknown or not reasonably estimable, additional qualitative information enabling users to understand the magnitude of the expected impact on the financial statements of the issuer.
If your entity has not initiated a review of the impact of these new accounting standards (if any), then you may have a steep mountain to climb to reach the summit. However, there is still time to attend to this. PKF is able to provide you with guidance on what is required, as well as review your assessment of these impacts including proposed disclosures. As noted, ASIC will be scrutinising financial reports this reporting season to ensure that boilerplate disclosures are not continuing to be made with no impact assessment.