Accountants in Sydney are now facing the long-awaited and potentially daunting arrival of the “triple whammy” or triple threat of Accounting Standards. These standards have finally emerged, taking many organisations by surprise, despite the substantial warnings and preparations over the past 12-18 months.
AASB 9 Financial instruments, AASB 15 Revenue from Contracts with Customers and AASB 16 Lease are probably three of the most significant revisions to the world of Accounting Standards and Financial Reporting since the introduction of International Financial Reporting Standards (IFRS) in Australia in 2005.
Many Australian businesses have still not reached out to their accounting advisors to understand the potentially significant implications of these Standards.
Suppose you are an entity that lodges financial reports with ASIC or to the bank or has terms attached in contracts that depend on the financial position and performance, including measures such as EBIT, EBITDA, etc. In that case, it is implausible that you are not impacted by one or more of these Standards.
A quick overview of their implications is provided below:
| Standard | Implications |
| AASB 9 Financial instruments
(effective 1 January 2018 – 1 July 2018 for June year ends) |
· Will impact how lousy debt provisions are calculated based on an “expected loss” model
· Cause more financial assets to be measured at fair value · Will significantly impact entities whose primary business is lending (incl leasing companies) · Non-lending organisations will, however, also be impacted |
| AASB 15 Revenue recognition
(effective 1 January 2018 – 1 July 2018 for June year ends) |
· Introduces a significantly complex, prescriptive and thorough guide as to how much and when revenue can be recognised
· At its core is the recognition of revenue that genuinely reflects the consideration receivable for the transfer of a promised good or service, irrespective of when items are invoiced and needing separation (or unbundling) to the component parts of the good or service being delivered. · Aims to align revenue between IFRS and US GAAP whereby virtually most scenarios under the 2 standards would be treated the same way · Will impact entities across all industries, but particularly in the telecommunications, software, technology and construction sectors |
| AASB 16 Leases
(effective 1 January 2019 – 1 July 2019 for June year ends)
|
· Removes the concept of operating and finance leases and requires all leases to be recognised on the balance sheet as a right-of-use asset
· Entities will likely see an increase in their EBIT/EBITDA reported results as the traditional rental expense will now be reported below the line · The transition rules can lead to quite significant differences in how future earnings are reported, and various calculation models would need to be prepared to understand the true impact and how these will be presented in the financials. · Will impact any entity that has or will be entering into any operating leases, be it leasing property, equipment, plant or computer equipment. |
The above Standards’ impact can be far-reaching regarding your accounting for these transactions through to how you may structure a future transaction or even how existing contracts may impact you / your transaction.
We have developed several tools (including modelling analysis), and have the experience, to help you assess that impact. Furthermore, you will likely need your accounting systems and processes to be updated, for example, to cope with the changes that will arise in your revenue recognition policies.
The triple whammy is here, and appropriate guidance must be sought early.
Kreston Stanley Williamson Team
*Correct as of February 2019
Disclaimer – Kreston Stanley Williamson has produced this article to serve its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas in this article, you must seek advice about your circumstances. Liability is limited by a scheme approved under professional standards legislation.
