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The “Triple Whammy” Accounting Standards are here….are you ready?

The “Triple Whammy” Accounting Standards are here….are you ready?

Current as of February 2019

The long anticipated, and perhaps feared “triple whammy” or triple threat of Accounting Standards are now here – and they’re catching a lot of organisations by surprise despite the significant preludes 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 of significant revisions to the world of Accounting Standards and Financial Reporting since the introduction of International Financial Reporting Standards (IFRS) in Australia back in 2005.

Many Australian businesses have still not reached out to their accounting advisors to understand the potentially significant implications of these Standards.

If you are an entity that lodges financial reports with ASIC, or to the bank, or have terms attached in contracts that are dependent on the financial position, performance, including measures such as EBIT, EBITDA etc, it is very unlikely 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 bad 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 significantly complex, prescriptive and thorough guidance as to how much and when revenue can be recognised

· At its core is the recognition of revenue that truly 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 on 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 impact of the above Standards can be far reaching in terms of 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, it is likely you will 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 are here and it is critical that appropriate guidance is sought early on.

DISCLAIMER
This newsletter has been produced by Stanley & Williamson as a service to its clients and associates. The information contained in the newsletter is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas contained in this newsletter, it is imperative you seek specific advice relating to your particular circumstances. Liability limited by a scheme approved under Professional Standards legislation. 

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