We were recently joined by about 50 clients and contacts at our update on financial reporting changes affecting businesses and not-for-profits for 31 December 2016 and future periods.
Presented by Jeff Tulk, the session focused on the changes that may significantly impact reported financial performance and accordingly would require carefully considered approaches to explaining financial results to stakeholders.
Changes occurring as a result of new accounting standards were discussed including:
Alternative accounting treatments for equity investment portfolios available under AASB 9 Financial Instruments. One choice under this standard can result in realised and unrealised gains only being reflected as a movement in an equity reserve and never being recorded in the profit and loss.
The new model for revenue recognition under AASB 15 Revenue from Contracts with Customers that will impact businesses and not for profits that provide goods or services with multiple milestones or promises contained within a contract or agreement. Where these promises are fulfilled over time, analysis on each individual contract will need to be undertaken.
The not-for-profit application of AASB 15 provides for more opportunities for grant income to be matched with expenses incurred and also allows not-for-profit entities to record volunteer labour as income in the same way as an asset donation.
The concept of operating and finance leases will fundamentally change with the implementation of AASB 16 Leases. Most operating leases, other that minor or less than 12 months, will be recorded on the balance sheet as a liability and a ‘right to use’ asset. Complexities in determining the initial lease and the ongoing value depending on the terms and conditions may require significant effort compared to the current treatment.
The comments that we received after the seminar was that many people gained a new appreciation for the upcoming changes and in some cases a realisation of the work required and help needed to prepare.
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