are you ready for 30 june 2019 reporting? webinar slides · 2020-06-23 · aasb 9 financial...

Are you ready for 30 June 2019 reporting?7 May 2019

2© 2019 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.

Document Classification: KPMG Public

Your facilitators are…

Ben Seumahu

Julie Locke Kristen Haines

Kim Heng



What is our reporting context?

Treasury

ASX

ASIC

ATO

AASB

Board of Taxation

Royal Commission

Conceptual Framework –special purpose removal

SGE general purpose financial statements

Voluntary Tax Transparency Code review

Corporate Governance Principles 4th Ed

Ongoing surveillance

Doubling large proprietary thresholds

Agenda• New standards for 30 June 2019• Hot topics• Regulatory update• Looking ahead• Wrap up

New Standards for 30 June 2019



New standards: 30 June 2019 year-ends AASB 9 Financial Instruments AASB 15 Revenue from Contracts

with CustomersInterpretation 22 Foreign Currency Transactions and Advance Consideration

AASB 2016-5 Classification and measurement of Share-based Payment Transactions[AASB 2]

AASB 2017-1 Transfers of Investment property, Annual Improvements 2014-2016 cycle [AASB 1, AASB 128 & AASB 140]

AASB 2016-6 and 2017-3 Amendments and clarifications to AASB 4 Insurance Contracts



New standards: 30 June 2019 year-ends Interpretation 22 Foreign Currency Transactions and Advance Consideration

• Clarifies the transaction date as the date of payment in foreign currency is made in advance of the item it relates to

• DO NOT retranslate at the date the item is recognised

Prepayment of expense in FX e.g. $100 USD

1USD: 1.5AUD

Translate to AUD at current spot ratePrepayment asset = $150 AUD

$100 USD expense subsequently recognised in P&L1USD: 1.3AUD

Translate to AUD at current spot rate Expense = $130AUD

Recognise expense at amount recognised as prepayment = $150 AUD

X



New standards: 30 June 2019 half-yearsAASB 16 Leases Interpretation 23 Uncertainty over

Income Tax Treatments AASB 2017-6 Prepayment Features with Negative Compensation [AASB 9]

AASB 2017-7 Long term Interests in Associates and Joint Ventures [AASB 9, AASB 128]

AASB 2018-2 Plan Amendment, Curtailment or settlement [AASB 119]

AASB 2018-1 Annual Improvements 2015-2017 Cycle [AASB 3, AASB 11, AASB 112, AASB 123]

NFPs – AASB 1058 Income for Not-For-Profit entities & AASB 2018-8 Right-of-Use Assets of Not-For-Profit Entities



New standards: 30 June 2019 half-years

AASB 2017-7 Long term Interests in Associates and Joint Ventures [AASB 9, AASB 128]

Loss making Associate

Long-term interests Long Term receivables• Apply AASB 9 ECL• Allocate losses in

accordance with AASB 128

Shares Long term Receivables



The big 3 new standards

AASB 9 Financial Instruments AASB 15 Revenue from contracts with Customers

AASB 16 Leases



New standards: AASB 9 Financial Instruments

TransitionNew ongoing disclosures

• Accounting policy changes• ECL methodology• AFS ≠ FVOCI

• Election to adoption AASB 9 hedging • Reconciliation of asset reclassification

• Impairment disclosures• Hedging disclosures



New standards: AASB 15 Revenue from Contracts with Customers

Qualitative

How do YOU recognise revenue

Relationship between billings and revenue

Significant judgements and estimates

Revenue relating to previous periods

Quantitative

Unfulfilled Performance obligations

Contract asset and liability reconciliations



New standards: AASB 16 Leases

Year-end (day prior to adoption)

• Reconciliation to lease commitments note

• ASIC expectations

Half-year (first reporting under AASB 16)

• No mandatory disclosures in AASB 134

• Transition approach • Covenant impacts



IFRIC Agenda decisions Application of the Highly Probable Requirement when a Specific Derivative is Designated as a Hedging Instrument (AASB 9 & AASB 139)

Physical Settlement of Contracts to Buy or Sell a Non-financial Item (AASB 9)

Credit Enhancement in the Measurement of Expected Credit Losses (AASB 9)

Curing of a Credit-Impaired Financial Asset (AASB 9)

Sale of Output by a Joint Operator (AASB 11)

Liabilities in relation to a Joint Operator’s interest in a Joint Operation (AASB 11)

Over Time Transfer of Constructed Goods (AASB 123)

Customer’s Right to Receive Access to the Suppliers Software Hosted on the Cloud (AASB 138)

Deposits relating to taxes other than income tax (AASB 137)

Assessment of promised goods or services (AASB 15)

Investment in a subsidiary account for at cost: Partial disposal (AASB 127)

Investment in a subsidiary accounted for at cost: step acquisition (AASB 127)

Hot Topics• Revenue contract costs• Expected credit losses



Contract costs

Costs an entity incurs to obtain a contract with a customer

Costs incurred in fulfilling a contract with a customerFulfilment costs AASB 15.95

Incremental costsAASB 15.91-92



Fulfilment costs

Allocation of costs that relate directly to contract

e.g. depreciation and armortisation

Direct materials

Direct labour

Costs explicitly chargeable to

customer under contract

Other costs incurred only because entered

into contracte.g. subcontractor costs



Example 1: Set up costsSpecialty Parts enters into a 15 year contract to produce highly customised parts for its customer, Tech One.

Training ofemployees

Migrate Tech One’s specifications onto the Technology Platform

Develop an ERPsystem

Q: How should Specialty Parts account for these set up costs?

Capitalise under AASB 138 Intangible assets Expense

Directly related to contract

Used to satisfy the PO

Expected to be recovered

Capitalise



Example 2: Mobilisation costs

Costs to bring heavy equipment to

the site

Costs to relocate employees to the

site

Directly related to contract

Used to satisfy the PO

Expected to be recovered

Thor Ltd contracted to construct a building for a customer, Valhalla Co

ExpenseCapitalise

Q: How should Thor Ltd account for these mobilisation costs?



Presentation of amortised capitalised costs

Within EBITDAvsExcluded from

EBITDA

e.g. Amortisation Expense

Cost of SalesFulfilment Costs

Amortise to

Marketing/Selling Costs

Incremental Costs

Amortise to



Expected credit losses (ECL)

Credit losses are the present value of the expected cash short falls.

The weighted average of credit losses with the respective risks of a default occurring as the weights.

The expected credit losses that result from all possible default events over the expected life of a financial instrument.

Lifetime expected credit losses

Expected credit losses



Practical expedient– Provision matrix

Provision matrix at 30 June

Lifetime expected loss

rates

Gross carrying amount of trade

receivablesLifetime expected

credit losses% $ $

Current balances 0.42% 535,812 2,238 Balances up to 30 days past due 0.96% 246,624 2,369 Balances up to 60 days past due 2.93% 81,106 2,379 Balances up to 90 days past due 7.93% 21,140 1,676 Balances up to 120 days past due 18.65% 13,212 2,464 Balances up to 150 days past due 32.64% 9,703 3,167 Balances greater than 150 days past due 100.00% 1,379 1,379 Total 908,976 15,674

Starting point



Practical expedient– Single loss rate approach

Remaining term to maturity

Credit risk ratings

Age

Invoice amount

Industry

Geographical location

Shared credit characteristics



Example 3: Single loss rate approach

Wholesaler Co.

Trade receivables:

• Average balance of $1,000,000

• Standard 60 day payment terms

Q: How is the overall loss rate calculated?

1 customer type (large number of small clients)

1 geographic location



Example 3: Single loss rate approach

Average receivables

balance(sum of monthly

balance ÷ 12)Payment

terms

Value of debtors

originated

Average annual write

offs Loss rate

Receivables balance at reporting

dateExpected

credit losses

A B C = A x 365 ÷ B D E = C ÷ D F G = E x F

$1,000,000 60 days $6,083,333 $200,000 3.3% $1,850,000 $61,050

Consider impact of relevant forward looking information on loss rate: Information about current conditions Reasonable and supportable forecasts of future economic conditions, e.g.

probability of worsening economic environment Only required to look forward over the term of the receivables (i.e. 60 days)

Regulatory update



ASIC financial statement surveillance 30 June 2018 results Enquiries from ASIC

35%

23%15%

14%5%

4%4%

Business combinations

Expense deferral

Consolidation accounting

Tax accounting

Other matters

Revenue recognition

Asset values and impairment

215 listed and public interest entities

reviewed

79 Enquiries made



ASIC financial statement surveillance

Impairment indicators Carrying value of CGUs Reasonableness of cash

flows and assumptions Use of Fair Values Disclosures

Asset values and impairment testing Revenue recognition

Provision of goods and services in the future

Multiple deliverables Comparison between

accounting under AASB 118/111 and AASB 15

Tax accounting

Adequacy of tax expense

Recovery of deferred tax assets



ASIC focus areas

ASIC focus areas

Impairment testing

and Asset values Key disclosures

Tax accounting

Expense deferral

Off balance sheet arrangements

Revenue recognition

New accounting standards

Estimates and

policy judgements

Non-IFRS information

Operating and financial review

Revenue

Leases

Conceptual framework

Financial Instruments

Insurance

31 December 2018 areas



ATO – General purpose financial statements (GPFS)D

ecem

ber 2

015 The Tax Laws

Amendment (Combating Multinational Tax Avoidance) Act 2015 enacted Au

gust

201

6 The ATO released consultation paper seeking to provide more guidance on new requirement

April

201

7 Treasury Laws Amendment (Combating Multinational Tax Avoidance) Act enacted GPFS to be lodged in ‘the approved form’ with the ATO

Sept

embe

r 201

7 ATO released guidance with a further consultation periodTransitional administrative relief also issued

April

201

9 ATO released further guidance after stakeholder feedback

Clarify basis of preparation for types of small proprietary companies

Better define CAAP Provide ‘financial year most

closely corresponding’ meaning



ATO – GPFS: Four scenarios

Australian resident for tax purposes and lodges GPFS with ASIC

Subsidiary member of Tax consolidated or MEC group

Australian resident for tax purposes and:

required to lodge a GPFS with ASIC, but has not done so; or

lodges SPFS with ASIC; or required to prepare, but not

lodge financial reports with ASIC; or

ASIC relief because parent lodges AASB consolidated financial statements


not subject to Corps Act; or not subject to Part 2M.3 of

Corps Act; or ASIC relief because:

‒ small proprietary company controlled by a foreign company that is not part of a large group; or

‒ foreign parent lodges consolidated financial statements with ASIC

Foreign resident operating a permanent establishment in Australia and the entity has not already lodged GPFS with ASIC

No ATO requirements under section 3CA

GPFS prepared in accordance with AASBs

GPFS prepared in accordance with AASBs or

other CAAP


1 2 3 4



ATO – GPFS: Four scenarios

Australian resident for tax purposes and lodges GPFS with ASIC

Subsidiary member of Tax consolidated or MEC group


required to lodge a GPFS with ASIC, but has not done so; or

lodges SPFS with ASIC; or required to prepare, but not

lodge financial reports with ASIC; or

ASIC relief because parent lodges AASB consolidated financial statements


not subject to Corps Act; or not subject to Part 2M.3 of

Corps Act; or ASIC relief because:

‒ small proprietary company controlled by a foreign company that is not part of a large group; or

‒ foreign parent lodges consolidated financial statements with ASIC

Foreign resident operating a permanent establishment in Australia and the entity has not already lodged GPFS with ASIC

No ATO requirements under section 3CA


GPFS prepared in accordance with AASBs or

other CAAP


1 2 3 4


Cannot use other country IFRS-based GAAP

Otherwise relieved from preparing reports by ASIC because are small proprietary company that is foreign

controlled and either:- Not part of a large group or- Foreign parent lodges

consolidated financial statement with ASIC



The new reporting threshold – when large becomes smallNewThreshold Current From 1 July 2019

Consolidated

revenue*

$25 million

or more

$50 million

or more

Consolidated

gross assets * $12.5 million

or more

$25 million

or more

Employees^ of the company and the

entities it controls50 FTE employees

or more

100 FTE employees

or more

*For the company and any controlled entities

^Part-time employees are counted as an appropriate fraction of the full-time equivalent (FTE)

A proprietary

company is large

if it meets two of

the three

thresholds at the

end of its

financial year.

Looking ahead



Other standards available for early adoptionService Concessions: GrantorsAASB 1059

Definition of a businessAmendments to AASB 3

Definition of materialAmendments to AASB 101

AASB 17Insurance contracts

Sale or Contribution of Assets between an Investor and its Associate or Joint VentureAmendments to AASB 3 and AASB 128

Annual reporting periods beginning on or after 1 January 2020




Looking ahead – Amendments to standards

‒ Narrows initial recognition exemption to exclude transactions that give rise to both a taxable and deductible differences

‒ Amendment made as a result of implementation of AASB 16, and different existing views in practice on tax effect of entering a lease

‒ Final standard expected in second half of 2019

Deferred taxes related to Assets and Liabilities

Arising from a Single Transaction



Looking ahead – AASB projects

– Focus on “for profit” framework– Not-for-profit* and public sector to follow– Seeks to develop criteria for application of

reporting requirements– Consultation on removing special purpose

financials

Australian Financial Reporting

Framework

‒ Fair value measurement‒ Insurance contracts amendmentsPublic sector

projects

*Exposure draft Definition of

NFPExpected by June 2019



Publicly accountable – GPFS Tier 1 Not publicly accountable – GPFS Tier 2 New Tier 2 disclosure basis

1 Framework for the Preparation and Presentation of Financial Statements (June 2014)

Publicly accountable for-profit entities+ entities voluntarily reporting compliance with IFRS – i.e. GPFS Tier 1 Apply RCF* (that includes new definition of “reporting entity”)

All other entities – i.e. GPFS Tier 2 and SPFS Continue to apply existing Framework1 (that includes the Australian

“reporting entity” concept)

Phase 2:One

Conceptual framework –

RCF*

Phase 1: Two

Conceptual frameworks

Phase 1 effective years

beginning1 January 2020

Removal of special purpose financial statements for statutory purposes

Australian Financial Reporting Framework – For profit entities* RCF = IASB Revised Conceptual Framework

Wrap up



Take-aways

Prepare for changes that impact you at 30 June 2019.1

Consider how you disclose impact of adoption of new financial instruments and revenue standards and of potential impact of standard not yet effective, leases standard.Be aware of ASIC and ATO focus areas and consider whether they impact the preparation of financial statements.

Consider whether any of the Hot topics relating to costs of revenue contracts and expected credit losses impact current practices.

2

3

4

Appendix

Standards effective for 30 June 2019Standards available for early adoption



Standards first effective – 30 June 2019 annual year ends


Financial Instruments AASB 9

This standard includes revised guidance on the classification and measurement of financial assets, including a new expected credit loss model for calculating impairment, and new general hedge accounting requirements. The 2014 version supersedes all prior versions of AASB 9 (issued in 2009, 2010 and 2013).

Revenue from Contracts with Customer AASB 15

This standard contains a single model that applies to contracts with customers and two approaches to recognising revenue: at a point in time or over time. The model features a contract-based five-step analysis of transactions to determine whether, how much and when revenue is recognised.For not-for-profit (NFP) entities, AASB 15 applies for annual reporting periods beginning on or after 1 January 2019.

Transfers of Investment Property

Amendments to AASB 140

Provides guidance on transfers to, or from, investment properties.

Classification and Measurement of Share-based

Payment Transactions Amendments to AASB 2

Introduces new requirements for accounting for the effects of vesting and non-vesting conditions on cash-settled share-based payments, share-based payment transactions with a net settlement feature for withholding tax obligations; and modifications that change classification of share-based payment transactions from cash-settled to equity-settled.



Standards first effective – 30 June 2019 annual year ends


Foreign Currency Transactions and Advance

Consideration Interpretation 22

Provides guidance about the exchange rate to be used in the reporting of the receipt or payment of advance consideration in a transaction using a foreign currency.

Annual Improvements 2014-2016 Cycle

Amendments to AASB 1 & AASB 128

Amends the Investments in associates and joint ventures standard to allow a venture capital organisation, or other qualifying entity, to elect to measure its investments in an associate or joint venture at fair value through profit or loss rather than apply the equity method. This election can be made on an investment-by-investment basis. In addition, a non-investment entity investor is able to elect to retain the fair value accounting in certain circumstances. Amends AASB 1 to remove outdated exemptions for first time adopters of IFRS.

Amendments and clarifications to AASB 4

Insurance ContractsProvides relief to insurers when adopting AASB 9, and clarification on the scoping of additional Australian specific standards for insurers.



Standards first effective – 30 June 2019 half-years


Prepayment features with negative compensationAmendments to AASB 9

A narrow exception to AASB 9 that allows particular financial assets with symmetric make-whole payment options to be eligible for measurement at amortised cost or at fair value through other comprehensive income – depending on the business model.

Income of Not-for-profit entities

(AASB 1058 & AASB 15 NFP Implementation guidance)

Changes the income recognition requirements that apply to NFP entities, and requires an arrangement entered into by a NFP to be enforceable and sufficiently specific to be considered within the scope of AASB 15. The standard replaces the income recognition requirements relating to private sector NFP entities, previously in AASB 1004 Contributions and the majority of existing requirements for income recognition relating to public sector NFP entities. For NFP entities, AASB 15 applies for annual reporting periods beginning on or after 1 January 2019.

NFP Public Sector Licensors (AASB 15 NFP Implementation

guidance)

Add requirements and implementation guidance for application by public sector NFP licensors to transactions involving the issue of licences. Specifically, the amendments expand the scope of AASB 15 to include non-contractual licences; provide guidance distinguishing a licence from a tax and to clarify the types of licences issued by public sector NFP licensors. Recognition exemptions are provided for short-term licences and licences issued for a low transaction price.

Long-term interests in associates and joint ventures


Clarification that an entity applies AASB 9 Financial Instruments to long-term interests in associates or joint venture that form part of the net investment in the associate or joint venture but to which the equity method is not applied.

Plan amendment, curtailment and settlement


For curtailment or settlement of a defined benefit plan, updated actuarial assumptions are used to determine the current service cost and net interest for the period.Further, the effect of the asset ceiling is disregarded when calculating the gain or loss on any settlement of the plan and is dealt with separately in other comprehensive income.



Standards first effective – 30 June 2019 half-years


Right-of-use Assets of Not-for-Profit Entities


Provides a temporary option for NFP entities to measure a class or classes of right-of-use (ROU) assets arising form the application the new leases standard, AASB 16, to ‘peppercorn’ or concessionary leases at fair value or cost.AASB 1049 Whole of Government and General Government Sector Financial Reporting has also been amended to provide a temporary option for governments to measure a class or classes of ROU assets at fair value or at cost.The option applies both on transition to AASB 16 and for new leases entered into after initial application of the standard. Additional disclosures required where ROU assets are measured at cost.

Annual Improvements 2015-2017 Cycle

Amendments to AASB 3, AASB 11, AASB 112 and AASB 123

How a company accounts for increasing its interest in a joint operation that meets the definition of a business.All income tax consequences of dividends are recognised consistently with the transactions that generated the distributable profits – i.e. in profit or loss, OCI or equity.Which borrowing costs are included in the general pool of borrowing costs to calculate eligible borrowing costs which are able to be capitalised.

LeasesAASB 16

Removes the classification of leases as either operating leases or finance leases – for the lessee – effectively treating all leases as finance leases.Short-term leases (less than 12 months) and leases of low-value are exempt from the lease accounting requirements.Changes in accounting over the life of the lease. In particular, companies will now recognise a front-loaded pattern of expense for most leases, even when they pay constant annual rentals.Lessor accounting remains similar to current practice – i.e. lessors continue to classify leases as finance and operating leases.

Uncertain Tax PositionsInterpretation 23

Clarifies the impact of uncertain tax positions and the accounting for income tax treatments that have yet to be accepted by tax authorities, whilst also aiming to enhance transparency.



Standards available for early adoption

Service Concessions: Grantors

AASB 1059

Guidance for public sector entities (grantors) who have entered into service concession arrangements with private sector operators. Issued to address the divergence in practice and requires grantors to recognise a service concession asset and a corresponding liability on the balance sheet. The initial balance sheet accounting as well as the ongoing profit or loss impacts could have implications for grantors.


Definition of a businessAmendments to AASB 3

Clarifies the definition of a business to assist entities to determine whether a transaction should be accounted for as a business combination or as an asset acquisition.The new definition is narrower.There is a new optional asset concentration test.New considerations have been incorporated to help identify when an acquired process is substantive.

Definition of materialAmendments to AASB 101

Clarifies the definition of ‘material’ and its application across AASBs and other pronouncements. The principal amendments are to AASB 101 Presentation of Financial Statements.



Standards available for early adoption

AASB 17Insurance contracts

Expected to result in lower deferral of acquisition expenses, the introduction of risk adjustments for reporting purposes, and a likely change in ‘boundary’ for certain contracts such as yearly renewable term insurance policies.


Sale or Contribution of Assets between an Investor and its Associate or Joint VentureAmendments to AAB 3 and

AASB 128

Requires the full gain or loss to be recognised when the assets transferred meet the definition of a ‘business’ under AASB 3 Business Combinations (whether housed in a subsidiary or not).


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© 2019 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMGInternational Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registeredtrademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.

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are you ready for 30 june 2019 reporting? webinar slides · 2020-06-23 · aasb 9 financial...

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