- Many entities have not yet properly assessed the impact of the new accounting standards
- A significant amount of work is involved in transition planning
- Use our interactive Blueprints to help you quickly navigate the key requirements
We need to talk…
Unless you’ve been living under a rock, you’ll already know that three new accounting standards on revenue, financial instruments and leases are about to shake up the financial reporting world. Known in some technical circles as the ‘triple threat’, these standards are the biggest change since Australia and New Zealand first transitioned to International Financial Reporting Standards (IFRS) over 10 years ago, impacting entities of all sizes and across all sectors.
You’d think that would be enough to get people to sit up, take notice and plan ahead, but perhaps not. Most boards and finance teams seem to know that change is coming, but relatively few have properly assessed the likely impact or put a transition plan in place.
IFRS advisers, auditors, standard setters and regulators on both sides of the Tasman are becoming increasingly worried about the number of entities that are unprepared for these changes. We are also concerned about the general lack of readiness and what it could mean for entities that fail to act in time. It’s even scarier when you consider that the new revenue and financial instruments standards apply from 1 January 2018, which is only one month away.
So why haven’t companies done more to prepare for the new accounting standards? What are they waiting for?
Here are some of the more common responses we have found to be holding people back.
1) It’s the auditor’s responsibility
Let’s be clear: Directors are responsible for financial reporting, not the auditor.
Directors are responsible for overseeing the financial reporting processes undertaken by management. They have ultimate responsibility for ensuring that legislative requirements in relation to financial reporting are complied with. Auditors are responsible for obtaining reasonable assurance about whether a financial report as a whole is free from material misstatement, whether due to fraud or error.
Directors may seek external advice to assist them in fulfilling their responsibilities, which may include professional accounting advice. However, directors retain responsibility for the appropriateness of accounting policies used to prepare the financial statements and compliance with accounting standards. Directors are not able to delegate their responsibilities for financial reporting.
Auditors evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. From a practical perspective, it therefore helps if directors and management engage auditors early in the process when they are adopting new accounting standards.
More detail on this subject can be found in our recent publication Directors’ Responsibilities for Financial Reporting.
Directors’ Responsibilities for Financial Reporting
Everything directors need to know to meet their financial reporting responsibilitiesView guide
2) I don’t have to apply the new standards until 2019, so there’s plenty of time
The revenue and financial instruments standards apply to financial years beginning on or after 1 January 2018, so it’s true that if you have a balance date other than 31 December, the first full year of application will end in 2019 (2020 for leases). However, a significant amount of work needs to be done to properly assess the impacts of the new standards. This includes working out which of the various transition options to apply, preparing comparative information (where required) and understanding the impact on internal processes, policies, technology and data requirements as well as reported results. This is not something that can be left until the last minute.
Entities preparing Tier 1 general purpose financial reports should already be disclosing the possible impact of these new accounting standards to their investors and other stakeholders, meaning impact assessments should already be underway if not substantially complete. Such disclosures have been on the regulators’ watch lists for some time, with expectations around both qualitative and quantitative information.
Time is running out.
3) They won’t impact SMEs
The new standards aren’t just relevant for the telecommunications, software, banking and aviation industries, which are often touted as those that will see the greatest impact. Every entity will be impacted to some degree. A significant amount of work needs to happen in order to understand if the financial impact will be material and even if it is not, the three new standards have the potential to affect an entity’s operations, IT, procurement, tax, treasury and human resources functions in addition to finance and accounting.
4) I just don’t know where to start
Now we’re getting somewhere…
As you can see, there’s a lot to take in with these new standards. We’ve been talking about them for what seems like an eternity and the requirements can be quite complex to navigate. When faced with such an enormous task, it’s understandable that people get frozen in fear and don’t know where to start.
If this sounds like you, then fear not – help is here.
Chartered Accountants ANZ has designed interactive ‘Blueprints’ to help finance teams ease into the requirements of the new accounting standards on revenue, financial instruments and leases.
These blueprints give a concise overview of some of the key requirements of the new standards around recognition, measurement and disclosure, allowing the user to get up to speed quickly and giving them the confidence to explore the detail. They are not a comprehensive guide, but are designed to equip the user with enough knowledge to ask further questions and start thinking about impact assessments and implementation plans.
Interactive Blueprints on the new accounting standardsExplore
Feel the fear… and do it anyway
Consider this an accounting intervention. If triple threat fear has you frozen, it’s time to ‘let it go’.
Before you head off on your summer break,
- Use our interactive Blueprints to help you become familiar with some of the key requirements of the new accounting standards.
- Start thinking about impact assessments and implementation plans, using the links in the Blueprints to access more detailed information on our website.
- Make sure your children empty their lunch boxes and school bags. It’ll be one less scary thing to come back to in the New Year.