- Surprisingly, just 45% of survey respondents said they had adjusted their valuation process or assumptions to accommodate the introduction of AASB 16.
- Of those who had made adjustments, assumptions related to comparable companies were the most common
For valuation professionals, the introduction of the AASB 16 Leasing Standard looked set to be the biggest news in valuations and financial reporting in 2020. Then COVID-19 came along.
Since then, much of the focus for valuers has been on determining the impacts of the pandemic on different business models and industry sectors. But many businesses are also grappling with the significant challenge of adjusting their lease reporting to meet the new standard.
The Chartered Accountants ANZ Practices Survey, conducted in April and July 2020, asked valuation specialists about the impacts of the standard on their work. Here’s what it revealed.
Fewer than half have adjusted for the standard
Surprisingly, just 45% of survey respondents said they had adjusted their valuation process or assumptions to accommodate the introduction of AASB 16. This is despite the standard being mandatory for entities subject to the Corporations Act since 1 January 2020.
Not every business is required to comply with the standard – for example, mining exploration companies, small businesses or other entities not bound by the standard. This cohort is potentially captured by the 16% of people who answered, ‘not applicable’ in this section. However, questions remain around the 39% who said they hadn’t made any adjustments – making this dataset one to watch in future reports.
The implementation of AASB 16 is causing chaos for financial reporting, and users of financial statements.
Fiona Hansen is a Business Valuation Specialist and Chartered Accountants ANZ Business Valuation Committee member. She says that the results may be an outcome of widespread confusion over how best to implement the new standard.
“The implementation of AASB 16 is causing chaos for financial reporting, and users of financial statements,” she said.
“I think that people are still grappling with the change. There is no settled consensus on how operating and financial leases should be adjusted – but different structures can lead to quite different results, creating significant uncertainty.”
Comparable company adjustments the most common
Of those who had made adjustments, assumptions related to comparable companies were the most common, at 49% of all responses.
Forty per cent had made adjustments when calculating gearing levels, while 9% had changed how they calculate the cost of debt. Just 3% had made adjustments to the calculation of cost of equity.
About the survey
The 2020 Valuation Practice Survey was conducted in August 2020. It includes results from over 100 respondents working in valuation-related disciplines across the public and corporate sectors. The survey was conducted by Chartered Accountants Australia and New Zealand and distributed online to Business Valuation Specialists.
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