Finalising the annual accounts is a process in which all members of the finance team can partake in and is a great opportunity for accountants to expand their understanding of how accounting standards are applied in practice.
One area we have often found teams fall short is reviewing and concluding on the Accounting Standards Issued Not Yet Effective - not just in disclosure, but in routinely assessing them pre-emptively so that thoughtful approaches to implementing required changes can be developed in advance.
So how should we go about this? Here are five steps your finance team can use as a general guide:
1. Review issued updates
Depending on your Company’s basis of preparation review the applicable accounting standards issued not yet effective; referring to the below sources:
Australian Accounting Standards Board (AASB) – refer Amending Pronouncements (not yet fully compiled)
International Financial Reporting Standards (IFRS) – refer Amendments and New Standards
Note, updates may be issued at any time of the year with an effective date in advance of your Company’s fiscal year end.
2. Determine which updates (if any) apply
Be mindful that most pronouncements impact existing accounting standards already effective.
If your company currently uses an existing standard being amended, it is likely this update will apply and should be assessed for impact and adopted.
3. Determine the impact and when to adopt
Depending on the complexity of the applicable update, determining the quantitative and qualitative impact can be a complex and time-consuming process, but it is important to get this right at the outset to prevent potential future audit issues.
When determining impact refer to the Interpretations issued by the respective accounting governing body. The Interpretations provide responses to typical questions about the application of the Standard and illustrative examples which will assist in understanding the general principles.
The Effective Date (or Operative Date) is typically listed as effective for fiscal years after a specific date and depending on the impact to your company it may be appropriate to early adopt, where the standard permits. When choosing your adoption date, be cognizant of the time required to implement, streamline, automate or process changes to workpapers or systems, which may be required to amend future monthly processes to adhere to the standard. It is usually best to adopt a standard at the commencement of a fiscal period to minimise the disruption to reporting.
4. Communicate internally and externally
Arguably the most forgotten step.
Depending on the complexity of the update it may be prudent to discuss with your external auditors. Ensure they are in agreement with your methodology, conclusions and impact on future reporting. This is best communicated through an accounting memorandum, detailing the update, how and when it will be adopted, the quantitative and qualitative impact and financial reporting disclosures and implications.
The earlier this is reviewed, the less issues you should encounter come year end audit.
For some standards it is vital to have discussions with relevant internal stakeholders, as a new methodology could result in changes that impact Operations, a recent example of this was the wide-ranging Revenue Recognition update (AASB/IRFS 15, ASC 606). Do not forget to raise with relevant internal stakeholders which should be made aware of anticipated date of adoption, expected quantitative or qualitative impacts and changes to future processes or reporting.
5. Determine disclosure
For those companies complying with AASB, disclosure requirements are detailed in paragraph 30-31, AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors.
For annual reporting purposes, your disclosure for Accounting Standards Issued Not Yet Effective, should appear in the Notes to the Financial Statements within the Summary of Significant Accounting Policies. You are only required to disclose those updates which are relevant to your company.
In accordance with paragraph 31, for each applicable update you should list:
a) the title of the new Australian Accounting Standard;
b) the nature of the impending change or changes in accounting policy;
c) the date by which application of the Australian Accounting Standard is required;
d) the date at which the entity plans to apply the Australian Accounting Standard initially; and
e) either:
i) a discussion of the impact that initial application of the Australian Accounting Standard is expected to have on the entity’s financial report; or
ii) if the impact is not known or reasonably estimable; a statement to that effect.
Note that Tier 1 entities (preparing full general purpose financial statements under AASB requirements) which intend to assert compliance with IFRS should review any IFRS standards which are yet to be issued by the AASB. Tier 2 entities (reporting under Reduced Disclosure Requirements) are not required to disclose Accounting Standards Issued Not Yet Effective but may find it useful for users of the financial statements where a material impact is anticipated on adoption.
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This guide has been produced by DYLA.
Liability limited by a scheme approved under Professional Standards Legislation.
If your finance team requires assistance or you require more information, please contact: enquiries@dyladvisory.com
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