Interdepartmental Accounting Group Inc. Sustainable Finance today and tomorrow

Transcription

1 Interdepartmental Accounting Group Inc. Sustainable Finance today and tomorrow November 2017

2 Contents Leandré Malan Partner Assurance & Advisory Brisbane, Qld AASB 15 Revenue Stephanie Serhan Client Manager Assurance & Advisory Brisbane Qld AASB 1059 Services Concession Arrangements: Grantors AASB 16 Leases Sustainable Finance today and tomorrow 2

3 AASB 15 Revenue

4 What s changing? AASB 118 vs AASB 15 AASB 118: Revenue The amount can be measured reliably It is probable that the economic benefits will flow Stage of completion and costs incurred can be measured reliably Differences Control = Ability to direct use of asset + Obtain substantially all remaining benefits AASB 15: Revenue from contracts with customers Recognised when the performance obligation is satisfied by the transfer of promised goods or services to the customer The amount of revenue recognised is the amount that reflects the consideration that is expected to be entitled in exchange for the goods & services. There could be substantial changes in the timing and amount of revenue recognition as a result of applying this new Standard More prescriptive guidance and extensive disclosure requirements Sustainable Finance today and tomorrow 4

5 What s changing? The five-step approach Step 5 Not so Simple! Contract Combination Step 1 Contract Modification Identify the contract with the customer Step 2 Separate Performance Obligations Identify separate performance obligations in the contract Step 3 Determine the transaction price Variable Consideration (Constraint) Time Value of Money Step 4 Allocate the transaction price to separate performance obligations Stand-Alone Selling Price Estimation Methods Discount & Variable Consideration Recognise revenue when each performance obligation is satisfied Point in Time vs. Over Time Contract Combination Contract Modification Separate Performance Obligations Variable Consideration (Constraint) Time Value of Money Discount & Variable Consideration Point in Time vs. Over Time Sustainable Finance today and tomorrow 5

6 Step 1: Identify the contract with a customer Contracts within scope Contract with a customer Contract approval Payment terms clearly identified Commercial substance Each party s rights clearly identified Collectability is probable Contracts combined Contract A Contract B Combine contracts entered into at (or near) same time with same (or related) customer if any one of following criteria met: Single commercial objective Interdependent consideration or performance Promised goods/services are a single performance obligation Consider any Contract Modifications Consider: Customer ability & intention to pay consideration when due Sustainable Finance today and tomorrow 6

7 Step 2: Identify the performance obligations in the contract Distinct criteria Identify all promised goods & services in the contract Or together with other readily available resources A. Are there multiple goods or services promised in the contract? Yes B. Can customer benefit from good/service on its own? Is it capable of being distinct? Yes C. Is the good/service separable from other promises in the contract? No No No Yes Treat as a single transaction Combine performance obligations until two or more performance obligations are distinct Account for the separate performance obligations Sustainable Finance today and tomorrow 7

8 Step 2: Identify the performance obligations in the contract Separately identifiable within the contract No significant integration service Separately identifiable from other promises in the contract The g/s does not significantly modify / customise another g/s promised in the contract The g/s is not highly dependent on / highly interrelated with, other g/s promised in the contract Sustainable Finance today and tomorrow 8

9 Step 3: Determine the transaction price Items that may affect the transaction price Transaction price = Amount of consideration to which the entity is expected to be entitled in exchange for transferring promised good/service to customer A Variable consideration consider discounts, rebates, refunds, credits, incentives, performance bonus/penalty, contingencies, price concessions, or similar items B Significant financing component should be considered where the effect is significant to the contract C Non-cash consideration measured at fair value or by reference to the stand-alone selling price of the goods or services if cannot reasonably estimate D Consideration payable to the customer consider if reduction in transaction price or payment for distinct good or service (or combination) Note: Collectability assessed at Step 1 Sustainable Finance today and tomorrow 9

10 Step 4:Allocate the transaction price to the performance obligations Revenue allocation methods Allocate revenue between elements based on standalone selling price of each separate performance obligation Standalone selling price Observable price at which entity would sell a promised good/service separately to a customer If not directly observable, standalone selling price will be estimated Estimation method/approach: Adjusted market assessment Expected cost plus a margin Residual (when standalone price is highly variable or uncertain) Allocation of discounts & variable consideration: Allocation to distinct performance obligations if observable Otherwise on a pro-rata basis to all performance obligations Sustainable Finance today and tomorrow 10

11 Step 5: Recognise revenue when performance obligation satisfied Satisfaction of performance obligations Performance obligation satisfied / Customer obtains CONTROL = Transfer Revenue recognised OVER time Revenue recognised AT A POINT in time Or Or Customer simultaneously receives & consumes benefits Entity s performance creates / enhances asset controlled by Customer Entity s performance does not create an asset with alternative use & entity has enforceable right to payment If Not Sustainable Finance today and tomorrow 11

12 Step 5: Recognise revenue when performance obligation satisfied Indicators of transfer of control Point In Time Right to payment Customer acceptance Legal title Significant risks & rewards ownership Physical possession Sustainable Finance today and tomorrow 12

13 Disclosures & Other Considerations New disclosures Contracts with Customers Asset from Contract Costs Significant Judgements applied Revenue recognised + impairment losses on receivables Disaggregated revenue information vis-a-vis segments Reconciliation of contract balances Performance obligations Transaction price on remaining performance obligations Judgements used to ascertain costs to obtain/fulfill contracts Method used and Amount of amortization for the period Amount of impairment loss during the period Closing balance by main category (set-up costs, pre-contract costs, costs to obtain contracts) Judgements applied &/or changes in judgement Performance satisfaction over time method used to measure progress and the reasoning Methods, assumptions & inputs for determining transaction price; constraining variable consideration; allocation of transaction price; obligations for refunds & returns Sustainable Finance today and tomorrow 13

14 Disclosures & Other Considerations Wider business considerations - Internal & External Finance & Tax Information & systems Business unit leaders, strategy managers & procurement managers Internal audit Legal advisors & Human Resources Other departments & agencies Sustainable Finance today and tomorrow 14

15 Transition Year ended 30 June 2017 Year ended 30 June 2018 Year ended 30 June 2019 Retrospective Approach AASB 118 Dual Records AASB 15 Modified Approach AASB 118 Dual Records AASB 15 1 July July July July 2019 Legend Cut-off analysis required to be performed on open contracts We are here (November 2017) Sustainable Finance today and tomorrow 15

16 AASB 1059 Service Concession Arrangements: Grantors

17 What s changing? Current Minor guidance to recognise assets and liabilities that relate to public private partnerships (PPPs) Future Increased transparency and consistency in reporting Current Diverse reporting and communication across different levels of government Future Encourages increased accountability and better management Sustainable Finance today and tomorrow 17

18 What s changing Various measurements and recognition Balance sheet Assets & liabilities Impact on gearing Discretionary measurement Off balance sheet Finance lease arrangements Recognise service concession assets and liabilities on balance sheet. Sustainable Finance today and tomorrow 18

19 Accounting Framework for SCA Does the asset provide public services? Yes No NOT A SERVICE CONCESSION ARRANGEMENT Does the operator: Use the asset to provide public services on behalf of the grantor? OR Manage at least some public services? No NOT A SERVICE CONCESSION ARRANGEMENT Yes Consider asset recognition under other Standards SERVICE CONCESSION ARRANGEMENT Within the scope of AASB 1059 Sustainable Finance today and tomorrow 19

20 Transition Reporting periods on or after 1 January 2019 Early adoption permitted Full Retrospective Follow AASB 108 accounting policies, changes in accounting estimates and errors Retrospective date of initial application deemed cost - current replacement cost of the asset Previously recognised SCA s 1. assets and liabilities may need to be de-recogised 2. difference recognised through accumulated surplus Previously recognised SCA s Exception - where the entity applies a policy of measuring assets at fair value > adjustment to revaluation reserve Sustainable Finance today and tomorrow 20

21 Further considerations Commercial Information & systems Stakeholders Treasury & Finance Sustainable Finance today and tomorrow 21

22 AASB 16 Leases

23 What s changing? Old standard New standard Balance Sheet FY 20xx $ Balance Sheet FY 20xx $ Lease assets xxx Lease liabilities xxx Income statement FY 20xx S Income statement FY 20xx $ Lease payments Xxx Low-value / short-term leases Xxx Profit Xxx Profit Xxx Depreciation and amortisation Finance cost Xxx Xxx Profit before tax xxx Profit before tax xxx Sustainable Finance today and tomorrow 23

24 What s changing Balance sheet Income Statement Cash flow statement Assets and liabilities Impact on gearing Profit profile (lower in earlier years of lease) Operating cash inflows Financing cash outflows Recognise lease assets and liabilities on balance sheet. Initially measured at the present value of unavoidable lease payments. Repayment of principal: finance activities Repayment of interest: finance or operating activities (depends on accounting policy for interest). Some variable payments, payments from shortterm leases and from assets of low value: operating activities Sustainable Finance today and tomorrow 24

25 Identifying a lease A decision tree Identified asset? No Not a lease Yes Substantially all economic benefits? No Not a lease Yes How and for what purpose predetermined? Yes Customer can operate the asset without the supplier having the right to change operating instructions? Or Customer designed asset to predetermine how and for what purpose the asset is used? No Customer has right to direct how and for what purpose the asset is used throughout the period of use? Yes Lease No No Not a lease Not a lease Yes Lease Sustainable Finance today and tomorrow 25

26 Measurement Initial measurement Penalty for terminating (if reasonably certain) Expected residual value guarantee Estimated cost for dismantling restoring asset Fixed payments less incentives Exercise price of purchase option (reasonably certain) Variable payments (e.g. CPI/ rate) Payments less incentives before commencement date Initial direct costs lease liability NPV = Lease liability Right-of-use asset Sustainable Finance today and tomorrow 26

27 Recognition Exemptions Accounting policy choice: Apply AASB 16 or straight-line the expense Short-term leases (12 months or less) Low-value leases A lease that contains a purchase option is not a short-term lease Assessment on an absolute basis Election by class of underlying asset Election on a lease-by-lease basis Sustainable Finance today and tomorrow 27

28 Transition Year ended 30 June 2018 Year ended 30 June 2019 Year ended 30 June 2020 Retrospective Approach AASB 117 Dual Records AASB 16 Modified Approach AASB 117 Dual Records AASB 16 1 July July July July 2020 Legend Cut-off analysis required to be performed on open contracts Sustainable Finance today and tomorrow 28

29 Key decisions AASB 16 requires a broad range of judgements, policy choices, and exemptions that need to be considered before implementation can commence. Lease term Incremental borrowing rate Transition Recognition Components Sustainable Finance today and tomorrow 29

30 Further considerations Internal Finance & Tax Information & systems Business unit leaders, strategy managers and procurement managers Treasury & External Finance Legal advisors Human resources Governance Sustainable Finance today and tomorrow 30

31 Questions?

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