Leases, Revenue and Landfill Provisions Update. Audit Tax Advisory Financial Advice

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Doris Cameron
6 years ago
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1 Leases, Revenue and Landfill Provisions Update

2 Agenda IFRS 16 Leases IFRS 15 Revenue from Contracts with Customers, and AASB 10XX Income Accounting for Landfills

3 IFRS 16 Leases Audit Audit Tax Tax Advisory Advisory Financial Financial Advice Advice

4 Context Leases (definition): IFRS 16: Leases a contract, or part of a contract, that conveys the right to use an asset for a period of time in exchange for consideration.

5 Assessment Contract Identified asset? Yes Customer has right to substantially all economic benefits throughout period of use? Yes Customer has right to direct how and for what purpose asset is used? Yes Contract contains a lease

6 Lessee accounting Balance sheet Right-of-Use (RoU) asset Lease (payments) liability Deferred tax? Income statement Depreciation on RoU asset Interest expense on lease liability (finance costs) Cash flow statement Split total cash paid into: Principal (financing) Interest (operating or financing) Variable (operating, if not part of lease liability) Impact Assets (tangible?) Liabilities / Ratios? Covenants Impact Depreciation Operating costs EBITDA Finance costs Impact / Operating cash flows Financing cash flows

7 Lessee accounting Can elect not to apply lessee accounting model to: Short term leases lease term < 12 months without purchase option (class-of-assets basis) Low-value items (lease-by-lease basis, even if material in aggregate) If election made, recognise expense on straight-line basis

8 Lessor accounting Classification is unchanged from IAS 17 Operating Finance However, (as with lessee accounting) there are new implications arising from: Lease assessment (i.e. Contract assessment) Measurement (e.g. fixed versus variable payments) Modifications / Variations Sale-and-leaseback agreements Sub-leases

9 IFRS 15 Revenue from Contracts with Customers, and AASB 10XX - Income Audit Audit Tax Tax Advisory Advisory Financial Financial Advice Advice

10 Framework 1. Identify contract with customer 2. Identify performance obligations 3. Determine transaction price 5. Recognise revenue when (or as) a performance obligation is satisfied 4. Allocate transaction price to performance obligations Audit Tax Advisory Wealth Management 12

11 Impact Performance Obligations: Grants structuring agreements? Developer Contributions? only applies to revenue from contracts, no impact on statutory fees and fines (including rates)..no change to recognition of expenditure. Audit Tax Advisory Wealth Management 13

12 Accounting for Landfills Audit Audit Tax Tax Advisory Advisory Financial Wealth AdviceManagement 14

13 Key issues/standards framework Site improvements (AASB 116 & 136) Landfill air space (AASB 138) Rehabilitation provisions (AASB 137 & Interpretation 1) Audit Tax Advisory Wealth Management 15

14 Accounting issues Site improvements Includes cost of building cell and other infrastructure works may have separate useful lives Airspace Asset Intangible asset = initial estimate of rehabilitation provision Rehabilitation provision Initial estimate of NPV of costs to rehabilitate site when full, including ongoing monitoring costs. Multi cell sites Complicates accounting significantly Impairment testing Airspace asset must be generate future cash flows to support its value Audit Tax Advisory Wealth Management 16

15 The big issue..rehabilitation costs are not discretionary, do you want to be responsible for getting these calculations wrong? Audit Tax Advisory Wealth Management 17

16 Audit Tax Advisory Wealth Management 18

Agenda Item 6: Leases

Agenda Item 6: Leases João Fonseca Manager, Standards Development and Technical Projects IPSASB Meeting New York, USA March 8-11, 2016 Page 1 Proprietary and Copyrighted Information Objective of Session