Financial reprting update Client Updates, May 2018
Agenda Accunting standard changes fr 2018 Future changes
Accunting Standard Changes fr 2018
Changes t standards applying fr March/June 2018 reprting Amended PBE IPSAS 32 (nt applicable t fr-prfits) NZ IAS 7 (nt applicable t PBEs) Effective date Descriptin f change 1 Jan 2017 Clarifies that service cncessin assets shuld be gruped with similar assets as a class f assets fr the purpse f subsequent measurement and disclsure, cnsistent with PBE IPSAS 17, and that dissimilar service cncessin assets cannt be accunted fr as a class f assets. 1 Jan 2017 Requires disclsures that enable users t evaluate changes in liabilities arising frm financing activities, including bth changes arising frm cash flws and nn-cash changes. Fr example, pening t clsing recnciliatin f financing liabilities. Cmparatives nt required fr first-year.
Changes t standards applying fr March/June 2018 reprting Example f recnciliatin under revised NZ IAS 7
Future changes pssible early adptin Amended Public Benefit Entities PBE IPSAS 17 (als NZ IAS 16, but effective 1 Jan 2016) PBE IPSAS 21 and PBE IPSAS 26 (Revalued PPE already in scpe f NZ IAS 36) Effective date Descriptin f change 1 Jan 2018 Changes the scpe f PBE IPSAS 17 t include bilgical assets that meet the definitin f bearer plants (e.g. fruit trees, grape vines). Previusly were agricultural assets under PBE IPSAS 27. Amendment means can change t accunting using cst mdel. 1 Jan 2019 Revalued PPE scped int PBE impairment accunting standards. PPE that is impaired (fr example, earthquake damage) can be impairment tested withut revaluing entire asset class.
Future changes pssible early adptin Amended Fr-prfits NZ IFRIC 22 NZ IAS 40 Effective date 1 January 2018 1 January 2018 Descriptin f change Clarifies the accunting treatment fr advance receipts and payments denminated in a freign currency Clarifies when an entity shuld transfer prperty, including prperty under cnstructin r develpment int, r ut f investment prperty: A change in use f a prperty ccurs when the prperty meets, r ceases t meet, the definitin f investment prperty and there is evidence f the change in use; A change in management s intentins fr the use f a prperty des nt, by itself, prvide evidence f a change in use; NZ IFRIC 23 1 January 2019 Clarifies hw t deal with uncertainty in incme tax treatments
Mdel financial statements - 2018 Mdel financial statements N changed requirements affecting existing Mdel Financial Statements. 30 June 2017 versins remain applicable. Will issue a revised DHB mdel fr 30 June 2018 t reflect the presentatin and disclsure changes already applied t ther Mdel Financial Statements. Plan t issue a revised Tier 3 mdel fr 30 June 2018
Financial Reprting the Future
Financial Reprting The Future Big 3 NZ IFRS 9 Financial instruments/ PBE IFRS 9 NZ IFRS 15 Revenue frm Cntracts with Custmers NZ IFRS 16 Leases Fr Prfits Perids beginning n r after 1 January 2018 (31 March/30 June 2019) Perids beginning n r after 1 January 2018 (31 March/30 June 2019) Perids beginning n r after 1 January 2019 (31 March/30 June 2020) PBEs Perids beginning n r after 1 January 2021 (30 June 2022) Early adptin? FSG 2019 IPSAS prject n revenue and nn-exchange expenditure in prgress IPSAS Leases prject in prgress. ED issued Jan.
IFRS 9 Financial Instruments IFRS 9 is significantly different cmpared t IAS 39/IPSAS 29 New classificatin requirements fr financial assets New impairment mdel based n expected lsses New hedge accunting requirements NZ IFRS 9 and PBE IFRS 9 essentially the same Fr-prfits mandatry effective frm 1 Jan 2018 Fr PBEs, the mandatry effective date f 1 Jan 2021 prvides PBEs with flexibility t early adpt t minimise mixed grup issues
IFRS 9 Financial Instruments FSG early adptin Treasury advice as per Treasury Circular 2017/09: The Crwn has elected t early adpt PBE IFRS 9: will apply t the Financial Statements f the Gvernment (FSG) fr 2018/19 Assessing changes in disclsures and understanding hw this will impact the CFISnet Data Lad and ther Crwn reprting templates. Guidance fr entities with rutine trade receivables and term depsits: https://treasury.gvt.nz/publicatins/guide/guidance-accuntingfinancial-instruments-under-pbe-ifrs-9-nn-financial-entities
Classificatin f financial assets NZ IAS 39/PBE IPSAS 29 Fair value thrugh P&L Held t maturity Lans and receivables Available-fr-sale IFRS 9 Amrtised cst Fair value thrugh OCI Fair value thrugh P&L
Equity instruments Instrument-byinstrument electin Is investment held fr trading? N FVOCI ptin elected? Yes N Measured at fair value thrugh P&L Yes N recycling t P&L n dispsal/n impairments in P&L Measured at fair value thrugh OCI
Debt instruments Designated at FVPL? Permitted if measuring at FVPL eliminates r significantly reduces an accunting mismatch. N What are the characteristics f the cash flws? On specified dates are there cash flws that are slely payments f principal and interest? Yes What is the business mdel? Yes N N FVPL Hld t cllect cntractual cash flws? Yes Hld t cllect cntractual cash flws and sell? Yes Classificatin? Amrtised cst FVOCI (with recycling)
Financial liabilities Fair value mvement attributable t wn credit risk change recgnised in OCI Liability held fr trading? (includes derivatives) N Designated at FVPL? N Measured at amrtised cst Yes Yes FVPL
Impairment mdel Instruments that are credit impaired at initial recgnitin always remain in stage 3
Hedge accunting Remains ptinal Mechanics basically unchanged Fair value hedge, Cash flw hedge, Net investment Ineffectiveness t P&L Frmal designatin and dcumentatin But mre risk management strategies shuld qualify fr hedge accunting 80-125% effectiveness threshld remved Pssible t hedge cmpnents f nn-financial items (e.g. hedge crude il cmpnent f jet fuel) Entities that hedge accunt need t can either: transitin t IFRS 9 hedge accunting r wait until transitin becmes mandatry (waiting n macr-hedging)
Transitin Need t decide whether t restate cmparatives Can nly restate if yu dn t use hindsight Fr transitin adjustments, carefully cnsider transitinal prvisins Additinal disclsure requirements will need t be cnsidered Entities may need t seek external accunting advice n cmplex issues Engage with yur auditr early n yur apprach t the transitin
NZ IFRS 15 Revenue 5 step mdel Cntract Separate perfrmance bligatins (PO) Transactin price $ Allcate $ t PO Recgnise revenue when (r as) PO is satisfied
NZ IFRS 15 - Revenue Applicatin f the 5 step mdel requires a detailed understanding f revenue cntracts May require significant wrk and judgement Sme entities are finding this challenging Engage with yur auditr early n yur apprach t the transitin
PBEs - Revenue and nn-exchange expenses In 2017 IPSASB issued a cnsultatin paper n: Revenue accunting by PBEs Accunting fr nn-exchange expenses, fr example, grants Submissins clsed n 22 Nvember 2017 and a number f PBEs in NZ prvided a submissin n the CP. IPSASB is cnsidering the CP respnses and next steps. A finalised standard is expected t be several years away.
NZ IFRS 16 Leases Fr-prfits must apply a new lease standard, NZ IFRS 16, frm 31 December 2019 year ends Lessees t recgnise mst leases n the balance sheet Lease liability and assciated right t use asset Bth initially measured at PV f lease payments Depreciate right f use asset Interest expense n lease liability using discunt rate determined at lease cmmencement Tw exemptins: lw value and shrt term leases Lessr accunting largely unchanged frm NZ IAS 17 Leases
IPSASB Leases Prject Status f IPSASB wrk: Expsure draft (ED 64) issued January 2018. Cmments clse June 2018. Pssible release f standard mid 2019 Timing issues between applicatin f NZ IFRS 16 and an IPSAS standard: Risk fr PBE mixed grup cnslidatins in having t reverse FP lessee accunting balances.
IPSASB Leases Prject Lessee accunting: same apprach as IFRS 16 Lessr accunting is different t IFRS 16 Bk a receivable and deferred revenue liability Spread deferred liability ver the lease term Recgnise underlying asset Includes guidance n cncessinary leases If yu have significant leases as lessr r cncessinary leases, we encurage entities t read the ED and submit t XRB/IPSASB Cmments t XRB by 31 May 2018 Cmments t IPSASB by 30 June 2018
Future - Accunting fr grups PBE IPSAS 34 - Separate Financial Statements; PBE IPSAS 35 - Cnslidated Financial Statements; PBE IPSAS 36 - Investments in Assciates and Jint Ventures; PBE IPSAS 37 - Jint Arrangements; PBE IPSAS 38 - Disclsure f Interests in Other Entities. IPSAS 40 Public Sectr Cmbinatins Fr Prfits NZ IFRS 10,11,12, IAS 27,28 already effective PBEs Perids beginning n r after 1 January 2019 (30 June 2020) (replaces PBE IPSAS 6,7,8) Requires brader and mre cmprehensive disclsures. NZASB still t apprve in NZ
Future Service perfrmance reprting PBE FRS 48 Service Perfrmance - Applies t reprting perids starting n r after 1 January 2021 (30 June 2022) Will replace the SSP requirements f PBE IPSAS 1 Fr-prfit service perfrmance reprting unchanged under FRS-44 Applies t Tier 1 and 2 public sectr PBEs required by law t present perfrmance infrmatin in accrdance with GAAP and all Tier 1 and 2 nt-fr-prfit PBEs. We expect the public sectr is well placed t cmply Additinal disclsures may be necessary: Cmparative infrmatin nw mandatry Disclsure f significant judgements in reprting perfrmance infrmatin
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