Interim reports: New disclosures for AASB 9 & 15

The new accounting standards for Revenue (AASB 15) and Financial Instruments (AASB 9) have now come into operation for years commencing after 1 January 2018. This not only effects the annual report but for disclosing entities, this will also impact the half year interim reports.

Most articles have discussed in detail the application of the measurement and recognition requirements of these standards, but little has been discussed on the relevant disclosures. In reference to a well-used cliché, “the devil is in the detail”.

The below diagram provides an overall summary of the steps to follow in the preparation of the financial report during the interim reporting process in relation to your consideration of disclosures relating to these new standards:

AASB 134 Disclosures

The purpose of AASB 134 is to provide minimal prescribed disclosures as an update to the most recent annual financial report. However, as this is the first period of operation of AASB 9 and 15, AASB 134 will require the disclosure of the following:

• Nature and effect of changes in accounting policies (AASB 134 paragraph 16A(a))
• Disaggregation of revenue (AASB 15 para 114 – 115).

Firstly, to address the nature and effect matter, we would expect to see disclosures of:

• New accounting policies for each revenue item identified (based upon the different performance obligations you have previously assessed) using consistent terminology from the standard, and description of financial instruments, including the application of impairment, if required
• Narrative disclosures about the impacts on the financial statements.

The next consideration is the disaggregation disclosure requirements within AASB 15 Revenue from Contracts with Customers. The standard provides further guidance on this application, which you will need to refer to AASB 15 B87 – B89. This highlights examples of categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. Examples of these are the type of goods or service, geographical regions, market or type of customer, type of contract, contract duration, etc.

You also need to consider that you have provided adequate information to understand the relationship between the disaggregation revenue and segment revenue disclosed under AASB 8 Operating Segments.

Transitional Disclosures

AASB 15 provides a choice between full retrospective adoption and adoption from ‘a date of initial application’ (modified retrospective approach) with an adjustment to equity reflecting the change in net assets arising at that date. Whereas, AASB 9, in general, requires a retrospective application only. When their effect is significant, disclosure of how an entity has applied the relevant choices would be appropriate.

In addition, when comparative information will be changed in the upcoming annual financial report due to retrospective application of AASB 9 or AASB 15 (if that option is chosen), the comparative information provided in the interim half year financial report should likewise be restated with appropriate, quantitative disclosure and explanation of those changes.

What to do?

As you can see from the matters highlighted above, there are a number of disclosure matters that you need to consider in relation to their impact on the interim half-year financial report. Please do not hesitate to contact your local PKF representative to discuss any queries or further clarifications that you may have.