Lessons to be learnt from 2020 for 2021 in regards to new accounting standards

By Hayley Keagan

21 January 2021

2020 was a big year for financial reporting, mostly influenced by COVID-19, but with some other significant changes thrown into the mix. While it has been challenging, hopefully we have taken some lessons away and have grown from the experience. Here is a recap on the areas of accounting that challenged us for 2020:

 

With a large number of issues encountered by accountants this year, it is impressive to see accountants from all disciplines tackle the challenges and build resilience in such a difficult climate. I am excited to see what 2021 brings and hope it brings a few less bumps in the road!

Challenge

Key Takeaways

COVID-19 as it applied to accounting

Lockdowns and forced business closures compelled us to take a closer look at solvency and going concern requirements in an economic climate riddled with uncertainty. We welcomed regulatory relief of extensions for reporting dates, AGMs and insolvency safe harbour, as well as many forms of stimulus and support from the government, keeping us on our toes with reporting requirements.

 

 

This enormous relief for businesses came with unexpected complexities. It provided a refresher on impairment and asset value requirements, which will be helpful as we continue to navigate our way through the recession. 

 

https://www.pkf.com.au/blog/2020/covid-19-impact-on-asset-impairments/

AASB 16: Leases operational

Changes to lease accounting had been on the horizon since January 2016, but challenges were still encountered during the transition to the new requirements. Our familiarity with accounting for finance leases allowed us to underestimate the complexities of operating leases, including variance payments, options for extensions, incentives, undocumented or implied terms and interest rates that were not always explicit.

 

Most transitions focused on the day one accounting compliance and often overlooked the continuing requirements, including lease modifications.

 

With 3 years to prepare there were still many troubles encountered, however this gave businesses the opportunity to learn and become proactive for future accounting standard changes. It also highlighted the importance of remaining versed in lease modification requirements going forward, and ensuring the software or lease calculation tool is capable of handling these modifications.

 

 

Non-genuine casual

The Workpac vs Rosato case, occurring right before the end of financial year, forced us to revisit our interpretation of the definition of the casual workforce and the potential related entitlements to leave benefits. The change in requirements needed to be addressed immediately, where businesses with casual workforces had to apply the interpretation to their existing policies and assess the similarities of their employment conditions against the facts of the case.

 

 

 

While the case is now being appealed and the interpretation may change, the definition currently still applies. This means that if casual workers are engaged under similar circumstances to the case, the employer needs to consider including a contingent liability for leave entitlements for the casual workers, or in some circumstances recognising a leave provision on the balance sheet.

It was an interesting case to consider given the way the interpretation interacted with existing standards. It shows a need for us to remain agile for last minute changes that may catch us by surprise.

https://www.pkf.com.au/blog/2020/casual-employees-and-leave-to-disclose-or-not-to-disclose/

 

SPFS removal was approved

The long awaited (or too quick for some!) removal of Special Purpose Financial Reports for for-profit entities was approved to commence from 1 July 2021. This landmark decision will see financial reporting reform for many large private companies, particularly those who previously hid behind the non-reporting entity basis for not preparing consolidated financial statements.

 

Most businesses appear to be waiting until the mandatory transition date which based on past practice is the norm as we move into new requirements. Keep in mind that waiting until the last minute to transition will lose the opportunity  for transition relief.

https://www.pkf.com.au/blog/2019/riding-the-rollercoaster-of-financial-reporting-reform-in-australia/