Written by: Ashley Goldsmith, Product Manager (Accounts)
The 31st December 2018 is a significant date for all entities reporting under either IFRS or FRS 101 as both IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers become mandatory.
Both standards are mandatory if your accounting period commences on or after 1st January 2018, so some entities with shorter accounting periods may already be incorporating the changes into their financial statements – as well as any entities who chose to early adopt either or both of the new standards.
IFRS 9 – the changes
IFRS 9 replaces IAS 39 Financial Instruments and it lays out the accounting requirements for financial instruments including classifications and measurement, impairment and hedge accounting.
The vast majority of entities will be effected by the changes, but the greatest effect will doubtlessly be on financial institutions. Of these changes, the new “expected loan loss model” (which replaces the “incurred loan loss model” of IAS 39) is likely to be one of the most significant. The effect of the new model will be to increase loan loss provisions and will provide investors with useful information on changes in credit risk exposure.
IFRS 15 – the changes
IFRS 15 replaces IAS 18 Revenue and IAS 11 Construction Contracts. It governs how and when to recognise revenue and aims to increase comparability amongst companies across sectors.
This change is likely to be far more wide-reaching as nearly all entities obtain revenue from contracts with customers of some kind.
The new standard introduces a 5-step model for measuring revenue from contracts with customers:
1. Identify the contract or contracts with the customer;
2. Identify the separate performance obligations;
3. Determine the transaction price;
4. Allocate the transaction price;
5. Recognise revenue when or as an entity satisfies performance obligations
The Transition options
In the year of transition, preparers have two options for each standard. You can choose between the traditional method of restating your prior year figures under the new standards (and of course re-measuring your current year figures to do likewise); or you can apply purely at the date of transition – effectively restating your current year brought forward position and leaving the prior year untouched.
How does CaseWare assist with the new requirements?
In order to cater for the reporting requirements in the most efficient manner, we have added a host of new mapping numbers to our templates in order to automate the disclosures within the financial statements, in accordance with IFRS 9 and 15.
We allow users to choose their preferred transition option for each standard and the mapping codes introduced will drive the applicable disclosures.
There are several new notes introduced to the template, such as “Contact assets”, “Contract costs” and Contract liabilities” – all of which are required under IFRS 15. There are also new sections within the “Basis of preparation” accounting policy to deal with the first time adoption of the new standards.
The new mapping codes will also populate multiple additional rows within existing notes and disclosures within accounting policies - with new help text located throughout the template to assist users in understanding how to cater for the reporting changes.
Safeguards are also built in to restrict FRS 102 reporters from erroneously using the new mappings and disclosures within their financial statements. Similarly, the new disclosures will also only automate for periods commencing on or after 1st January 2018, meaning that those entities who are still finalising their financial statements for periods commencing prior to this date can do so without unwanted disclosures appearing.
The changes for IFRS 9 and IFRS 15 will be available to all AccountsAdvanced template users by the end of January 2019.
*These are the opinions of CaseWare Product Managers to provide information and insight to our products and should not be considered as a replacement to statutory guidance.