It is no secret that for for-profit entities there a three new, significant, accounting standards that are now effective (or will be very shortly) - accounting firms, including BDO, have issued a multitude of publications and public commentary in recent years.
The new revenue and financial instrument standards became effective from 1 January this year (NZ IFRS 15 and NZ IFRS 9), and the new lease standard from 1 January next year (NZ IFRS 16). A summary of these was provided in another blog.
For those for-profit organisations yet to embark on assessing the impact (if any) of these standards to their business the questions we usually get asked are “What do I have to do, and how do I do it”.
Who needs to consider the impact of these new accounting standards?
As already mentioned above, the accounting standards only impact for-profit entities – however it is expected similar accounting standards will eventually be released on the public sector and not-for-profit side of the world.
Obviously, any for-profit entity who applies NZ IFRS (NZ GAAP) is automatically scoped in.
However, as discussed in an BDO’s March 2018 edition of Accounting Alert, small for-profit entities currently preparing special purpose financial statements (SPFR) will still need to assess the impact of these standards to determine whether there application would result in them breaching the revenue or asset thresholds that would make them “large”, and push them into NZ IFRS.
In particular the impact of the new lease standard (which brings most leases on balance sheet resulting in more assets) and the new revenue standard (which may result in changes in the amount and timing of revenue recognition) is key.
So what needs to be done?
The first step is to obtain an understanding of the new accounting standards themselves, which can be done by obviously reading the standards and the various published guidance, but might also include engaging outside experts to provide a high-level summary of the potential impacts to the organisation.
From there, the approach really depends on the nature of the balances and transactions that an organisation has.
In some areas, only a high-level qualitative assessment will be necessary, in other areas an organisation may need to get right down into the “nitty gritty” in order to really evaluate and determine the full extent and quantum of the impact.
In reality, the impact of the new revenue standard requires (in part) a detailed review of an organisations contracts with its customers, likewise the quantum of the impact of the new lease standard requires the crunching of data, and the making of estimates and judgements across an organisations lease portfolio.
Also, for those organisations with an external audit requirement, their auditor will require documentation and support to be provided as audit evidence for the financial year that the new standard(s) are adopted.
Where can BDO step in and assist
We have been in your shoes.
Our team has first-hand experience in both planning an initiating impact assessments in a corporate capacity and also advised organisations through the process in a professional capacity.
The key point to note is that there is no one “silver bullet” that will give a quick and simple determination of the full extent of the impact.
The new standards are large, and have a lot of intricacies and “fish hooks”.
However, to combat this BDO has developed a suite of fully customisable impact assessment approaches that can be provided to organisations, from a full end-to-end impact assessment and implementation, to an initial “soft touch” scoping approach that can be subsequently expanded upon if and when required.
Read more about the impact assessment services we provide.
We look forward to hearing from you to discuss how we might assist your organisation with its impact assessments with respect to these new financial standards.