New IFRS requirements are just around the corner – is your company ready? Here is a quick overview of the upcoming changes to IFRS 9, IFRS 15 and IFRS 16.
IFRS 9 – Financial Instruments
What is IFRS 9?
- Replaces IAS 39 Financial Instruments: Recognition and Measurement
- Includes requirements for recognition and measurement, impairment, derecognition and general hedge accounting
- Effective for periods beginning on or after Jan 1, 2018; early adoption permitted
Why is it Important?
- New methodology for the classification of financial instruments, and an expected loss model replaces the current incurred loss model
- New hedge accounting requirements
- Even non-financial institutions (with financial instruments exposure) would also need to consider the changes arising from IFRS 9
- Volume of data and process changes needed for accounting and disclosure purposes will drive further resource requirements in areas of treasury, financial control, risk management, and IT
IFRS 15 – Revenue from Contracts with Customers
What is IFRS 15?
- Replaces and supersedes IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfer of Assets from Customers, SIC-31 Revenue – Barter Transactions Involving Advertising Services
- Specifies a single, principles-based five-step model for recognizing revenue
- Issued in May 2014 and applies to annual reporting period commencing on or after January 1, 2018 (new effective date); early adoption permitted
Why is it Important?
- Revenue recognition changes will affect certain industries more drastically, including: consumer products, industrial products, retail, wholesale and distribution, real estate, media, technology, telecommunications, and mining
- Revenue previously recognized over a period of time may need to be recognized at a point in time, or vice-versa
- Challenges to implementation include:
- Impact on KPIs and resulting adjustment of management reporting;
- Identification of existing contracts and performance obligations;
- Effects of covenants;
- Earnings volatility and transparency in communication to stakeholders;
- Impact on internal control system;
- Process-level changes for tracking vital financial information;
- Training sessions;
- Analysis of IT change requirements;
- And pricing strategies, to name a few.
IFRS 16 – Leases
What is IFRS 16?
- Replaces IAS 17 Leases
- Provides a single lessee accounting model requiring recognition of assets and liabilities associated with lease arrangements
- Does not affect lease terms under 12 months or if the underlying asset has a low value
- Issued in January 2016 and applies to reporting periods beginning on or after Jan 1, 2019
- Lessees can choose either a full retrospective approach or a modified retrospective approach
Why is it Important?
- Lessor accounting remains substantially unchanged as compared to IAS 17, however, lessee accounting for leases drastically changes
- Nearly every company uses rentals or leasing as a means of obtaining access to assets; this will now require recognition and classification
- Eliminates off-balance-sheet accounting for lessees and will impact KPIs
With the help of specialized candidates, you can mitigate compliance risks and ensure that your internal policies, procedures and IT systems are ready to support the new IFRS requirements. Lannick Finance & Accounting represents Toronto’s top accounting professionals with IFRS 9, IFRS 15 and IFRS 16 experience. Click here to learn how we can help.
