New accounting standards for for-profits

computer-screen-web

The effective dates of three new accounting standards are fast approaching; these standards are referred to as NZ IFRS 9 Financial Instruments, NZ IFRS 15 Revenue from Contracts with Customers, and NZ IFRS 16 Leases.

These new standards will bring significant changes to how these items are recognised and disclosed in a for-profit entity’s financial statements. We have summarised the changes below. We recommend reading the International Organisation of Securities Commissions’ Statement on Implementation of New Accounting Standards and discussing with your accountant how these changes will impact you.

 

NZ IFRS 9 Financial Instruments – effective periods beginning 1 January 2018

This standard specifies the requirements for recognising and measuring financial assets, financial liabilities, and some contracts to buy or sell non-financial items.

It introduces changes as to how financial assets are measured on an ongoing basis to align with the asset’s cash flow characteristics and the business model in which the asset is held.

The standard will affect hedge accounting, investment impairment assessments, bad debt provisions, and financial statement disclosures.

 

NZ IFRS 16 Leases – effective periods beginning 1 January 2019

The new leases standard changes the previous lease accounting model in that a lessee will now show assets and liabilities arising from its leases on its balance sheet. Accounting for lessors is unchanged.

A lessee is to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognise a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments.

 

NZ IFRS 15 Revenue from Contracts with Customers – effective periods beginning 1 January 2018

This standard will provide a single source of requirements for accounting for all contracts with customers (except for some specific exceptions, such as lease contracts and insurance contracts) and will replace all current accounting pronouncements on revenue. As a result, this standard could significantly change an entity’s timing for its recognition of revenue.

The new Standard requires entities to adopt a five-step model for recognising revenue from contracts with customers:

New accounting standards

Published May 2017

Serious about your success?