be informed about the - institute of public accountants · ethical issues affecting you and your...

Be Informed About the Latest Reporting and

Ethical Issues Affecting You and Your Clients

Sonya Sinclair

Eco Risk & Consulting

Agenda

• Financial reporting update:› AASB 15 Revenue from contracts with customers› NFP AASB 15 and AASB 1058 Income of NFP entities› AASB 16 Leases

• ACNC Update

• Ethical Code› NOCLAR

• Auditing update

AASB 15 Revenue from contracts with customers

• Core principle: an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

• Effective date for For-profit entities - annual reporting periods commencing on or after 1 January 2018

• Effective date for NFP entities - annual reporting periods commencing on or after 1 January 2019

5 step model

Identify the contract with a

customer

Identify the performance obligations

Determine the transaction

price

Allocate the transaction price to the

performance obligations

Recognise revenue when

(or as) the performance obligation is

satisfied

Identify performance obligations

• Correct identification of performance obligations is crucial

• Performance obligation is a promise in a contract with a customer to transfer to the customer either:› A single good or service (or bundle of goods or services) that is

distinct or

› A series of distinct goods or services that are substantially the same and have the same pattern of transfer.

Variable consideration

• Estimate the amount the entity expects to receive

• Transaction price must reflect the effects of variable consideration (including consideration of the constraint)

• Why can consideration vary?• Discounts • Rebates

• Refunds • Credits

• Price concessions • Incentives

• Performance bonuses • Penalties

• Contingent events (e.g. right to receive variable bonuses)

NFP specific standards

AASB 1058 Income of Not-for-profit entities

• Consideration to acquire an asset is significantly less than the fair value of the asset principally to enable an entity to further its objectives

• AASB 15 applies where the contract is enforceable and performance obligations are sufficiently specific

• AASB 1058 applies if criteria for AASB 15 are not met

Enforceable and sufficiently specific

Enforceable

• Legal or equivalent means

• Ability to enforce

• E.g.

• Refund

• Right to enforce or claim damages

• Right to assets

Sufficiently specific performance obligations

• Require judgement –implicit or explicit

• Consider:

• Nature or type

• Cost or value

• Quantity

• Time period (not enough on its own)

Three party relationship

• Customer – party that promises consideration in exchange for goods or services

• Customer may direct goods or services to be provided to third party beneficiaries on their behalf.

Government NFP service

providerCommunity

at large

AASB 16 Leases – why?

• Leases are a significant part of an entity’s financing strategy –listed companies using IFRS or US GAAP are estimated to have around US$3.3 trillion of leasing commitments.

Over 85% of the commitments do not appear on today’s balance sheets

• Difficult for investors and other users of financial statements to:› Get an accurate picture of an entity’s leased assets and liabilities› Compare entities that lease with those that buy › Estimate the amount of ‘off balance-sheet’ obligations

AASB 16 Leases

• Changes to lessor accountingNo significant changes

Operation v finance lease classification remains

• Changes to lessee accountingFormer operating leases capitalised

Impacts balance sheet

Leased Financial

Assets Liabilities

New definition

A lease is a contract or part of a contract that conveys the right to control the use of an identified asset for a period of

time in exchange for consideration

Contract is or contains a lease

Contract does not contain a leaseDoes the lessee obtain all economic benefits from the use of the asset?

Does the lessee direct the use of the asset?

Is there an identified asset?No

No

No

Yes

Yes

Yes

Lessee AccountingAASB 117

Finance Lease Operating Lease

Balance Sheet • Asset

• Liability

Recorded at fair value of

the minimum lease

payments

No entries

Profit and Loss and other comprehensive income

• Interest expense

• Depreciation

Rental expense

AASB 16 Fundamental Principle

All leases on statement of financial position (balance sheet)Two exceptions

Income statement

Interest and depreciation

expense

Impairment of right-of-use asset

Variable lease payment not

dependent on an index

Balance sheet

Right to use asset

(tangible)

Lease liability

Two optional exceptions from recording leases

Account for leases similar to current operating leases – with lease payments recognised as an expense on a straight-line basis over lease term,

Short term leases

Low value assets

Statement of cash flows impact

• Remove cash flows relating to rent expense

• Include principal component of lease payments

Operating cash flows

Financing cash flows

Interest component of the lease payments can be included in either operating or financing cash flows

Integrated Reporting

• IFAC and the IIRC have released Creating Value for SMEsthrough Integrated Thinking: The Benefits of Integrated Reporting

• Incorporates appropriate material sustainability information equally alongside financial information provides reporting organisations with a broad perspective on risk

Climate change risk

Corporate Social

Responsibility

Sustainable businesses

ACNC Activities

ACNC activities – report once

• A key objective is to promote the reduction of unnecessary regulatory obligations on the Australian not-for-profit sector:› ACT - exempts charities from duplicate reporting obligations for

incorporated associations, from 1 July 2017› NSW – Office of Fair Trading indicated their support for

harmonising reporting requirements, beginning in 2018› NT - discussions with regards to exempting charities from

association reports› The Victorian Government passed the Consumer Acts

Amendment Act in May 2017 that will allow the Minister to exempt certain ACNC charities from reporting directly to Consumer Affairs Victoria

ACNC activities

• New ACNC toolkit to help connect MPs and charities

• Charity status revoked for ‘3’organisations following investigations into their activities and operations

• ‘86’ charities lose their registration for failing to report

• Must comply with the governance standards

• New guidance on board remuneration

• EU’s are made public on the ACNC website

ACNC webinars

• The ACNC and the ATO - charity tax concessions and endorsement

• Staying out of trouble - avoiding charity pitfalls

• Charities and fundraising: Issues and risks

• Welcome to the board: Information for new charity board members

Responding to Non-Compliance with Laws and Regulations (NOCLAR)

NOCLAR

• Applies to all accountants

• Effective 1 January 2018

• Why?› ‘The standard reinforces the public interest role that professional

accountants play in stimulating more trustworthy and accountable organisations, and in helping to protect stakeholders and the general public from substantial harm that may stem from breaches of laws and regulations.’

• Permits accountants to set aside the principle of confidentiality where illegal acts are suspected

• Draft legislation released on whistleblower laws

Key principle

Acts of omission or commission, intentional or unintentional, committed by a client, or by those charged with governance, by management or by other individuals working for or under the direction of a client which are contrary to the prevailing laws or regulations

• Fraud, corruption, bribery

• Money laundering, terrorist financing, proceeds of crime

• Securities markets and trading

• Banking, other financial products and services

• Data protection

• Tax and pension liabilities and payments

• Environmental protection

• Public health and safety

NOCLAR Objective

• Comply with fundamental principles• Integrity

• Professional behaviour

• Alerting client or employing entity• Rectify. remediate, mitigate

• Deter

• Further action in public interest

Real life examplesFraud, corruption and bribery

• Sundance Resources Limited and the Congo

• Note Printing Australia (Securency)

• 7-Eleven – wage fraud

Money laundering

• AUSTRAC v Tabcorp (Federal Court)

Environmental protection

• BHP Billiton and Brazil Mine disaster

Public health and safety

• Volkswagen and diesel emissions scandal

Key laws

The professional accountant needs to be and become familiar with key laws and regulations such as:• AML/CTF Act 2006 (Austrac)• Commonwealth Criminal Code 1995 (Division 70 – foreign

bribery; Part 10.9 false accounting) (CDPP)• Consumer and Competition Act 2010 (ACCC) • Corporations Act 2001 (ASIC)• Environmental Protection legislation• Fair Work Act 2009• Occupational Health and Safety legislation• Privacy Act 1988 (OAIC)

Other changes

• Restructuring of the Code

• Changes to auditor rotation requirements for public interest entities. The “cooling off” period for engagement partners has been increased to five years, engagement quality control review partners to three years, and two years for key audit partners

• Proposed revisions to the existing APES 325 Risk Management for Firms

• Proposed Revisions to the Code Pertaining to the Offering and Accepting of Inducements – a new ED from IESBA, impacting the profession’s International Code of Ethics

Auditing Update

• NOCLAR - ASA 250 Considerations of Laws and Regulations in an Audit of a Financial Report has been revised as a result of the IESBA Code

• ED ASAE 3500 Performance Engagements

• ISA 540 – proposed revision to auditing accounting estimates and related disclosures

• IAASB - Enhancing Audit Quality in the Public Interest: A Focus on Professional Scepticism, Quality Control and Group Audits

Audit report but much more

• First section ‘Opinion’• Followed up ‘Basis of opinion’

• Auditing standards• Refers to section on auditor’s

responsibility• Independent• Audit evidence

• Going concern (570)• KAMs (701) (for some) • Responsibilities the Financial

Statement• Management • Going concern (new) • TCWG

Sonya SinclairEco Risk & Consulting

0415 270 247sonya@ecorac.com.au

• Audit, ethics, superannuation and accounting

• Financial and Non-financial reporting

• Environmental auditor

• Clean Energy Regulator Inspector

• Quality Assurance Reviewer

• Assisting accountancy practices to improve their quality control, risk management and ability to deliver a high quality service

Visit www.reportfraud.org.au for whistleblowing service on fraud and NOCLAR, and quarterly newsletter

If you see something, say

something

andrew@gaap.com.au

Subscribe to newsletter –www.gaap.com.au

• Technical assistance • Queries

• Pre-issuance reviews

• Monthly newsletter – ‘GAAP Alert’

• LinkedIn – articles and updates

• Twitter – over 3400 tweets

• Qrt ‘NFP Risks and Compliance’ information service

• Special GAAP Reports• 30 June 2017

• Revenue

• New audit reporting requirements

• Leases

• Financial instruments (coming)

• NOCLAR (coming)