Impact of new accounting standards on proposed transactions
Corporate News - 10 May 2018
As most will be aware, three major new accounting standards will soon begin to apply (and in some cases already apply) to financial statements prepared by Australian companies:
- AASB 15 Revenue from Contracts with Customers and AASB 9 Financial Instruments have already begun to apply for December 2018 financial years; and
- AASB 16 Leases will begin to apply for December 2019 financial years.
For some companies, these new accounting standards will have a major impact on:
- how and when they recognise revenue;
- how they report on the value of financial assets and liabilities they hold; and
- how they report on lease arrangements.
These changes will impact on the presentation of financial information for affected companies in fundraising and other transaction documents, as well as in their periodic financial reports.
ASIC has issued various reminders to companies which are affected by the new changes. In particular, ASIC has stated that it expects affected companies to:
- determine whether and how the new standards will impact on their future report, and develop implementation plans;
- identity system, process, and any associated internal control changes needed to produce information required under the new standards, including related disclosures;
- provide required disclosure in the notes to financial statements prior to the effective date of the new standards regarding known or reasonably estimable information relevant to assessing the possible impact that adoption of the new standards will have on their future financial statements.
- provide adequate information to the market on their preparedness and the possible financial impact in accordance with any continuous disclosure obligations; and
- provide appropriate disclosure of the future impact of the new standards in fundraising and other transaction documents.
For clients considering potential fundraising, M&A or other transactions, careful consideration will need to be given in presenting historical and forecast financial information in the fundraising and other transaction documents (including scheme booklets and bidder’s/target’s statements) to ensure that:
- historical and forecast financial information is presented on a consistent basis;
- readers understand the impact of the new standards on the presented historical and forecast financial information; and
- all key assumptions made when applying the new standards to forecast financial information are properly disclosed.
These matters also apply to presentation of historical and forecast financial information in periodic financial reports.
If they haven’t already, we encourage our clients to speak to their auditors to ensure they properly understand the impact of these new standards on their financial reporting obligations, and have proper systems and processes in place to manage the transition.
For clients considering potential IPOs and backdoor listings (and any other fundraising, M&A or other transaction which will require presentation of financial information), we recommend that early consideration is given to the impact of the new standards on the financial information to be presented in connection with the transaction. In particular, to ensure that the extra time which may be required to prepare re-stated financial statements is built into the transaction timeline.