Bentleys Financial Reporting Update

Financial Reporting Specialists
www.frsgroup.com.au
FINANCIAL REPORTING
UPDATE 2016
Technical Training Series
June 2016

June 2016
Financial Reporting Update 2016
Today’s Presenters
Andrea Betti
Senior Manager, Corporate
Advisory @ Bentleys
Vik Bhandari
Director @ Financial Reporting
Specialists (FRS)

June 2016
• Changes for 30 June 2016 Financial Reporting
• AASB 9 Financial Instruments
• AASB 15 Revenue
• AASB 16 Leases
• Regulatory Update
• ASX Admission Requirements Update
• ASIC Focus of attention
• ASIC Areas where companies have been forced to update their accounts
• Tax changes effecting financial reporting: reducing tax rates and significant foreign entities
• Changes from 1 July 2016
• Changes to the New Audit Report
• Wrap up and questions
TODAY’S AGENDA

June 2016
Changes for 30 June 2016 Financial Reporting
Application Date
 AASB 2015-4 Financial Reporting requirements for Groups with
a Foreign Parent
1 July 2015
 AASB 2015-3 Amendments arising from the withdrawal of
AASB 1031 Materiality
1 July 2015

June 2016
Measuring employee benefits (AASB 119)
• Present value long-term employee benefits
• Government bond rate vs high quality corporate bond rate:
• Use market yields at reporting date on high quality corporate bonds where a
deep market in such bonds exists
• If no deep market exists – use market yields on government bonds
• NFP public sector entities must still use government bond rates
• The currency and term of the bond shall be consistent with the
currency and estimated payment term of the benefit
• Refer to www.au.milliman.com/G100_Discount_Rates/ for rates

June 2016
Financial Instruments
AASB 139 Categories for Financial Assets (a recap)
Category Characteristics Measurement basis
Loans and receivables Non-Derivative, fixed – determinable payments, not
quoted
Amortised cost – effective
interest method
Held to maturity
investments
Fixed – determinable payments, fixed maturity, entity
intends to hold
Amortised cost – effective
interest method
Held at Fair value
through profit or loss
(FVTPL)
Held for trading, derivatives, contingent consideration
on business combination, designated on initial
recognition if allowed
Fair value through profit or loss
Available-for-sale (AFS) Designated as AFS on initial recognition, default
category
Fair value through Other
Comprehensive Income (OCI)

June 2016
AASB 139 Categories for Financial Liabilities (a recap)
Category Characteristics Measurement basis
Amortised cost Those not classified at FVTPL Amortised Cost
Held at Fair value
through profit or loss
(FVTPL)
Held for trading, derivatives, contingent consideration
on business combination, designated on initial
recognition if allowed
Fair value through profit or loss

June 2016
AASB 139 Financial Instruments:
Recognition and Measurement
AASB 9 Financial Instruments
(applicable from 1 January 2018 – early adoption
available)

June 2016
AASB 9 - Financial Instruments
Early Adoption of AASB 9 – Benefits
• Simplification of the classification and measurement of financial assets
• No change to financial liabilities except for FVTPL where FV change
attributable to own credit risk presented in OCI
• Easier to achieve hedge accounting to reflect risk management in
financial statements
- 80-125% effectiveness testing has been removed
- Retrospective effectiveness tests not required
• Impairment of financial assets is based on an expected loss model
(instead of incurred loss model)

June 2016
Classification of financial instruments
AASB 9 Financial assets are classified under the following headings:
1. Fair value through profit or loss (FVTPL) (debt, derivatives and equity
instruments)
2. Debt instruments at fair value through other comprehensive income
(FVTOCI) – recycling gains/losses through P&L on derecognition
3. Equity instruments at fair value through other comprehensive income
(FVTOCI) – no recycling gains/losses through P&L on derecognition
4. Debt instruments at amortised cost
CATEGORIES GONE
- Loans and receivables
- Held to maturity
- Available for sale
MEASUREMENT GONE
- Unquoted investments
at cost

June 2016
AASB 9 – Financial Asset Measurement Categories
Financial assets are categorised on the basis of the following:
Entity’s business model
for managing financial
assets
Contractual cash flow
characteristics of the
financial assets
AND
Business Model Test Cash Flows Test
13

June 2016
Business model
test
Contractual cash
flow testAND
Is FA held within a business model whose
objective is to hold assets in order to
collect contractual cash flows?
Do contractual terms of the asset give rise
on specified dates to cash flows that are
solely payments of principal and interest ?
Measure at amortised cost -
Contractual cash flows are relatively
more stable therefore amortised
cost is more informative for users.
YES YES
14

June 2016
Business model
test
Contractual cash
flow testAND
Is FA held within a business model
whose objective is to hold assets in
order to collect contractual cash
flows?
Do contractual terms of the asset give rise
on specified dates to cash flows that are
solely payments of principal and interest ?
Measure at FVTOCI – The
objectives of the business model
are to both collect contractual cash
flows and sell financial assets (e.g.
to manage liquidity).
PARTLY YES
15

June 2016
Is FA held within a business model
whose objective is to hold assets in
order to collect contractual cash
flows?
• The business model is determined at a level
that reflects how groups of financial assets
are managed together to achieve a particular
business outcome
• Not an instrument by instrument approach
• Not necessarily at a reporting entity level
• Reflects how it manages groups of similar
assets within entity
16

June 2016
Investments in Equity Instruments
• An entity may designate an investment in an equity instrument at fair value through
OCI, provided that:
• the equity instrument is not held for trading or a puttable instrument; and
• it makes an irrevocable designation regarding the instrument at the time of the instrument’s
initial recognition.
• Dividends that are a return on the instrument in P/L
• No ‘recycling’ of gains in OCI to P/L
• No impairment testing required
17

June 2016
Where financial assets do not
meet both tests (e.g. held for
trading instruments)
Measure at fair value through
profit or loss (FVTPL)
Cash flows are highly variable
or arise from trading
operations. (Current values are
more informative for users)
All other financial assets
May also measure an asset as at FVTPL (despite meeting amortised cost criteria) if doing
so would avoid an accounting mismatch
18

June 2016
Reclassification of financial assets
• For financial assets, reclassification is required between FVTPL and amortised
cost, or vice versa, if and only if the entity’s business model objective for its
financial assets changes so that its previous model assessment no longer applies.
• If reclassification is appropriate, it must be done prospectively from the
reclassification date. An entity does not restate any previously recognised gains,
losses or interest
• AASB 9 does not allow reclassification where the:
 OCI option has been exercised for a financial asset; or
 fair value option has been exercised in any circumstance for a financial asset or
financial liability.

June 2016
• Where credit risk on the asset has increased significantly since initial recognition,
measure loss allowance at the ‘lifetime expected credit losses’
• Where credit risk on the asset has not increased significantly since initial recognition,
measure loss allowance at ‘12 month expected credit losses’
• Need to reassess credit risk at each reporting date and adjust calculation if needed
• Where default occurs, a credit adjusted effective interest rate is used
• If repayments overdue > 30 days, rebuttable presumption that risk has increased
significantly
Impairment – Expected credit losses (‘ECL’)

June 2016
Expected credit losses reflect:
• Probability weighted amount determined by evaluating a range of
possibilities
• Time value of money
• Reasonable and supportable information available about past
events, current conditions, forecasts of future conditions
Impairment – Expected credit losses (‘ECL’)

June 2016
New hedge accounting rules
Aim: Financial reports will more accurately reflect how an entity manages its risk
extent to which hedging mitigates those risks
• Replaced the 80-125% hedge effectiveness test with an objectives-based test
• Can designate non-financial items as the hedged risk provided the risk component is
separately identifiable and measurable
• Time value of option, forward element of a forward contract and foreign currency
basis spread can be excluded from the hedging instrument designation and treated
as a transaction cost
• More groups of items can be designated as hedged item
• More extensive disclosures

June 2016
AASB 9 – Other Changes from AASB 139 for Financial Assets
• Hybrid contracts with hosts that are financial assets are not separated and are
categorised in accordance with the categorisation criteria in their entirety (no
change to accounting for hybrid contracts with hosts that are financial liabilities or a
non-financial item)
• With respect to investments in equity instruments that are not held for trading, an
entity can, subject to meeting certain criteria, elect at initial recognition to:
• measure the equity instruments at fair value but recognise all fair value
remeasurements in OCI (no ‘recyclying’ of gains and losses from OCI to P/L
permitted); and
• recognise dividends that are a return on such investments in P/L
23

June 2016
Revenue Recognition
Objective
• prescribes accounting treatment (recognition, measurement and
disclosure) of revenue from certain transactions (in particular – ‘when’ to
recognise)
Covers
• sale of goods; rendering of services; interest – charges for the use of cash or cash
equivalents; royalties – charges for the use of long-term assets (patents,
trademarks, copyrights, software); dividends – distributions of profits to equity
holders
Excludes
• government assistance; revenue from ‘construction contracts’; revenues from
leases; dividends from equity accounted investments; revenue from insurance
contracts; FV movements in financial instruments; agricultural assets; extraction
revenues
AASB 118: Revenue (current standard – quick refresher)

June 2016
Revenues from sale of goods – recognition criteria under AASB 118
Significant risks and rewards of ownership transferred to buyer
Vendor has no continuing managerial involvement (normally
associated with ownership) and no effective control over goods
Amount of revenue reliably measureable
Probable that economic benefits associated with transaction will
flow to vendor
Costs incurred and/or costs to be incurred reliably measureable
Revenue Recognition

June 2016
Revenues from rendering of services – recognition criteria under AASB 118
2
7
Amount of revenue can be measured reliably
Probable that economic benefits will flow to vendor
Stage of completion can be reliably measured
Costs incurred and/or costs to be incurred reliably
measureable
Revenue Recognition

June 2016
• Amount of revenue is the FAIR VALUE of the consideration received or
receivable
• Make allowance for trade discounts and volume rebates
Example: On 1 July 2016, ABC Ltd sells a property for $1m. The $1m amount is payable by 30 June 2018.
What revenue does ABC recognise?
Sale to ABC
Period Receipts
1-Jul-16 0 -$
30-Jun-17 1 -$
30-Jun-18 2 1,000,000$
FV 839,619$
Implicit discount rate is that
equivalent to similar
financial instruments in
market, say 6%
Revenue Recognition

June 2016
AASB 111: Construction Contracts (current standard – quick
refresher)
Revenue Recognition
A construction contract is a contract specifically negotiated for the
construction of an asset or a combination of assets that are closely
interrelated or interdependent in terms of their design, technology and
function or their ultimate purpose or use

June 2016
refresher)
Revenue Recognition
Contract revenue
• Amount agreed upon in the contract
• Variations in the form of claims and incentives (to the extent that
receipt is probable)
Contract costs
Amounts that are attributable to contract activity and costs that are
otherwise specifically chargeable to customer

June 2016
refresher)
Revenue Recognition
Recognition
Recognise contract revenue and expenses
• when outcome of contract can be estimated reliably
• based on stage of completion of contract activity
• anticipated losses are recognised immediately
Revenue and expenses are reported based on proportion of work
completed

June 2016
refresher)
Revenue Recognition
Recognition
Stage of completion:
• Percentage of total costs reflecting work performed which have been
incurred to date to estimated total costs; or
• Surveys of work performed; or
• Physical completion.

June 2016
AASB 15 current developments
3
3
 Effective date deferred to 1 January 2018
 FASB proposing somewhat extensive amendments. IASB
making some changes
 Transition Resource Group (TRG) continues to discuss
implementation issues
 AICPA have 16 industry groups looking at implementation
issues. Industry groups include construction contractors,
software, asset management, telecommunications, etc
AASB 15 – Revenue from contracts with customers

June 2016
• Single model of revenue recognition, replacing:
• AASB 118 ‘Revenue’
• Interpretation 13 ‘Customer Loyalty Contracts’
• Interpretation 15 ‘Agreements for the Construction of Real Estate’
• Interpretation 18 ‘Transfers of Assets from Customers’
• Interpretation 131 ‘Revenue – Barter Transactions Involving Advertising
Services’
• Interpretation 1042 ‘ Subscriber Acquisition Costs in the Telecommunications
Industry’

June 2016
35
AASB 15 - Core principle
Recognise revenue to depict transfer of promised goods or
services to customers in amount that reflects consideration to
which entity expects to be entitled in exchange for those goods or
services

June 2016
Identify the contract(s) with the customer
Identify the performance obligations in the contract
Determine the transaction price
Allocate the transaction price to the performance obligations in the contract
Recognise revenue when (or as) the entity satisfies a performance obligation
5
AASB 15 – 5 step process
1
2
3
4
5

June 2016
Identify the contract(s) with the customer
5
1
2
3
4
5
• Is the contract enforceable?
• What are the terms and conditions?
• What are the economic objectives (the contract
must have commercial substance)
• What are the payment terms?

June 2016
5
2
2
3
4
5
The performance obligation is a promise to deliver a ‘distinct’ good or
service and represents the unit of account being accounted for.
What is “distinct”? Must satisfy both…
TEST 1
•Benefits test
TEST 2
•Separate identifiability test
Explained next
slides

June 2016
5
2
3
4
5
Is the good or service ‘distinct’?
TEST 1
• Benefits test
YES
NO
Prima facie it is a distinct good or
service
(However must satisfy Test 2 – see
next slide)
Bundle the goods and/or services
and re-test
PART A
Can the entity benefit from
the good or service on its
own? (OR)
PART B
Can the customer use the
good or service with readily
available resources?

June 2016
2
TEST 2
• Separate identifiability
test
YES
NO
Bundle the
goods / services
= Single
Performance
Obligation
Individual G/S is
separate
performance
obligation
Factors to consider include:-
Part A – Does the
entity need to
integrate the G/S to
produce or deliver a
combined output so
that the customer
can benefit from it?
Part B – Does the G/S
significantly modify /
customise another
good or service in the
contract?
Part C – Is the G/S
highly dependent
on/interrelated with,
other G/S promised
in the contract.

June 2016
Additional information
1. Pinnacle is one of a number of
entities that supply each of
these goods/services
separately
2. Installation relates to fitting of
units
EXAMPLE 1
EXAMPLE 1

June 2016
5
2
3
4
5
TEST 1
• Benefits test
YES
Prima facie it is a distinct good or
service
(However must satisfy Test 2)
PART A
Can the entity benefit from
the good or service on its
own? (OR)
PART B
Can the customer use the
good or service with readily
available resources?
EXAMPLE 1

June 2016
2
TEST 2
• Separate identifiability
test
NO
Individual good
or service is
separate
performance
obligation
Part A – Does the
entity need to
combined output so
that the customer can
benefit from it?
customise another
contract?
highly dependent
other G/S promised in
the contract.
EXAMPLE 1

June 2016
these services separately
2. Customisation is superficial
only
3. Updates enhance software but
not mandatory
EXAMPLE 2

June 2016
1st Test for distinct goods and
services
• Can customer use the good or
service on its own or together
with readily available resources?
What is ‘Distinct’ in Multiple Element Contracts?
Go to test 2
Contract requires.....
• supply the specific POS terminals
• customisation
• transfer the licence
• provide software hosting services
• provide unspecified updates
• supply helpdesk function as required
EXAMPLE 2

June 2016
Part A – Does the
entity need to
combined output so
that the customer
customise another
contract?
highly dependent
the contract..
• supply the specific POS terminals, customisation,
installation, 2 year licence, software hosting services,
supply helpdesk function
EXAMPLE 2

June 2016
EXAMPLE 2

June 2016
these services separately
2. Customisation is significant
element of the installation
3. Updates enhance software but
not mandatory
EXAMPLE 2
EXAMPLE 3

June 2016
1st Test for distinct goods and
services
• Can customer use the good or
service on its own or together
with readily available resources?
Go to test 2
Contract requires.....
• supply the specific POS terminals
• customisation
• transfer the licence
• provide software hosting services
• provide unspecified updates
• supply helpdesk function as required
EXAMPLE 2
EXAMPLE 3

June 2016
Part A – Does the
entity need to
combined output so
that the customer
customise another
contract?
highly dependent
the contract..
• supply the specific POS terminals, significant customisation,
installation, provide software hosting services,
supply helpdesk function
EXAMPLE 1EXAMPLE 2
EXAMPLE 3

June 2016
EXAMPLE 2
EXAMPLE 3

June 2016
AASB 15 and Construction Contracts
Revenue Recognition
Example
Pinnacle Constructions Ltd (PCL) sells home and land
packages. It is currently building its off-the-plan ‘Kingston’
house and has just entered into a Contract of Sale with Mr X.
PCL has provided a number of different trades to date.
When should PCL recognise revenue?
Answer
Part A– Does the
entity need to
combined output so
that the customer
customise another good
or service in the
contract?
highly dependent
the contract..
Deem all different elements of
supply to be necessarily
integrated with each other.
Stage of completion method
allowable for overall contract

June 2016
AASB 15 and Construction Contracts
Revenue Recognition
If the entity cannot demonstrate the inter-
relationship between the elements, it may be
required to recognise revenue across multiple
performance obligations

June 2016
AASB 15 and Contracts for Delivery over Time
Revenue Recognition
Unlike AASB 111 dealing with construction
contracts, stage of completion accounting is not
the automatic accounting treatment – however, it
will be much more prevalent in the construction
industry
Where goods and services are delivered over time
(e.g. asset upgrades), more likely that revenue
will be recognised on a progressive basis

June 2016
5
The amount of consideration to which entity expects to be entitled in exchange for
satisfying performance obligation
Consider:
a) Contract Price
b) Variable consideration (discounts, bonuses, rebates, refunds, rights
of return etc)
o Expected value method
o Single most likely outcome
c) Time value of money
d) Non-cash consideration
e) Consideration payable to the customer

June 2016
5
Example of accounting for goods sold with right of return
ABC Ltd sells 1000 products to Customer X at $1 each. Total Sale $1,000
Question: How much does ABC expect to be entitled to?
Expects that 10% will be returned.
DR Receivable 1000
CR Sales revenue (900)
CR Refund Liability (100)
DR Product recoveries 50
CR Cost of Sales (50)
Sales Journal
Right to recover goods sold

June 2016
5
Example of assessing transaction price
ABC Ltd sells 1000 products to Customer X at $1 each on 12 March 2016. Total Sale $1,000. In June
2016, Customer X is placed into administration. Indications are that administrator will seek to settle
at 50 cents per $1. How much revenue should ABC recognise for period to 30 June 2016?
Question: How much does ABC expect to be entitled to?
12 March 2016 DR Receivable 1,000
CR Sales revenue (1,000)
30 June 2016 DR Sales revenue 500
CR Receivable (500)
Doubtful debts

June 2016
• Allocate transaction price across each performance obligation
• Use relative stand-alone selling price basis
- The stand-alone selling price is the price at which the
entity would sell the good or service separately to a
customer
- Refer to the market if information not readily available
• Allocate discounts to the relevant obligations

June 2016
Pinnacle Building Products Ltd INVOICE
PO Box 147, Collins Street West, Melbourne, 8007 DATE
Phone: (03) 9028 2377 1/03/2015
TERMS
Net 30 Days
ABC Commerical Constructions Pty Ltd xxxxx
xxxxx xxxxx
DESCRIPTION QTY UNIT PRICE AMOUNT
Recycled Road Base (units: m3
) 300 35.00 10,500.00
Brick Sand (units: m3
) 300 62.00 18,600.00
Subtotal 29,100.00
Prompt payment discount (10%) (2,910.00)
26,190.00
2,619.00
28,809.00$
SUBTOTAL
GST
TOTAL
INVOICE #
1980
CUSTOMER ID
777
BILL TO SHIP TO
AASB 15 issues
Standalone Selling prices
UNIT PRICE QTY Sales
25.30 300.00 7,590.00
62.00 300.00 18,600.00
26,190.00
Discount -
SUBTOTAL 26,190.00
GST 2,619.00
TOTAL 28,809.00$

June 2016
Recognise revenue when (or as) the entity satisfies a performance obligation5
• Performance obligations are satisfied as and when the entity transfers a
promised good or service to the customer (i.e. when the customer obtains
control of the benefit inherent in the good or service)
• For each performance obligation, determine whether it is satisfied over
time or at a point in time.
• Control means ability to direct the use of the asset and preventing others
from using and benefitting from the asset

June 2016
When does an entity transfer control of a good or service over time?
(a) the customer simultaneously receives and consumes the benefits provided by the entity’s
performance as the entity performs;
(b) the entity’s performance creates or enhances an asset (for example, work in progress) that the
customer controls as the asset is created or enhanced; or
(c) the entity’s performance does not create an asset with an alternative use to the entity and the
entity has an enforceable right to payment for performance completed to date.
If it is not transferred over time, then deemed to be transferred at a point in time

June 2016
When does an entity transfer control at a point in time?
Indicators
• Entity has a present right to payment
• Customer has legal title
• Physical possession transferred to customer
• Customer has significant risks and rewards of ownership
• Customer has accepted the asset
Indicators on their own may not be sufficient enough to indicate control has passed

June 2016
Other issues
1. Capitalise contract acquisition costs
– only incremental costs of obtaining contract
– capitalise if recoverable
– may expense immediately if amortisation period less than 12 months
(AASB 111 allowed more scope to capitalise where recoverability
probable)
2. Principal vs agent

June 2016
Example – Satisfaction of performance obligation
Pinnacle Business Consultants is conducting a due diligence engagement for a potential
business acquisition for a client. Client terminates half way through. PBC is entitled to
recover costs plus 10%. Should PBC recognise revenue at cancellation if performance
obligation not satisfied and no work or value has been provided to client?
AASB 118 – bill and recognise as revenue for work performed.
AASB 15 – requirements regarding transfer of goods and services
(a) Is there simultaneous receipt and consumption of benefits provided - NO
(b) Does performance create/enhance an asset that the customer controls - NO
(c) Does performance create an asset with no alternative use to the entity and the
entity has an enforceable right to payment for performance completed to date – YES
Therefore bill and recognise for work performed

June 2016
Example (Upfront fees)
Pinnacle Fitness Club charges its members $60 / month with a $40 joining fee which is
non-refundable. How should this be accounted for under current standard - AASB 118
and the new standard AASB 15?
AASB 118 – Possible argument to suggest that this is a multi element transaction. The
$40 joining fee is designed to cover administration for setting up client access to
facility. The $40 has been earned and will be booked as revenue. Monthly fee
recognised as revenue each month
AASB 15 – There has been no transfer of any good or service to the client (the
performance obligation). The $40 should be recognised as revenue over the term of
the contract. Monthly fee recognised as revenue each month

June 2016
Example (Licensing)
Pinnacle Accounting Software sells accounting packages to customers. The licence
granted provides access to Version 3.1 for 36 months. To stay competitive, whilst under
no obligation to, it provides customers with any updates occurring during the contract
AASB 118 – Possible argument to suggest that as the entity has no further legal
obligations under the contract, the sale can be booked on transaction date
AASB 15 – The customer could reasonably expect that the software will be upgraded
during the year and Pinnacle’s business practice is to provide updates to customers.
Despite the contract, the substance is that the customer has access to the IP, and not
just Version 3.1 Recognise revenue over term of the contract

June 2016
1. Guidance contained in multiple standards and
interpretations
2. Risk and rewards based model
3. Revenue measured at the fair value of the
consideration received or receivable
4. Limited guidance on identifying performance
obligations in a contract
5. Guidance for recognising revenue over time may
apply in different circumstances (e.g. construction
contracts, service arrangements)
6. Capitalising contract acquisition costs allowable
where separately identifiable and recoverable
1. All guidance contained in a single standard
2. Control based model. Risk and rewards is retained as indicator
of control transfer for performance obligations satisfied at a point
in time.
3. Consideration measured as amount entity expects to be entitled to
using specific estimation techniques
4. Specific guidance on identifying performance
obligations in a contract
5. Specific criteria provided to determine when a
performance obligation is satisfied over time
6. Capitalising contract acquisition costs only if
incremental (external)
Current AASBs AASB 15

June 2016
7. Revenue disclosures limited to policy
discussion
8. Loss making contracts – expected losses
booked
Current AASBs AASB 15
7. Extensive new disclosures
8. Loss making contracts – not addressed by
standard, therefor revert to AASB 137 where
unavoidable costs are considered (onerous
contract model)

June 2016
Disclosue information to
allow users to
understand nature,
amount, timing, and
uncertainty of revenue
and cash flows
Disaggregation
of revenue
Contract
balances
Performance
obligations
Significant
judgements
Costs to obtain
or fulfill a
contract
Disclosure requirements

June 2016
ED 260 Income for not-for-profits
Enforceable contract with
customer
Apply AASB 15
 Recognise revenue when each
Performance Obligation satisfied
Includes Performance Obligations
and
Yes
No
Apply AASB 10XX Income of
Not-for-Profit Entities
Recognise asset and:
 other income;
 any liability;
 contribution by owners

June 2016
Enforceability
• AASB 15 hurdle for enforceability
• specific performance
• legal or equivalent means
• Can be:
• Return of consideration (refund obligation)
• Significant penalty for non-performance
• Enforceability depends on capacity / ability to exercise
customer’s rights
• Ignores history or intention to enforce rights
Enforceable contract with
customer
Apply AASB 15
Performance Obligations
and

June 2016
Issues for not-for-profits
• Assessing enforceability of arrangements
• enforceability vs history or counterparty intent
• Identifying performance obligations
• are obligations sufficiently specific?
• constructive obligations
• gross vs net recognition of constructive obligations
• moral obligations and economic compulsion
• Conditions with no time period
• Perpetual gifts (capital preserved)
• Identifying donation components in arrangements

June 2016
What does it all mean?
• Donation, grant, gift in scope of AASB 15
• recognise as obligations satisfied
• Unenforceable arrangements out of scope of AASB 15
• consider constructive obligations
• Time-only or unspecified conditions
• recognise on control of asset
• Single vs multiple purpose entities
• may satisfy ‘specificity’ differently
• Bequests
• control of asset
• satisfaction of conditions

June 2016
Key takeaways
 Impacts will vary depending on industry, company, contractual
terms and customary business practice
 All companies impacted – need to go through analysis
 Lots of implementation issues to resolve prior to 1 January 2018
 Keep up to date with future changes to AASB 15
 Not just an accounting change – there will be business impacts

June 2016
AASB 16 Leases
Changes
affecting
lessees
Annual reporting periods commencing 1 January 2019
(can be early adopted if AASB 15 also adopted)
Removes the Finance Lease vs Operating Lease accounting distinction from
the lessees perspective (Single lessee model and dual lessor model)
Requires recognition of a Right of Use (ROU) asset and liability for ALL
leases
New presentation and disclosure requirements
Off-balance sheet leases prohibited unless < 12 months long or leases of
low value assets
Increase the transparency of an entity’s leverage and eliminate guesswork
of off-balance sheet financing

June 2016
Definition of a lease
• There must be an identified asset (either implicitly or explicitly); and
• The contract must convey the right to control the use of that asset for a
period of time in exchange for consideration
AASB 16 Leases
77

June 2016
Definition of a lease
What is a right to ‘control’ the identified asset?
- User must have the right to obtain substantially all of the economic
benefits from use of the identified asset; and
- User must have the right to direct the use of the identified asset
throughout the period of use.
- E.g. Type of output, timing of output, location of output,
quantity of output
AASB 16 Leases

June 2016
AASB 16 Leases
Does a lease exist?

June 2016
AASB 16 Leases
Recognition and measurement for lessees
• Initially measure the Right-of-use (ROU) asset and lease liability at present value of lease
payments
• Increase lease liability for finance charge and deduct lease liability for payments made
• Depreciate the ROU asset in accordance with AASB 116
• The ROU asset may be measured at cost or under a FV model (AASB 116 or AASB 140)

June 2016
AASB 16 Leases
Recognition and measurement for lessees – ROU Asset
Right of Use asset initially measured at cost which is:
 Initial measurement of liability
 Plus upfront lease payments made less incentives received
 Plus indirect costs
 Plus estimate of make-good or dismantling costs

June 2016
AASB 16 Leases
Recognition and measurement for lessees – Lease liability
Lease liability initially measured at PV of unpaid lease payments discounted
at implicit interest rate (or if not determinable, lessee’s incremental
borrowing rate)
Lease payments include:
- Fixed and variable payments
- Residual value guarantees
- Purchase options
- Penalties for early termination

June 2016
AASB 16 Leases
Lessor accounting
The (Dual lease model) classifications of a lease remain as:
• Operating Lease
• Finance Lease
Classification is determined by whether risks and rewards incidental to
ownership of the asset have been transferred (no change)

June 2016
Operating lease Expense
(AASB 117)
Negatively affect net assets Positively affect net assets
AASB 16 Leases
Totalexpenses
Period
Effect on lessee’s financial statements

June 2016
AASB 16 Leases
Effect on lessee’s financial statements
Earnings before interest, tax, depreciation and amortisation (EBITDA)
Many business decisions and event triggers are based on EBITDA results
Consider the impact on:
• Lending covenants
• Credit ratings
• Remuneration schemes
• Investors perceptions
• Net current assets
• Ratios

June 2016
Example: An entity enters into a non-cancellable 7 year equipment lease. There is no renewal option and the
lessee’s initial direct costs are nil. Lease payments commence at $20,000 in year 1, increasing annually at 2%. The
lessee’s incremental borrowing rate is 6.5%.
Yr
Lease
Payments $
Lease Liability-
Opening
Balance $
Interest
expense
$ (A)
Lease Liability -
Closing balance
$
Lease asset
dep’n
$ (B)
Total
AASB 16
expense
$ (A+B)
AASB 117
lease
expense
$
1 20,000 115,920 7,534 103,454 16,560 24,094 21,241
2 20,400 103,454 6,723 89,777 16,560 23,283 21,241
3 20,808 89,777 5,835 74,804 16,560 22,395 21,241
4 21,224 74,804 4,862 58,442 16,560 21,422 21,241
5 21,649 58,442 3,799 40,592 16,560 20,359 21,241
6 22,082 40,592 2,638 21,148 16,560 19,198 21,241
7 22,523 21,148 1,375 0 16,560 17,935 21,241
$148,686 $32,766 $115,920 $148,686 $148,686

June 2016
Lessee expense profile
$16,000
$18,000
$20,000
$22,000
$24,000
$26,000
1 2 3 4 5 6 7
AASB 117 basis Payments

June 2016
Lessee expense profile
$16,000
$18,000
$20,000
$22,000
$24,000
$26,000
1 2 3 4 5 6 7
AASB 117 basis AASB 16 basis Payments

June 2016
Impact on balance sheet
-
20,000
40,000
60,000
80,000
100,000
120,000
0 1 2 3 4 5 6
Lease asset Lease liability
Mind the gap

June 2016
ASX’s proposed admission requirements for listed entities
Maintain and enhance integrity and reputation of the ASX market.
Consultation Paper 12 May 2016
Consultation period closes 24 June 2016

June 2016
Financial Thresholds: Profits Test or Assets Test
Test Now Proposed Commentary
Profits Test $400K for past 12
months
$500K for past 12
months
Hasn’t changed since
1994
Assets Test – NTA $3m $5m Last set in 2012
Assets Test – market
cap
$10m $20m Last set in 1999

June 2016
Working Capital for entities admitted under the Assets Test
For entities admitted under assets test, they are required to have $1.5m in
working capital after taking into account any revenue for first full financial
year after listing, with mining and oil and gas explorers also required to
take into account all budgeted admin costs, costs of acquiring P&E and/or
tenements/assets referred to in prospectus/PDS/IM.
This test is now to be standardised across all entities, not just mining and
oil and gas explorers.

June 2016
Requiring Audited accounts from asset test entities
Currently financial accounts for entities admitted under assets test do not need to be audited and
less than 3 years is acceptable.
Now need to provide audited accounts for the last 3 full financial years. And if greater than 8 months
old, then also audited/reviewed accounts for most recent half year.
This is also required for entities being acquired at or ahead of listing.
Audit opinions must not be modified or contain an EOM or OM paragraph that the ASX considers
unacceptable.
ASX may accept less than 3 years, but only where ASIC accepts less than 3 years (ASIC also has
proposed changes for RG228 requiring disclosure docs to have 3 years audited accounts).

June 2016
Introducing Minimum Free Float requirement
Currently, at least 10% under GN1. Proposed to become
minimum 20% free float and becoming a listing rule, although
already being exercised by ASX under LR 1.19
Percentage of the entity’s main class of securities that are not
restricted securities, or subject to voluntary escrow, and that
are held by non-affiliated security holders.

June 2016
Changing the Spread Test
Now – 3 options Proposed
 400 shareholders with $2,000
shareholding; or
shareholding and 25% free float; or
shareholding and 50% free float
 200 shareholders with $5000
free float is less than $50m
 100 shareholders with $5000
free float is above $50m

June 2016
ASX Discretion of refuse admission to listing
Reinforcing ASX absolute discretion in refusing admission to
the list
Updating GNs to provide examples of when ASX may exercise
this discretion and circumstances that may indicate that the
applicant does not have acceptable structure and operations to
be listed

June 2016
Backdoor listings changes
Updating GN 12 on backdoor listings
Commencing 12/5/16 (now), listed entities will be suspended
upon announcement of proposed transaction, rather than after
GM approving the transaction.
Commencing 1/9/16 $10K fee for ASX to review NOMs for
Backdoor Listings

June 2016
ASX Foreign Exempt Listings
Where ASX is secondary listing
Currently need to have primary listing on exchange that is part
of WFE, and there is an assets test or profits test
Propose that primary exchange is “acceptable to ASX” and part
of WFE and have minimum market cap of $2b or NTA of $2b

June 2016
ASIC Focus of attention - Financial Reporting Surveillance
• Impairment testing and asset values
• Off-balance sheet arrangements
• Revenue recognition
• Expense deferral
• Tax accounting
• Estimates and accounting policy judgements
• Impact of new standards
• Revenue
• Financial instrument
• Leases

June 2016
ASIC Financial Reporting Surveillance Outcomes
– 2015-16 announcements
Matter Number
Impairment 8 9
Business combinations 3
Revenue recognition 3
Asset valuation methodology 2
Tax accounting 2
Classification of borrowings 2
Classification of cash / statement of cash flows 2
Capital raising costs 1
TOTAL 23 24

June 2016
Key impairment issues
• Cash flows
• economic and market conditions
• spot vs forward rates
• reasonableness of cash flow assumptions
• historical cash flows
• Discount rates
• multiple CGUs
• reasonable and supportable
• Identifying CGUs at too high a level
• Comparing DCF to all assets supporting CGU
• P/L vs cash flow forecasts
• working capital adjustments

June 2016
Tax changes effecting financial reporting
Reducing tax rates
• Be careful of reducing tax rates with current regulatory changes for DTA’s & DTL’s

June 2016
Tax changes effecting financial reporting
• Significant global entity’ (“SGE”):
• annual global income > A$1 billion; or
• is a 'global parent entity' with 'annual global income' of A$1 billion or more; or
• is a member of such global parent entity’s group
• Lodge GPFR with their tax return to ATO
• Applicable for tax years commencing 1 July 2016
• Many unresolved application issues
• interaction with Corporations Act requirements
Tax Laws Amendment (Combating Multinational Tax Avoidance) Act 2015

June 2016
Changes Effective after 1 July 2016
Application Date
 AASB 1057 Application of Australian Accounting Standards
1 July 2016
 AASB 2014-3 Amendments to AASB 11 – acquisition of interest
in joint operation 1 July 2016
 AASB 2014-4 Use of revenue-based depreciation methods
1 July 2016
 AASB 2014-6 Amendments to AASB 141 – Bearer Plants
1 July 2016
 AASB 2014-9 Equity Method in Separate Financial Statements
1 July 2016

June 2016
Application Date
 AASB 2015-1 Annual Improvements 2012-2014 1 July 2016
 AASB 2015-2 Amendments to AASB 101 - Disclosure Initiative
1 July 2016
 AASB 2015-5 Investment Entities - consolidation exemption
1 July 2016
 AASB 2015-6 Extending related party disclosures to NFP
public-sector entities 1 July 2016
 AASB 2015-7 Fair value disclosures of NFP public-sector
entities 1 July 2016

June 2016
Application Date
 AASB 2016-1 Recognition of DTA for unrealised losses on debt
instruments
1 July 2017
 AASB 2016-2 Amendments to AASB 107 1 July 2017
 AASB 2014-10 Sale or contribution of assets between an
investor and associate 1 July 2018
 AASB 9 Financial Instruments 1 July 2018
 AASB 15 Revenue from Contracts with Customers
1 July 2018
 AASB 16 Leases 1 July 2019

June 2016
In summary...
• No significant changes effecting June 2016
• Many new changes in the pipeline
• Establish project plans to assess impacts of future changes
• Consider relevant disclosure relating to new standards not yet adopted in the 30 June 2016
Financial Statements
For further information:
• contact your local Bentley’s advisor

June 2016
Auditor’s Report changes
New standards:
• ASA 700 (Revised) Forming an Opinion and Reporting on Financial Statements
• New ASA 701 Communicating Key Audit Matters in the Independent Auditor’s Report
• Applicable for listed entities
• Annual reporting periods ending on or after 15 December 2016

June 2016
Elements of auditor’s reports
Opinion
Basis of opinion
Audit comment on going concern
Key Audit Matters (Listed only)
Emphasis of matter
Audit comments on Other Information
Description of auditor responsibilities
Report on regulatory / Other matters
 Judged to be of most significance
 Audit response
 Location in financial report
 Nothing to report / material misstatements
 Some elements can be in Appendix / x ref
*
* AUASB has agreed to establish an “auditor’s responsibilities”
reference document to be located on the AUASB website
(AUASB Minutes 28 July 2015)

June 2016
Key Audit Matters
(Matters of most significance)
Matters that require significant auditor attention
Auditor considers:
• Importance to intended users’ understanding
• Nature and extent of audit effort required
• Nature, complexity, subjectivity of the accounting policy
• Nature and materiality of corrected and uncorrected misstatements
• Severity of identified control deficiencies
• Difficulties in applying audit procedures, evaluating results and obtaining relevant & reliable evidence
Key Audit Matters

June 2016
Key Audit Matters
• KAM Disclosure
a) Risk
b) Auditor’s response
c) Reference to applicable note disclosures
• Matters to consider:
• Identification and description of KAMs
• Implications for financial statement disclosures
• Audit Committee and Board engagement

June 2016
Questions
•Wrap Up and Questions

June 2016
Disclaimer
Our comments and information contained in this presentation are generic in nature and are not purported
to represent advice that can be relied upon. You should seek your own advice for your own circumstances.
The author or any other persons involved in the preparation or distribution of this presentation expressly
disclaim all and any contractual, tortious or other form of liability to any person in respect of this
presentation and any consequences arising from its use by any person in reliance in whole or any part of the
contents of this presentation.
© Copyright Financial Reporting Specialists – all rights reserved

Bentleys Financial Reporting Update

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