Aug 10, 2018 / News

Audit and Assurance / Business Consulting / Financial Reporting

Preparing for 30 June 2018

Accounting standard developments

The following new and amended accounting standards are mandatorily applicable for the first time to financial years ended on 30 June 2018:

  • AASB 2016-1 Amendments to Australian Accounting Standards – Recognition of Deferred Tax Assets for Unrealised Losses [AASB 112]; 
  • AASB 2016-2 Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 107; and
  • AASB 2016-4 Amendments to Australian Accounting Standards – Recoverable Amount of Non-Cash-Generating Specialised Assets of Not-for-Profit Entities
  • AASB 2017-2 Amendments to Australian Accounting Standards – Further Annual Improvements 2014–2016 Cycle.

AASB 2016-2 amends AASB 107 Statement of Cash Flows to include additional disclosures and a reconciliation of changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes.  The remaining amendments are narrow in their application and should not affect the vast majority of our clients.

Clients should also be considering the effects of the three new major accounting standards applying in 2018 and 2019.  These are AASB 9 Financial Instruments, AASB 15 Revenue from Contracts with Customers and the not-for-profit entities’ requirements in AASB 1058, and AASB 16 Leases.  

AASB 9 applies from 1 January 2018 for 31 December year ends and from 1 July 2018 for 30 June year ends and deals with the classification and measurement of financial assets and liabilities, measurement of impairment of financial assets and requirements relating to hedge accounting.  Our experience with clients to date has identified a number of changes to the measurement basis for some investments, reclassification of assets previously categorised as available-for-sale (AFS) to fair value through profit and loss (FVTPL) and changes to the measurement of impairment of financial assets.  The transition rules on the initial adoption of AASB 9 can also be complex.  Entities should not assume that that AASB 9 will have no impact on their accounts and should be analysing the potential effects of the new standard now.

The new revenue standard also applies to annual reporting periods beginning on or after from 1 January 2018 for for-profit entities and from 1 January 2019 for not-for-profit entities.  For-profit entities with a 31 December 2018 balance date should already be applying the new standard in their 2018 year, with entities with a 30 June year end applying it from 1 July 2018. 

Listed entities with a 31 December 2018 balance date must apply AASB 9 and AASB 15 in the preparation of their 30 June 2018 interim accounts.  

Details of these changes were discussed during our Financial Reporting Update seminars which were hosted by each of our offices during May and June.  Our Financial Reporting Updates are a convenient way for you to keep abreast of current financial reporting developments.  If you missed these sessions you can also find a number of publications and webinars on AASB 15 and AASB 9 on our website.

If you haven’t started assessing the potential effects of these new standards, we strongly encourage you to seek assistance from your Nexia Edwards Marshall Adviser to help understand the requirements and assess your specific circumstances.

ASIC focus areas

In the lead up to 30 June, ASIC has called on companies to focus on new requirements that can materially affect reported assets, liabilities and profits.  ASIC Commissioner John Price said, ‘We are concerned that some companies may not have adequately prepared for the impact of new accounting standards [AASB 9, AASB 15 and AASB 16] that can significantly affect results reported to the market.  So far, surprisingly few companies have made disclosures of the impact of these standards. This may indicate that some companies need to give urgent attention to the impact of the standards on reported results, systems, processes and their businesses’.

ASIC’s other focus areas for their 30 June 2018 financial reports surveillance program include:

  • Impairment testing and assessing asset values
  • Revenue recognition 
  • The appropriateness of expense deferral
  • The treatment of off-balance sheet arrangements
  • The appropriateness of tax accounting, including recoverability assessments of deferred tax assets
  • Disclosures regarding sources of estimation uncertainty and significant accounting policy judgements 
  • Disclosures regarding the impact of new revenue, financial instruments and leases standards

Income tax changes

The Treasury Laws Amendment (Enterprise Tax Plan) Act 2017 reduces the tax rate to 27.5% for corporate entities that are base rate entities and therefore have aggregated turnover of:

  • Less than $25 million for the 2017-18 financial year; and 
  • Less than $50 million for the 2018-19 financial year. 

For 2016-17 the aggregated turnover threshold to qualify for the lower tax rate was $10 million.

AASB 112 Income Taxes requires that deferred tax assets and deferred tax liabilities be measured by reference to the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on the tax rates that have been substantively enacted by the end of the reporting period.

Consequently, Base Rate Entities should measure their current tax and deferred tax balances as at 30 June 2018 using the following tax rates: 

Aggregated turnover expected in both 2017-18 and 2018-19 Current income tax Deferred income tax
< $25 million 27.5% 27.5%
$25 million to < $50 million 30.0% 27.5%
> = $50 million 30.0% 30.0%




This will result in those effected entities adjusting their deferred tax assets and deferred tax liabilities as at 30 June 2018 to reflect the tax rates that will apply when those balances are realised.  

For example, 

  • an entity with aggregated turnover expected to be less than $20 million in both 2017-18 and 2018-19 should measure both their current tax balances and deferred tax balances at 30 June 2018 by reference to the 27.5% tax rate.  
  • an entity expected to have aggregated turnover of $30 million in both 2017-18 and 2018-19 should measure their 2017-18 current tax balances using a current tax rate of 30% and their deferred tax balances by reference to the 27.5% tax rate.  

The remeasurement of deferred tax balances arising from changes to the applicable tax rate are recognised in profit or loss, except where those balances relate to items previously recognised outside profit or loss.  For example, tax rate changes affecting the measurement of a deferred tax liability that arose from a revaluation of property, plant and equipment will be recognised in that revaluation reserve.

The change in tax rates will also affect the franked amount of distributions paid by a corporate entity. 

For more information on the operation of the above tax legislation and the consequences on franking accounts, please contact your Nexia Edwards Marshall Adviser. 

ACNC reporting changes

The Australian Charities and Not-for-profits Commission (ACNC) announced in May that their transitional reporting arrangements have been extended to cover the 2018 and 2019 reporting periods.  The transitional reporting arrangements allow the ACNC to accept reporting originally prepared for other government agencies. These include:

  • Financial reports lodged by some incorporated associations, co-operatives and charitable fundraising organisations with state and territory regulators.
  • Financial questionnaires and statements lodged by non-government schools with the Federal Department of Education and Training.
  • Annual returns and financial reports lodged by Indigenous Corporations with the Office of the Registrar of Indigenous Corporations.

Relevant charities will lodge the same financial report that they provided to the state or territory regulator in the financial information section of their Annual Information Statement. 

How can Nexia Edwards Marshall help you?

Whether you are preparing for this 30 June or planning for the year ahead, Nexia Edwards Marshall is here to assist.  For more information on any of the above matters, or to find out about our Financial Reporting Advisory services, please contact Jamie Dreckow or your Nexia Edwards Marshall Adviser.

The material contained in this publication is for general information purposes only and does not constitute professional advice or recommendation from Nexia Edwards Marshall. Regarding any situation or circumstance, specific professional advice should be sought on any particular matter by contacting your Nexia Edwards Marshall Adviser.