New IFRS Standards Becoming Effective: Are You Ready?
There are three new International Financial Reporting Standards that become effective this year and next:
- IFRS 9 Financial instruments
- IFRS 15 Revenue from contracts with customers
- IFRS 16 Leases
IFRSs 9 and 15 are effective for annual periods beginning on or after January 1, 2018. Therefore, public companies with a December 31st year-end date will need to adopt these new IFRSs for their interim financial statements for the three-month period ended March 31, 2018.
IFRS 16 is effective for annual periods beginning on or after January 1, 2019.
These are three significant new standards and will likely have a significant impact on most company’s reporting under IFRS.
IFRS 9 – Financial Instruments
IFRS 9 is a partial replacement of IAS 39 Financial Instruments: “Recognition and Measurement”. IFRS 9 introduces new requirements for the classification and measurement of financial assets, additional changes relating to financial liabilities, a new general hedge accounting standard which will align hedge accounting more closely with risk management. The new standard also requires a single impairment method to be used, replacing the multiple impairment methods in IAS 39.
IFRS 15 – Revenue from Contracts with Customers
IFRS 15 contains a single model that applies to contracts with customers and two approaches to recognizing revenue: at a point in time or over time. The model features a contract-based five-step analysis of transactions to determine whether, how much and when revenue is recognized. New estimates and judgmental thresholds have been introduced, which may affect the amount and/or timing of revenue recognized.
IFRS 16 – Leases
IFRS 16 replaces IAS 17 “Leases” and the related interpretative guidance. IFRS 16 applies a control model to the identification of leases, distinguishing between a lease and a service contract on the basis of whether the customer controls the asset being leased. For those assets determined to meet the definition of a lease, IFRS 16 introduces significant changes to the accounting by lessees, introducing a single, on-balance sheet accounting model that is similar to current finance lease accounting, with limited exceptions for short-term leases or leases of low value assets. Lessor accounting is not substantially changed.
DMCL is Here to Help
Please contact your DMCL advisor if you have any questions or concerns with implementing these new standards.