Up to now, the majority of companies have been focusing on understanding the impact of the new standards and the disclosure of the impact in accordance with IAS 8 and FRC guidance.
However, in your interim statements you will need to ensure that you are accounting for both revenue and financial instruments in accordance with the new requirements of both standards.
The disclosures required in Interim Statements will be dependent on whether the entity is preparing its Interim Statement in accordance with AIM Rule 18 or IAS 34. Companies should start considering what disclosures will be required under their chosen framework, and the recently issued FRC guidance.
AIM listed entities are required to prepare half-yearly reports in accordance with AIM Rule 18. AIM companies are not required to comply with the requirements of IAS 34, although they may choose to voluntarily adopt this standard. Whilst the AIM rules set out the minimum statements that should be included within half-yearly reports, they do not specify any additional disclosures relating to the adoption of new standards in the current period. AIM listed entities will thus need to consider what additional disclosures they wish to include in their half-yearly report in respect of IFRS 9 and IFRS 15. AIM companies may wish to consider disclosing that their half-yearly report is their first set of published results under the new standards and their transition choice. Additional disclosures should be considered where the impact of adopting the new standards is material.
Companies adopting IAS 34
For fully listed companies, and for AIM companies that chose to adopt IAS 34 in their Interim Statement, there are explicit disclosure requirements in IAS 34 that companies will need to comply with, including:
- a description of the nature and effect of a change in accounting policies and methods of computation; and
- disclosure of disaggregation of revenue from contracts with customers (as required under IFRS 15).
Fully listed companies, and AIM companies adopting IAS 34, will also need to consider what additional disclosures are required to comply with the more general requirements of IAS 34, in terms of providing an update on the latest complete set of annual financial statements with a focus on new circumstances. Management will need to exercise judgment and hold early discussions with both their Audit Committee and Auditors in terms of the additional disclosures required to comply with this overall objective and the level of disclosure required to explain the changes arising from IFRS 9 and IFRS 15.
FRC and stakeholder expectations
The FRC Corporate Reporting Review Briefing, published 12 June 2018, sets out their expectations in terms of disclosures in Interim Statements relating to the application of new accounting standards. The FRC has stated that companies should disclose significant judgments made in applying the new standards and to quantify and explain sources of estimation uncertainty. In particular, the FRC is expecting disclosure of judgements and estimation uncertainty in respect of long term contract accounting and also judgements involved in the allocation of revenue within multiple-element contracts under IFRS 15, in addition to expected credit losses under IFRS 9.
There is a growing interest from regulators, investors and analysts in the impact of the adoption of the new standards and companies should build upon their disclosures in their last annual report to explain how these new standards have impacted their first set of results published under the new accounting standards. Companies should focus on providing information which is both meaningful and provides a clear, concise explanation of the changes in accounting policies, including the key judgments that they have applied.