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IFRS 9 & 15: What are the new disclosures in interim accounts?

IFRS 9 & 15: new disclosures in interim accounts

For most companies the 2018 Interim accounts will be the first prepared under IFRS 9 & IFRS 15.

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Nick Chandler

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IFRS 9 & 15: What are the new disclosures in interim accounts? - Calendar illustration

This year’s interim accounts are unlikely to be business as usual. For most companies the 2018 interim accounts will be the first prepared under IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers. Users and regulators are likely to look closely at the disclosures describing the impact of the new standards, in particular the FRC will be conducting thematic reviews based on selected companies’ interim reports.

So having previously determined the effect on the numbers of the change in accounting requirements, now is the time to focus on the related disclosures. The first thing to note is that in addition to the new disclosures that are specifically required, companies will have to apply significant judgment in determining how much additional disclosure is necessary to meet the objectives of IAS 34 – i.e. ensuring that interim accounts include all information that is relevant to an understanding of any significant changes since the last annual reporting date (“transition disclosures”), and an entity’s financial position and performance during the interim period (“business as usual disclosures”).

Transition disclosures

IAS 34 requires disclosure of the nature and effect of any change in accounting policies but does not provide specific guidance on what is required. Companies may consider the transitional disclosures for annual accounts specified in the new standards, or in the case of IFRS 9 in the consequential amendments to IFRS 7, for example, IFRS 7.42(I-S), and those in paragraph 28 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. As explained in this ESMA report, entities that apply IFRS 15 using the cumulative effect method should provide the impact disclosures in paragraph C8 of IFRS 15 in order to meet the objective of IAS 34.

Ongoing disclosures

‘Business as usual’ disclosures in IFRS 7 Financial Instruments: Disclosures (as introduced by IFRS 9) and IFRS 15 are not explicitly required in interim accounts, except for disclosure of disaggregation of revenue, in the manner explained in paragraphs 114 and 115 of IFRS 15. So again judgement is needed to determine what information is relevant to an understanding of an entity’s financial position and performance during the interim period. Our 2018 interim illustrative disclosures illustrates one possible way of providing this information.

FRC hot topic

In its briefing on ‘hot topics’ for 2018 interim reports, the FRC explains that entities should consider the materiality of the impact when deciding the extent of their disclosures, which should be clear, concise, company-specific and focus on the areas of change. For example, the FRC expects:

  • An explanation of how the transition has been implemented, after careful consideration of the transitional disclosure requirements under the new standards and the requirements of IAS 8;
  • Quantitative disclosure to be accompanied by informative and detailed explanation of the changes, tailored to the company’s specific circumstances and transactions; 
  • Any key judgments to be clearly explained;
  • For IFRS 15 an explanation of the impacts, with reference to performance obligations and disclosure of significant judgement along with quantification and explanations for sources of estimation uncertainty. These may include the accounting for long term contracts, where entities need to consider the effect of bid and mobilisation costs, contract variations and retentions and the judgment involved in allocating revenue to multiple-element arrangements;
  • The key focus of applying IFRS 9 to be on impairment, where the information provided needs to be sufficient to allow users to understand the change from applying IAS 39. Where companies adopt the simplified approach to impairment for trade receivables (i.e. the recognition of lifetime expected losses), they need to make clear how such lifetime expected credit losses have been determined. 

Ultimately, the appropriate level of disclosures will depend on the entity’s facts and circumstances and the extent to which it is affected by the new standards. 

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