As I'm sure everyone is well aware, IFRS 16 is now effective for annual periods beginning on or after 1 January 2019. Although for most of you this means a very real impact only in your 2019 financial statements, there are the (un)lucky few that have to prepare half year reports. But even before we hit that mark, there is the future impact assessment—required in everybody's current financial statements.
What's the requirement?
It all starts with IAS 8 Accounting policies, Changes in Accounting Estimates and Errors. Paragraph 30 to be exact:
When an entity has not applied a new IFRS that has been issued but is not yet effective, the entity shall disclose:
- this fact; and
- known or reasonably estimable information relevant to assessing the possible impact that application of the new IFRS will have on the entity's financial statements in the period of initial application.
Taken literally, the standard clearly indicates that companies should be disclosing an impact assessment on the expected effects of IFRS 16 on their financial statements.
This involves two things:
- a discussion of the impact that initial application of the IFRS is expected to have, i.e. qualitative information
- the estimated financial impact in terms of figures, graphs, ratios—i.e. quantitative information
It would seem that the only uncertainty lies in the level of detail required.
Yes, it's necessary!
Another standard that goes hand in hand with IAS 8 is IAS 1 Presentation of Financial Statements. IAS1.9 underlines the basis of preparing IFRS-compliant financial statements, highlighting that the objective of financial statements is to provide information about the financial position, financial performance, and cash flows of the entity—notably, information that is "useful" to a wide range of users in making economic decisions. And a detailed impact assessment about one of the biggest IFRS standards in the last few years would, undoubtedly, be considered useful.
Some might remember that IAS8.31 (e) allows companies to make a statement to the effect that they are still in the process of assessing the current impact and that the full impact is not yet known or reasonably estimable—but that ship has sailed. Indeed, the CSSF and ESMA have indicated that high level, boilerplate impact assessments or disclaimer statements will no longer be deemed acceptable at such a late stage.
So, for anyone focused on IFRS 16 readiness and transition, don't forget these details!
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.