Firms warned on new accounting standards

MANAMA: Local businesses need to gear up for the new International Financial Reporting Standards 16 Leases (IFRS 16) becoming effective from 2019, a leading expert has warned.

According to Grant Thornton Abdulaal partner Niall McAuliffe, this poses further challenges for local businesses over the next one to two years, after IFRS 9 Financial Instruments (IFRS 9) and IFRS 15 Revenue from Contracts with Customers (IFRS 15), both of which are effective this year.

The IFRS are a set of global accounting standards developed by the International Accounting Standards Board for the preparation of public company financial statements and are fast becoming the global accounting language.

“Many companies across Bahrain are aware of IFRS accounting standard changes,” says Mr McAuliffe, adding, “Local and regional businesses and institutions are currently undergoing changes outside the normal day-to-day running of a company, the effects of which can impact a company’s financials, bookkeeping, IT systems, and staff training."

The banking sector is one of the industries which has been most impacted by IFRS 9, resulting in amendments to the classification and measurement of financial assets, overhauling of impairment, and deviations in hedging accounting.

For companies outside of the banking industry, some will be significantly affected by IFRS 9, others less so.
All companies should be aware of the changes and the impact upon adoption, says the GT expert. 

Particular consideration should be deliberated by companies with significant receivables of variable credit risk, because the new standard could result in modification of credit terms, formation of larger provisions, and could even result in recognition of significant write-offs.

The new revenue standard, IFRS 15, impacts most, if not all, businesses, by moving from a ‘risk and rewards’ basis of revenue recognition to a ‘controls-based’ approach (i.e. revenue is recorded when control is transferred).

The implications upon adoption differ not only from industry to industry, but also from company to company, depending on whether revenue is recorded at a ‘point in time’ (e.g. an over-the-counter transaction) or ‘over a period in time’ (e.g. construction or service contract), explains Mr McAuliffe.
Revenue will need to be assessed at an individual company level because ‘one-size-fits-all’ cannot be used to IFRS 15.

Changes to lease accounting through IFRS 16 will have varying impact on both lessors (issuers of leases) and lessees (holders of leases).

The largest impact of IFRS 16 will be felt by operating lease holders who will be capitalising previously expensed leases.

In other words, under IFRS 16 all leases will be accounted for ‘on balance sheet,’ including leases that were previously defined as operating leases and were held ‘off balance sheet.’

This will have a significant impact for some companies.

The exceptions to this requirement are short-term leases and low value asset leases which can continue to record these leases in the income statement.

This will benefit many businesses within Bahrain, mitigating the effects of the new standard.

The finance world has a couple of challenging years ahead through implementation of the new standards and determining the impact to the different business segments.

The companies that will come out on top are those that have planned in advance and consulted where necessary, the expert says. 

Source: http://www.gdnonline.com/Details/428430/Firms-warned-on-new-accounting-standards