Some of the emerging issues in financial reporting that prepared of financial statements need to be aware of include;

Implementation of IFRS 9 – Financial Instruments

IFRS 9 – Financial Instruments is expected to bring a raft of changes mainly in terms of recognition and measurement of loans and receivables. Financial assets will be classified into those to be measured at fair value and the assets to be measured at amortized cost. Assets measured at fair value could either be through profit or loss (FVTPL) or through other comprehensive income (OCI). Debt instruments held by a business for the purpose of collection of contractual cash flows need to be measured at amortized cost. However, where the debt instrument is held for the purpose of collection of contractual cash flows and selling the asset or where cash flows include principal and interest, they should be measured at fair value through OCI unless use of fair value is elected. All other debt instruments require measurement through FVTPL. On the other hand, all equity instruments are to be measured using FVTPL. An entity might however make an irrevocable choice at initial recognition to measure its equity instruments at FVTOCI where only dividend income will be recognized through PL. The major challenge expected in implementation of the standard is the use of the expected loss model in assessment of impairment which is a deviation from the incurred model which is in use presently. Credit losses will most likely increase following the change in the assessment model. It is important to ensure that your business is ready for implementation of IFRS 9 which was effective for financial periods beginning 1 January 2018. We have the expertise to assist you come up with a robust ECL model.

Lease accounting

IFRS 16 – Leases effective 1 January 2019 will replace IAS 17 in accounting for leases. The standard considers all long term leases to be finance leases. As such, a right-of-use asset and lease liability will be recognized at commencement. This is aimed at eliminating the off-balance sheet financing that a number of reporting entities have utilized. The asset could either be measured at cost less accumulated depreciation and impairment (cost model) or using the revaluation model under IAS 16. Variable lease payments are to be recognized in P&L unless included in the carrying amount of another asset. These changes are only applicable to lease accounting by a lessee and no major changes will occur for lessors. In case you are a lessee, you need to review your lease contracts and prepare to make necessary amendments. Please feel to reach out to our technical team in case you need to develop a model that is compliant with IFRS 16.