Question

obtain the annual reports for the 2018-19 financial year and the 2017-18 financial year of the ANZ company. Questions 1. Focus on the leases agreements, the company has entered, as a lessee. As the new lease accounting standard (AASB16) is effective for the first financial year commencing on or after 1 January 2019, your company is probably still applying the previous accounting standard (AASB117). Discuss how the new accounting standard will impact the assets, liabilities, and profit of your company.(provide and show the report of the company)

Answer 1

AASB 16 LEASES (AASB 16)

AASB 16 is effective for the Company from 1 October 2019 and replaces the previous standard AASB 117 Leases (AASB 117). AASB 16 primarily impacts the Company’s property and technology leases which were previously classified as operating leases. Under AASB 117, operating leases were not recognised on balance sheet and rent payments were expensed over the lease term.

Under AASB 16, lessees must recognise all leases (except for lease of low value assets and short term leases) on balance sheet under a single accounting model. Accordingly, the Company will recognise its right to use an underlying leased asset over the lease term as a right-of-use (ROU) asset, and its obligation to make lease payments as a lease liability. In the income statement, the Company will recognise depreciation expense on the ROU asset and interest expense on the lease liability. As a result, lease expenses will be higher in the early periods of a lease and lower in the later periods of the lease compared to the previous standard where expenses were constant over the lease term. Cumulative expenses over the life of a lease will not change.

The Company will apply the modified retrospective transition approach whereby initial lease liabilities are recognised based on the present value of remaining lease payments as of the transition date. The initial ROU asset recognised for certain large commercial and retail leases will be measured as if AASB 16 had always been applied to the leases. For all other leases, the initial ROU asset will be measured as equal to the initial lease liability. Based on this transition approach, the Company expects to recognise an increase in liabilities of $2.2 billion and an increase in assets of $2.1 billion. This is expected to result in a reduction to opening retained earnings of $66 million and an increase in deferred tax assets of $37 million as of 1 October 2019. Comparative information from prior periods will not be restated.

The implementation of AASB 16 requires management to make certain key judgements including the determination of lease terms, discount rates and identifying arrangements that contain a lease. These estimates may be refined as the Company finalises its implementation of the standard in the first half of the 2020 financial year.

AASB 17 INSURANCE CONTRACTS (AASB 17)

The final version of AASB 17 was issued in July 2017 and is not effective for the Company until 1 October 2021. It will replace AASB 4 Insurance Contracts, AASB 1023 General Insurance Contracts and AASB 1038 Life Insurance Contracts. AASB 17 establishes principles for the recognition, measurement, presentation and disclosure of insurance contracts. The measurement, presentation and disclosure requirements under AASB 17 are significantly different from current accounting standards. Although the overall profit recognised in respect of insurance contracts will not change, it is expected that the timing of profit recognition will change. The impact of AASB 17 is not expected to have a material impact on the Company