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CIMIC Group Limited Annual Report 2016 |
Financial Report
Notes continued
for the 12 months to 31 December 2016
39. NEW ACCOUNTING STANDARDS
The following standards, amendments to standards and interpretations have been identified as those which may impact the Group in the
period of initial application. They are available for early adoption at 31 December 2016, unless noted otherwise below, but have not been
applied in preparing this financial report. The Group’s assessment of these new standards and interpretations is set out below:
AASB 9
Financial Instruments (revised December 2014)
and AASB 2014-7
Amendments to Australian Accounting Standards arising
from AASB 9 (December 2014)
This standard replaces AASB 139
Financial Instruments: Recognition and Measurement
. AASB 9 includes revised guidance on the
classification and measurement of financial instruments, including a new expected credit loss model for calculation of impairment
on financial assets, and new general hedge accounting requirements. It also carries forward guidance on recognition and
derecognition of financial instruments from AASB 139. The standard will become mandatory for reporting periods beginning on or
after 1 January 2018. The Group does not intend to early adopt the standard. Retrospective application is required with some
exceptions.
While the Group has yet to undertake a detailed assessment of the classification and measurement impacts of the new standard
the Group expects the following impacts:
-
the Group does not expect the new guidance to have a significant impact on the classification and measurement of its financial
assets;
-
the Group does not hold any financial liabilities at fair value through profit and loss and as such there is no impact of the new
standard on financial liabilities;
-
as a general rule more hedge relationships may be eligible for hedge accounting. Existing hedge relationships would appear to
qualify as continuing hedge relationships upon adoption of the new standard; and
-
the new impairment model requires the recognition of impairment provisions based on expected credit losses rather than only
incurred credit losses. Whilst the Group has not yet finalised its detailed assessment of the impact of AASB 9 and its interaction
with AASB 15
Revenue from Contracts with Customers
it may result in earlier recognition of credit loss provisions.
AASB 15
Revenue from Contracts with Customers
and
AASB 2014-5
Amendments to Australian Accounting Standards arising from
AASB 15
AASB 15 establishes a comprehensive framework for determining the timing and quantum of revenue recognised. It replaces existing
guidance, including AASB 118
Revenue
and AASB 111
Construction Contracts
.
The core principle of AASB 15 is that an entity shall
recognise revenue when control of a good or service transfers to a customer. This standard will become mandatory for reporting
periods beginning on or after 1 January 2018. The standard permits either a full retrospective or a modified retrospective approach
for the adoption.
The Group is assessing the impact on its consolidated financial statements resulting from the application of the new standard. Broadly
there is an increased threshold to recognising revenue and related assets in the new standard. Given the number of projects operated
by the Group, revenue in any particular year is not expected to vary significantly in percentage terms however there is expected to
be a reduction in assets recognised on the balance sheet. The following areas have been identified that are likely to be significantly
affected.
-
Currently under AASB 111
Construction Contracts
costs incurred during the tender process are capitalised within net contract
debtors when it is deemed probable the contract will be won. Under the new standard costs can only be capitalised if they are
both expected to be recovered and either would not have been incurred if the contract had not been won or if they are intrinsic
to the delivery of a project. As such a reduction in net contract debtors is expected.
-
Construction revenue is predominantly derived on projects with one performance obligation. Contracted revenue will continue
to be recognised over time on a percentage completion basis however the new standard imparts a higher threshold of
probability for recognition of claims and variances. Revenue is currently recognised when it is probable that work performed
will result in revenue whereas under the new standard revenue is recognised when it is highly probable that a significant
reversal of revenue will not happen. As such a reduction in net contract debtors may be seen under the new standard.
-
Mining projects typically involve payment on the delivery of ore to a client. There are several stages in mine development and
production that, dependent on the contract terms, could represent separate performance obligations. Revenue is required to
be allocated to each performance obligation and recognised on transfer of control. The appropriate allocation of revenue may
result in a change in the timing of revenue recognition that may be accelerated or deferred compared to the current method.
-
The new standard requires significant increases in disclosures in relation to revenue derived from contracts, key judgments
and future revenue expected to be generated.
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