Review of the Code of Accounting Practice and Financial Reporting (the Code) Update 28

2019-20

Welcome

Introductions and purpose of the web

video

OLG

Contents of this presentation

Financial reporting governance structures and the Code

Changes to the Accounting Standards

Changes to the Code

Financial statements reminders

Key Standards issued not yet effective

Recap, reminders, where to go for help and next steps

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Financial governance structures

• Local Government Act 1993 – Chapter 13 – Part 3 – Financial Managementhttp://www.legislation.nsw.gov.au/#/view/act/1993/30/chap13

• Local Government (General) Regulation 2005 – Part 9 -Management and Accountabilityhttp://www.legislation.nsw.gov.au/#/view/regulation/2005/487/part9

• Code of Accounting Practice and Financial Reporting– (includes Australian Accounting Standards and Interpretations)http://www.olg.nsw.gov.au/strengthening-local-government/supporting-and-advising-councils/accounting-practice

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Code of Accounting Practice and Financial Reporting

The Accounting Code comprises of five documents:

• 1. General Purpose Financial Statements

• 2. Special Purpose Financial Statements

• 3. Special Schedules

• 4. Appendices

• 5. JO Supplement

• prescribes the form of the financial statements and the minimum requirements

• applies to each NSW council & JO

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Code of Accounting Practice and Financial Reporting continued

The intent of the Code is to:

• facilitate practical and effective financial reporting obligations:

• implementation of all Australian Accounting Standards and

• Local Government Act, Regulations and associated policies

• to drive a culture of commitment to useful, accurate and reliable financial reporting

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Overview of the consultation process

Sector feedback

from Code

Update 27

Updates from the

Australia Accounting

Standards Board,

OLG, Other

Draft Code

Update 28 for

consultation

Create Consult Deploy

Final Code

Update 28

delivered

to the Sector

Web video on

the draft Code

Sector feedback

on the draft Code

Results discussed

with the Technical

Advisory Group

Final Code approved

and

Circular issued

Draft Code

amended

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Drivers of change

Changes due to:

• Accounting Standards especially AASB 15, 16 & 1058

• Government’s focus on supporting financial sustainability

• Feedback from stakeholders

• OLG and other Government reporting requirements

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Changes to the Accounting Standards – Effective at 30 June 2020

Should be no surprise that the big changes for

30 June 2020 relate to:

• Revenue and

• Leases

This session is not a ‘how to account under AASB 15, AASB 1058 and AASB 16” but more to look at the disclosure changes.

Carmen Ridley

Any other changes to accounting standards?

• AASB 2017-1 Amendments to Australian Accounting Standards – Transfers of Investment Property, Annual Improvements 2014-2016 Cycle and Other Amendments [AASB 1, AASB 128, AASB 140]

• AASB 2017-6 Amendments to Australian Accounting Standards – Prepayment Features with Negative Compensation

• AASB 2017-7 Amendments to Australian Accounting Standards – Long-term Interests in Associates and Joint Ventures

Carmen Ridley

Any other changes to accounting standards?

• AASB 2018-1 Amendments to Australian Accounting Standards – Annual Improvements Cycle 2015 – 2017 Cycle

• AASB 2018-2 Amendments to Australian Accounting Standards – Plan Amendment, Curtailment or Settlement [AASB 119]

• AASB 2018-3 Amendments to Australian Accounting Standards – Reduced Disclosure Requirements

• Interpretation 22 Foreign Currency Transactions and Advance Consideration

• Interpretation 23 Uncertainty over Income Tax Treatments

Carmen Ridley

Changes to the Code

Summary of proposed changes to the Code is published on our website

Detailed table of changes will be attached on release of the final Code update 28

Any questions email code@olg.nsw.gov.au

JasmineOLG

Key changes to the Code

General Purpose Financial Statements

Additional line items added to the primary statements:

• Income statement

- Rental income

• Statement of comprehensive income

- FV movements on investment through OCI

Carmen Ridley

Key changes to the Code

Additional line items added to the primary statements:

• Statement of financial position

– Contract assets

– Contract cost asset

– Right of use assets

– Contract liabilities

– Lease liabilities

Carmen Ridley

Key changes to the Code

Additional line items added to the primary statements:

• Statement of changes in equity

– Statement of Changes in Equity – Changes due to AASB 1058 and AASB 15 and AASB 16

• Statement of Cash Flows

– Lease liabilities (principal repayments)

Carmen Ridley

Key changes - Revenue note

Revenue separated depending on which standard is relevant –if neither standard then remove from the revenue note e.g. investment income and rental income

Carmen Ridley

Revenue note continued

• Amendments to some of the accounting policies to reflect new requirements of AASB 1058 and AASB 15.

• Some additional guidance added to the commentary BUT lots of guidance added to the Appendices (Appendix J).

Carmen Ridley

Expenses - leases

• Don’t forget you need to disclose

• Are you capturing this information?

Carmen Ridley

Contract assets and liabilities

Explain the significant contract asset / liabilities balances

Carmen Ridley

Contract assets and liabilities continued

Describe the significant changes in contract assets and liabilities

Carmen Ridley

Contract cost assets

Carmen Ridley

Leases note

• Contains all information about leases for lessor and lessee

• Description of the leases in place

• Reconciliation of right of use assets

• Maturity analysis for lease liabilities

• Information about possible liabilities e.g. extension options

Carmen Ridley

Leases note continued

Carmen Ridley

Lessor disclosures

• Additional disclosures where Council is a lessor

• Operating leases:

– Amounts recognised in income statement

– Maturity analysis of amounts receivable

• Finance leases

– Income relating to finance leases

– Net investment in the finance lease

• Don’t forget when you sub-lease you are a lessor

Carmen Ridley

Change in accounting policy note

• Modified retrospective approach for both revenue and leases

• Illustrative changes in accounting policy

– Council needs to ensure that changes discussed are relevant to them

• Refer to the practical expedients used

Carmen Ridley

AASB 15 and 1058

• Remember need to report on current year numbers under the ‘old’ standards

• Also statement of cash flows if any changes

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Leases

• Reconciliation of operating lease commitment note to lease liabilities at 1 July 2019

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Other changes

• Interest and investment income now Note 5 rather than being part of the revenue note

• Commentary - where the Crown reserves are under a lease arrangement they are accounted for under AASB 16 Leases

• Differentiation of investment property between ‘owned investment property’ and ‘Right to Use’ – body of the Code assumes owned only

• Changes made to results by fund to reflect new balances

Carmen Ridley

Where the Crown reserves are under a lease arrangement they are accounted for under AASB 16 Leases, refer to Note 15.

5. Key Standards issued not yet effective

Key Standards issued not yet effective

• No big changes coming next year except for Service Concession Arrangements.

– Do you know what they are?

– Do you have any?

– Talk to OLG if you suspect any

Carmen Ridley

Key Standards issued not yet effective

• AASB 1059“Applies to arrangements that involve an operator providing public services related to a service concession asset on behalf of a public sector grantor for a specified period of time and managing at least some of those services”

Carmen Ridley

Common features of service concession arrangements

Carmen Ridley

Think about social housing, , rubbish collection, leisure centre, other services you ‘outsource’ to the private sector

the grantor is a public sector entity

operator is responsible for some of the management of

the SC asset and related services and does not merely act as an agent of the grantor

arrangement sets or limits the initial prices to be levied by the

operator and regulates price revisions over the period of the SCA

operator is obliged to hand over the SC asset to the grantor in a specified condition at the end of the arrangement, for little or no

incremental consideration, irrespective of which party initially

financed it

arrangement is governed by a contract that sets out

performance standards, mechanisms for adjusting

prices, and arrangements for arbitrating disputes

Financial statements reminders

Financial statements have been

prepared in accordance with:• Australian Accounting Standards and Interpretations issued

by the Australian Accounting Standards Board (AASB);

• the Local Government Act 1993 and Regulation; and

• the Local Government Code of Accounting Practice and Financial Reporting (the Code).

JasmneOLG

Reminders cont’d

• Do not include Notes or Special Purpose Financial Statements if they are not applicable

• Do not include line items if they are not material or not applicable

• All content in your financial statements should be relevant to your council

• The Code is the minimum requirement – you can add more disclosures if they are meaningful and relevant to the end user

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Reminders cont’d

• Review accounting policies to ensure that all policies are applicable to balances/transactions

• If disclosures illustrated are not material to your council then do not include

• Accounting policies must be disclosed with the relevant Notes

• Notes will be in the order as illustrated in the Code –numbering may vary depending on the number of Notes disclosed

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Reminders cont’d

• Pensioner concession rebates are to be included in the calculation ratios

• Only the asset classes identified in the Infrastructure Asset note are to be included in the calculation of infrastructure ratio

• Ensure the information identified in the Code is reported, eg renewal and new columns in IPPE Note

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Reminders cont’d

Written request for an extension of time for the lodgement of financial statements to be submitted to the OLG by 17 October 2020

Audited financial statements to be submitted to OLG by 31 October 2020

JasmieOLG

Draft Code Consultation reminders?

Consultation period closes Friday 31 January 2020

All questions and any feedback to be provided to: code@olg.nsw.gov.au

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Where to go to for help?

OLG Accounting Practice webpage

http://www.olg.nsw.gov.au/strengthening-local-government/supporting-and-advising-councils/accounting-practice

All documents for download including all there is to know about the draft Code

Email: code@olg.nsw.gov.au

Contact details for OLG 02 4428 4100

OLG

Next Steps

Draft Code released December 2019

Consultation period closes 17 January 2020

Review submission Feb-March 2020

Publish final Code early April 2020

OLG

We thank you for listening and look

forward to your feedback