Change is the new normal for reporting standards

W.consulting's Bruce Mackenzie warned that SA needs to urgently prepare for IFRS 15, 9, 16 and 7.

The global financial crisis happened 10 years ago. Financial reporting standards in place were inadequate, falling profoundly short of regulating a system that crashed and burned with repercussions almost as severe as those of the Great Depression decades earlier. The latest financial reporting standards aim to set and maintain thorough global accounting standards.

South Africa has to urgently prepare for IFRS 15, 9, 16 and 17. 

Speaking at the Finance Indaba 2018 at the Sandton Convention Centre, Bruce Mackenzie, managing director at W.consulting said: 

“We’ve seen the biggest changes in decades in terms of financial reporting. It’s a robust framework. There’s greater simplicity, more consistency, and a more forward-looking approach, but it’s nonetheless intimidating.”

IFRS 9 is the new gold standard on financial instruments, with its predecessor IAS 39, written for banks. IFRS 9 fundamentally changes how we classify and measure, and how we look at impairment and hedge accounting. “Even though we’ve had IFRS 9 since 2014, only about half of us have read it,” said Bruce.  

His aim though, was not to scare the finance professionals into submission. “We have to accept we’re in a state of flux and that change is the new normal,” said Bruce. The auditing landscape is particularly under pressure in South Africa, following the questioning of its independence. 

 

Bruce acknowledged that the change in financial reporting will put significant strain on the accountancy world. IFRS 16 (being implemented in 2019) will have repercussions for the property and construction industries in particular. Any lease will have to bring a property onto the balance sheets. Before IFRS 16, trillions of dollars would be off the balance sheets. “Now they have to be there. It’s going to be challenging,” added Bruce. This can become enormously complicated: how do we define a lease? IFRS 16 says that a lease is a contract. 

Looking to the future means embracing IASB’s workplans, which include changes in goodwill and impairment, business combinations under common control, dynamic risk management, extractive activities, pension benefits that depend on asset returns, share-based payment, and principles of disclosure. Bruce discussed key issues companies need to address in the next few years. 

Bruce concluded: 

“Look, we’re all in the dark and we’re feeling our way through it. There’s going to be an enormous amount of learning. But we’re getting rid of the clutter. These next few years are pivotal for companies.”