McConnell Dowell 2018 Annual Review

20 1. Accounting Policies (continued) AASB 9 Financial Instruments On 24 July 2014, the IASB issued the final IFRS 9 Financial Instruments Standard, which replaces earlier versions of IFRS 9 and completes the IASB’s project to replace IAS 39 Financial Instruments: Recognition and Measurement. AASB 9, the Australian equivalent to IFRS 9, replaces the ‘incurred loss’ model in IAS 39 with a forward- looking ‘expected credit loss’ (ECL) model. This will require considerable judgement about how changes in economic factors affect ECLs, which will be determined on a probability-weighted basis. The new impairment model will apply to financial assets measured at amortised cost. The change from an incurred loss model to an ECL model when assessing the impairment of contracts in progress, certified contract receivables and trade receivables is not expected to have a significant impact on the Group under the new standard. Based on the nature of the customer base and the low level of historic credit losses, bad debts are not considered a major expense to the Group. The incurred loss model, currently is calculated on a client by client basis and only if a loss was expected for a specific client, a provision is raised. This will need to be adjusted to the ECL model, where expected future losses are included in the calculation and applied across the various portfolios of the trade receivables book and are to be applied to all customers. The consolidated financial statement disclosures will be updated in the year of adoption to ensure compliance with IFRS 7 and IFRS 9 requirements including the implications of adoption of the various transition options. Based on the outcomes of the detailed assessments, referred to above, the Group will determine which transition option to apply. The group is still in the process of determining the equity adjustment that may be required to account for the expected credit loss on its contracts in progress, certified contract receivables and trade receivables. AASB 16 Leases AASB 16 Leases replaces existing leases guidance, including AASB 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases – Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard is effective for annual periods beginning on or after 1 July 2019. AASB 16 introduces a single, on-balance sheet lease accounting model for lessees. A lessee recognises a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. There are recognition exemptions for short-term leases and leases of low-value items. Lessor accounting remains similar to the current standard – i.e. lessors continue to classify leases as finance or operating leases. The Group leases multiple assets such as buildings and motor vehicles for example as well as certain low value assets and short term leases and currently accounts for these as operating leases and also leases multiple assets such as mining equipment for example and currently accounts for these as finance leases. Management has performed a high level assessment of the impact of the standard on its consolidated financial statements. Management continues with detailed assessment to determine the extent of these potential changes. On application the current operating lease assets will be capitalised and reflected as lease assets (right-of-use- assets) and lease liabilities on the statement of financial position. The previous straight lining effect associated with AASB 117 accounting will be reversed, resulting in further accounting impacts on the consolidated financial statements. On application the existing finance lease assets and liability will be remeasured in line with the requirements of the standard and reclassified and reflected as a lease assets (right-of-use-assets) and lease liabilities on the statement of financial position. The statement of cash flows will be affected as well, with payments needing to be split between repayments of principal and interest. The consolidated financial statement disclosures will be updated in the year of adoption to ensure compliance with AASB 16 requirements including the implications of adoption of the various transition options. Based on the outcomes of the detailed assessments, referred to above, the Group will determine which transition option to apply. AASB Interpretation 23 Uncertainty over Income Tax Treatment The interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects AASB 112. The interpretation specifically addresses the following: • Whether an entity considers uncertain tax treatments separately • The assumptions an entity makes about the examination of tax treatments by taxation authorities • How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates • How an entity considers changes in facts and circumstances The Group is still in the process of determining the impact of the changes in the accounting standard. Notes to the Annual Financial Statements (continued) For the year ended 30 June 2018