Survey Participant Information - Economic Activity Survey - AASB 16 Leases and 15

Survey Participant Information - Economic Activity Survey

AASB 16 and AASB 15 Guidance
    This page provides guidance on how changes to accounting standards AASB 16 and AASB 15 may affect your responses to the Economic Activity Survey (EAS).

    AASB 16 - Leases
    AASB 15 - Revenue from contracts with customers
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    AASB 16 - LEASES
    The Australian Accounting Standards Board (AASB) has changed the accounting standard applicable to leases. Full details on these changes can be found in the AASB Leases Accounting Standard. Based on this change, the ABS have made amendments to the Economic Activity Survey to better capture leasing information, regardless of whether or not the business you are reporting for has adopted the new standard for lease accounting.

    The guidance below is for general information only. Please refer to the AASB 16 Leases standard for definitive accounting treatments.

    When did the AASB 16 change apply?
    The change applied to annual reporting periods beginning on or after 1 January 2019. For not-for-profit entities, AASB 16 Leases is effective for annual reporting periods beginning on or after 1 January 2020, however it can be adopted earlier.

    How should the income and expenses questions be answered?
    Your answers should be consistent with the treatment of leasing expenses in the business' accounts during the reporting period. For businesses that have adopted the standard, further guidance is provided below.

    What if the business has not adopted the standard?
    If the business you are reporting for has not yet adopted the AASB 16 standard, the operating lease payments should be reported as Rent, leasing and hiring expenses.

    Are there any changes to the reporting of income?
    AASB 16 Leases will not affect the reporting of income for businesses. Operating lease income received should be included in Rent, leasing and hiring income. For lessors of finance leases, the capital repayment is not reported on the Economic Activity Survey and the interest component is reported as Interest Income.

    How has the reporting of expenses changed?
    In accordance with the new Standard, if the business pays rental payments for an operating lease, the business will now account for the payment under different expense items: an interest component, a depreciation component and potentially also an operating expense component.

    How should I report my operating lease expenses?

    The operating lease expenses that are subject to the Standard should be reported as follows:

      • Interest component – include in Total interest expenses and Interest expenses in respect of operating leases;
      • Depreciation component – include in Total depreciation and amortisation and Depreciation and amortisation in respect of operating leases;
      • Operating expenses (for variable lease payments not included in the measurement of the lease liability, or service components previously embedded in the lease) – include in Rent, leasing and hiring expenses.

    How should I report my right-of-use assets which were previously off-balance sheet?

    Assets related to operating leases should not be reported as capital expenditure for the lessee. This includes assets created by AASB 16 for pre-existing operating leases, and assets recognised due to the commencement of new operating leases, re-measurement of an existing operating lease, or lease modifications. The value of the underlying asset is collected through the lessor. Assets acquired through finance leases during the period should continue to be reported as Additions in the Capital expenditure and disposal of assets section against the appropriate asset.

    Where do I report outgoings related to my leases?
    Any outgoings related to leases, such as a fire service levy or utilities charges, should be included in Rent, leasing and hiring expenses.

    Is labour hire included in Rent, leasing and hiring expenses?

    No, labour hire is included in other questions and reported as follows:

      • Payments made to another (related or unrelated) business for the supply of staff on a fee or contract basis, where the staff entitlements are paid by the business supplying the employees, should be recorded in the Labour Costs question Payments to other businesses/organisations (e.g. employment agencies) for staff.
      • Payment to another business for recruitment services (i.e. advertising vacancies, conducting interviews) on behalf of your business should also be included in Payments to other businesses/organisations (e.g. employment agencies) for staff.
      • Any costs incurred by your business in the conduct of its own recruitment processes (e.g. payment directly to newspapers for running job vacancy advertisements) should be reported in Other operating expenses.

    How do I report embedded leases?
    Embedded leases are leases embedded in other contracts which are not primarily for the purposes of leasing. The AASB 16 standard generally requires embedded leases to be separated from the non-lease component and the lease component is then reported as per the Standard.

    How should I report a lease with less than twelve months left on the contract?

    Any operating lease that has a term of less than twelve months is exempt from the Standard. Any lease payments in respect of these leases should be recorded in Rent, leasing and hiring expenses.

    Other Exclusions
    Leases which are not in scope of AASB 16 Leases (the Standard) include:
      • Leases to explore or use minerals, oil, natural gas and similar non-regenerative resources;
      • Leases of biological assets within the scope of AASB 141 Agriculture held by a lessee;
      • Service concession agreements within the scope of Interpretation 12 Service Concession Arrangements;
      • Licences of intellectual property granted by a lessor within scope of AASB 15 Revenue from Contracts with Customers;
      • Rights held by a lessee under licensing arrangements within the scope of AASB 138 Intangible Assets for such items as motion picture film, video recordings, plays, manuscripts, patents and copyrights.
      • The business may elect not to apply the requirements of AASB 16 to short term leases which is a lease that, at the commencement date, has a lease term of 12 months or less. A lease that contains a purchase option cannot be classified as a short-term lease.
      • Low value leases: While the AASB does not specify a threshold for low value leases but generally this refers to leases of assets with a value of less than $5,000 USD. This is based on the value of the asset when it is new, regardless of the age of the asset being leased. For example, low value assets include tablets, personal computers, small items of office furniture, telephones and any similar assets. The expenses associated with low value leases should be reported as Rent, leasing and hiring expenses.

      GLOSSARY
    Lessee: A lessee for the purpose of this survey is a business/organisation that obtains the right to use an underlying asset for a period of time in exchange for consideration.
    Lessor: An entity that provides the right to use an underlying asset for a period of time in exchange for consideration.
    Underlying asset: An asset that is the subject of a lease, for which the right to use that asset has been provided by a lessor to a lessee.
    Operating lease: An operating lease is a lease that does not transfer substantially all the risks and rewards incidental to ownership of an underlying asset.
    Finance lease: A finance lease is a lease that transfers substantially all the risks and rewards incidental to ownership of an underlying asset.

    AASB 15 - REVENUE FROM CONTRACTS WITH CUSTOMERS

    The Australian Accounting Standards Board (AASB) has changed the accounting standard applicable to revenue from contracts with customers. Revenue is recognised when a company transfers control of goods or services to a customer for the agreed amount. Full details on these changes can be found in the AASB 15 Revenue from Contracts with Customers standard. AASB 15 applies to all contracts with customers, except for contracts covered by other standards, such as leases, insurance and financial instruments.

    The guidance below is for general information only. Please refer to the AASB 15 Revenue from Contracts with Customers standard for definitive accounting treatments.

    When does the AASB 15 change apply?
    The change applies to annual reporting periods beginning on or after 1 January 2019 but before 1 January 2021 and specifies the accounting treatment for an individual contract with a customer.

    What is the criteria for revenue recognition?
    Before revenue is recognised, the following criteria must be met:

      • Persuasive evidence of an arrangement must exist;
      • Delivery must have occurred or services been rendered;
      • The seller's price to the buyer must be fixed or determinable;
      • Collectability should be reasonably assured.

    How should the income and expenses questions be answered?
    The core principle of this Standard is that the business shall recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

    Incremental costs of obtaining a contract
    The business shall recognise as an asset the incremental costs of obtaining a contract with a customer if the entity expects to recover those costs. The incremental costs of obtaining a contract are those costs that an entity incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained (for example, a sales commission).

    Costs to obtain a contract that would have been incurred regardless of whether the contract was obtained shall be recognised as an expense when incurred, unless those costs are explicitly chargeable to the customer regardless of whether the contract is obtained.

    Costs to fulfil a contract

    If the costs incurred in fulfilling a contract with a customer are not within the scope of another Standard (for example, AASB 102 Inventories, AASB 116 Property, Plant and Equipment or AASB 138 Intangible Assets), an entity shall recognise an asset from the costs incurred to fulfil a contract only if those costs meet all of the following criteria:

      • the costs relate directly to a contract or to an anticipated contract that the entity can specifically identify (for example, costs relating to services to be provided under renewal of an existing contract or costs of designing an asset to be transferred under a specific contract that has not yet been approved);
      • the costs generate or enhance resources of the entity that will be used in satisfying (or in continuing to satisfy) performance obligations in the future; and
      • the costs are expected to be recovered. For costs incurred in fulfilling a contract with a customer that are within the scope of another Standard, an entity shall account for those costs in accordance with those other Standards.
      Costs that relate directly to a contract (or a specific anticipated contract)
      These costs include any of the following:
        • direct labour (for example, salaries and wages of employees who provide the promised services directly to the customer);
        • direct materials (for example, supplies used in providing the promised services to a customer);
        • allocations of costs that relate directly to the contract or to contract activities (for example, costs of contract management and supervision, insurance and depreciation of tools, equipment and right-of-use assets used in fulfilling the contract);
        • costs that are explicitly chargeable to the customer under the contract;
        • other costs that are incurred only because an entity entered into the contract (for example, payments to subcontractors).

      NEED HELP COMPLETING YOUR SURVEY?

      Further help for completing the Economic Activity Survey 2020-21 is available in one of the following online help documents relevant to your business or please contact us on 1800 010 223 during business hours for further assistance.

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