Consideration of Current Uncertainties In The Financial Statements

We are currently operating in an environment of significant political and economic uncertainty and therefore the judgements, estimates, inputs and assumptions within our financial statements will not be the same as those used in the previous reporting period.

Entities need to consider how the changed environment will affect your reporting numbers both from a current year and potential future considerations and the disclosures should provide specific information to the users on the estimates and judgements made to allow appropriate analysis of the financial position and performance.

Some potential areas of the financial statements which may be affected include:

In addition, the specific challenges of interest rate rises, and high inflation can have the following impacts:

Increasing interest rates

• Impairment indicator identified in AASB 136 means that recoverable amount testing is required
• Higher interest rates mean lower cash flows and therefore more likelihood of impairment
• Higher financing costs and maybe more difficult to refinance
• Lower employee benefit provision due to discounting

Increasing inflation

• Increase in lease liabilities – need to be recalculated in accordance with inflationary rental increases
• Increase in provisions due to increasing costs.
• Consideration of onerous contract provisions for fixed price contracts
• Increase in expected credit loss provisions due to cost of living pressures for counterparties
• Supply chain disruption

Workpapers should clearly set out an entity’s consideration of these issues and the changed assumptions and inputs in compiling the financial statements.  Disclosures should be specific rather than generic and boilerplate.

We highly recommend all entities that may be affected by any of the topics discussed in this newsletter, or those keen to delve deeper into any of these subjects, to reach out to your respective Bentleys contact.

Want to know more about how Bentleys can help you?

For assistance with your financial reporting requirements, contact your local Bentleys audit and assurance advisor. We’re here to help you get where you want to be.