The William Buck Financial Reporting series has wrapped up for the year, providing finance professionals with the latest insights to help their business. Covering various topics including changes in accounting standards, ATO’s tax insights and the latest trends in merger and acquisitions.
Financial Reporting update
With recent changes to Australian Accounting standards, Cate Pozzi outlined how to better equip yourself on the implementation issues. Cate first discussed the changes in reporting requirements for all SME’s of Australian Accounting Standards Board (AASB 15, AASB 9 & AASB 16) which considers revenue recognition, financial instruments and leases in a different light, respectively.
Cate’s key takeaways:
- The application of AASB 15 will impact the timing of revenue recognition. If your contracts are short-term, the effect may not be material compared to long term contracts, however, the disclosures will change and need to be focused on.
- AASB 16 Leases applies to financial years beginning on or after January 1, 2019 with entities needing to recognise all assets and liabilities arising for all leases, with limited exemptions.
- The classification and measurement of financial assets (AASB 9) now include the implementation of a three-stage impairment loss model. With the implementation you need to take a broader approach in the information considered when determining expected credit losses.
Cate said transitioning to full compliance with Australian Accounting Standards can be a time-consuming exercise. To stay ahead, Cate said it’s imperative you don’t just revise accounting policies, but ensure your financial reporting is up to standards by identifying and calculating the required adjustments to the financials and considering how the revised obligations will be complied going forward.
“It’s important to document assessments and judgements and consider how the changes will impact your financial statements early.” – Cate Pozzi.
Tax Director, Greg Travers discussed how you can manage tax risk and reduce your chance of being selected for an audit.
“A lack of documentation can be substituted as being ‘risky in the eyes of the ATO.’” – Greg Travers
Thinking about your tax risks will not suffice, processes and considerations need to be documented. Tax risk governance should be an essential component of any tax management strategy for all mid to large private companies, public companies and multinationals. Being able to demonstrate that you have a strong tax governance system in place will reduce your likelihood of being subject to an audit examination by the ATO.
A key take-away from the presentation is to get advice, a ruling or prepare a report to support tax positions. ATO’s list of specific tax issues should also be monitored to ensure you’re ‘ahead’ and prepared.
Mark Calvetti shared exclusive insights from their research into both the 2019 analysis of Mergers and Acquisitions and Venture Capital. The study covered venture capital investment activity in Australia within the last 10 years and merger and acquisition activity in the mid-market over the last 5 years.
In 2018 the value of Venture Capital investments in Australia grew by 121% to $3.1 billion from $1.4 billion in 2017, while the average deal size grew from $7.5 million in 2017 to $20 million in 2018. Key areas of investment by VC’s in Australia were Technology and healthcare/ Biotechnology, and rates of return required by VCs on their investments ranged from 28% to 45%.
Mid-market M&A transactions (deal size of $10m-$250m) made up about half the total volume of all transactions in FY18 with an average deal size of $62m.
“Over the last 6 years with the fluctuations in the Australian dollar foreign buyers have made up between 32% to 39% of all M&A transactions and paid on average a 24% higher valuation multiple than local buyers. The USA and Singapore have been the most active countries acquiring mid-market businesses. It’s predicted that the Australian dollar will dip further in the coming year, and we’ll see foreign buyer demand continue – if not increase significantly.” – Mark Calvetti
Based on their findings, there is a direct correlation between the fall in the Australian and American dollar and increased foreign buyers into the Australian market.
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