New accounting standards ‘good’ for local businesses

Business

Two new international accounting standards could have a significant impact on the way Papua New Guinea businesses report their financial results, according to auditing firm, Klynveld Peat Marwick Goerdeler (KPMG).
Effective for periods beginning on or after Jan 1, 2019, the concept of operating and finance leases for lessees will cease. Property and equipment leases previously recognised off-balance sheet will be accounted for as assets with associated lease liabilities, bringing more transparency about an organisation’s lease commitments while changing financial metrics such as return on capital and EBITDA (earnings before interest, tax, depreciation and amortisation).
KPMG PNG audit manager Ivan Obradovic said the new accounting standard could change how people did business and was not a basic accounting exercise.
Obradovic said to reduce the impact on financial reporting, leasing strategies might have to be reassessed, procurement processes adjusted as leases would no longer be considered an operating expense, but a capital expense.
He said upfront communication with stakeholders would be key to a successful transition given the changes to financial metrics, such as key performance indicators or debt covenants.  A second significant new international accounting standard will have an impact on how revenue is accounted for and reported.

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