McConnell Dowell 2019 Annual Review

62 McConnell Dowell Group 1. Accounting policies (continued) 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 construction 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. The Group is still in the process of determining the impact of the changes in the accounting standard. 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 2019 Financial Statements 2019