It has been a busy start for the 2019 Financial year, as Hotel Asset Managers were working closely with Finance Teams to apply changes in accounting policies under FRS 102 and assess the impact of IFRS 9, amongst other standards to ensure adequate disclosures are made in Financial Statements.
It is imperative that credit risk of financial assets is carefully assessed as this impacts the expected credit loss recognised through other comprehensive income. One of key assets on almost every hotel’s Balance Sheets are Trade Receivables, hence careful assessment of impairment needs to be made. Consideration needs to be given to the geographical spread, as country risk and the probability of counterpart default, will impact the expected credit loss, as IFRS 9 has introduced an updated impairment model. This requires management to assess the risk of non-collectability of trade receivables after considering the nature of activities and customers.
After applying the impairment requirements for the recognition and measurement of a loss allowance, for financial assets that are measured at fair value, the impairment shall be recognised in other comprehensive income and shall not reduce the carrying amount of the financial asset in the statement of financial position.
Similarly, advance deposits or payments from customers need to be looked from an IFRIC 22 perspective, although in practice, the assessed the impact of these are non-significant, when compared to the trade and other payables on hotel balance sheets. Hence, what is normally considered a good thing, requires further assessment to ensure only those that are not refundable are recognised as income.
Lastly, one of the lesser seen tricky items is investment in non-consolidated companies. Hotel groups need to assess whether they account for these financial assets at fair value through other comprehensive income, in accordance with the options permitted by IFRS 9. Should these investments form part of a long-term strategy that is independently verifiable and are not intended to be sold in the short term, they are no longer subject to an impairment assessment. Which should make life for Hotel Asset Managers, easier, at least in the long term.
As the implementation of IFRS 9 has been recent, we welcome community members to share their experience and thoughts.