Consolidated Financial Statements - ACCA Annual Report

ASSOCIATION OF CHARTERED CERTIFIED ACCOUNTANTSNotes to the Financial StatementsFor the year ended 31 March 20191.General informationACCA is a body incorporated under Royal Charter with statutory recognition in the UK. Councilhas concluded that as an international organisation, ACCA should prepare financial statementswhich comply with International Financial Reporting Standards (IFRS) as issued by the InternationalAccounting Standards Board (IASB) and adopted by the European Union.These financial statements are presented in pounds sterling because that is the currency of theparent undertaking which is domiciled in the UK. All values are rounded to the nearest thousandpounds. Non-UK operations are included in accordance with the policies set out in note 2.New and amended standards adopted during the year and changes in accounting policiesACCA has applied the following standards and amendments for the first time for the annualreporting period commencing 1 April 2018. IFRS 9: Financial InstrumentsIFRS 9 introduced new requirements for the classification and measurement of financialassets and the classification and measurement requirements for financial liabilitiesalong with the requirements for recognition and derecognising of financial assetsand liabilities. It also introduces an ‘expected credit loss model’ for the impairmentof financial assets. IFRS 9: Financial Instruments has replaced IAS 39 FinancialInstruments: Recognition and Measurement in its entirety.IFRS 15: Revenue from Contracts with CustomersIFRS 15 requires the recognition of revenue to depict the transfer of promised goodsor services to a customer in an amount that reflects the consideration to which thecompany expects to be entitled in exchange for those goods or services.IFRS 9: ‘Financial Instruments’ was issued in July 2014 and has an effective date for years beginningon or after 1 January 2018. It replaces the provisions of IAS 39 that relate to the recognition,classification and measurement of financial assets and liabilities, de-recognition of financialinstruments, impairment of financial assets and hedged accounting. The new standard is basedon the concept that financial assets should be classified and measured at fair value, with changesin fair value recognised in profit or loss as they arise (“FVPL”), unless restrictive criteria are metfor classifying and measuring the asset at either amortised cost or fair value through othercomprehensive income (“FVOCI”).IFRS 9 also establishes a new approach for the impairment of loans and trade receivables, anexpected loss model, which focuses on the risk that a debt will default rather than when a loss hasbeen incurred. Under the “expected credit loss” model, an entity calculates the allowance for creditlosses by considering on a discounted basis the cash shortfalls it would incur in various defaultscenarios for prescribed future periods and multiplying the shortfalls by the probability of eachscenario occurring. ACCA has opted to use the simplified approach measuring expected creditlosses using a lifetime expected credit loss provision for trade receivables. To measure expectedcredit losses on a collective basis, trade receivables are grouped based on similar credit risk andaging.Following the adoption of IFRS 9, ACCA has changed its accounting policies as set out below.ACCA has elected to recognise changes in fair value of investments in financial assets through profitor loss and not through other comprehensive income. A gain or loss from fair value changes will beshown in profit or loss.A financial asset measured at fair value through profit or loss is recognised initially at fair valuedirectly attributable to the financial asset. After initial recognition, the asset is measured at fair valueat the balance sheet date. Unrealised and realised changes in fair value are included as “financeincome” through profit or loss in the consolidated income statement. Dividends are recognised as“finance income” in profit or loss.ACCA applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetimeexpected credit loss provision for trade receivables. To measure expected credit losses ona collective basis, trade receivables are grouped based on similar credit risk and aging.9

ASSOCIATION OF CHARTERED CERTIFIED ACCOUNTANTSNotes to the Financial StatementsFor the year ended 31 March 20191General information (continued)The expected loss rates are based on ACCA’s historical credit losses experienced over previousperiods. The historical loss rates are then adjusted for current and forward-looking factors affectingACCA’s members, students and other customers e.g. retention rates.IFRS 15: ‘Revenue from Contracts with Customers’ was issued in May 2014 and has an effective dateof 1 January 2019. ACCA has adopted IFRS 15 retrospectively in its consolidated financial statementsfor the year ended 31 March 2019.ACCA completed an assessment of the impact of IFRS 15 using the five-step approach as outlinedin the standard. The review included identifying the contract, identifying the performance obligations,determining the transaction price, allocating the transaction price and recognising the revenue.The review also considered the impact of an update from the International Financial ReportingInterpretations Committee (IFRIC) in September 2018 in relation to a one-off listing fee which a stockexchange charges. The review identified that there would be a change in treatment of memberadmission, student registration and some aspects of student subscriptions. No other materialdifferences between ACCA’s current revenue recognition policy and the requirements of IFRS 15 wereidentified.ACCA’s assessment of member admission and student registration fees using the five-stepapproach is outlined below.ContractContract relates to being considered for entry as a member or studentof ACCAObligationsTo transfer the rights and benefits of membership in lieu of the annualsubscription for the year in questionPriceDetermined as price at point of saleAllocation100% of price allocated to period of membershipRevenue recognitionRevenue to be recognised from the period of admission/registration tothe start of the next subscription periodACCA’s revenue is predominantly subscription revenue from members and students, examinationand exemption revenue, and revenue from courses and events. Revenue from subscription feesresult in performance obligations being ‘met over time’ rather than at a ‘point in time’. It is thereforeappropriate that this revenue continue to be recognised over the period that the subscription relates.Examination, exemption and course revenue has a performance obligation that is met at a ‘point intime’, being the month in which the exam is sat, exemptions are awarded or courses are undertaken.Revenue recognition for these streams remains unchanged under IFRS 15.IFRS 15 requires that incremental costs of obtaining a contract, including sales commissions, arerecognised in line with the transfer of the service to customers. Sales commissions are currentlyexpensed as incurred, if ACCA were to recognise these over the period that the performanceobligations are satisfied, it would not result in a material change to the financial results for the year.Following the adoption of IFRS 15, ACCA has changed its accounting policy as set out below.ACCA has elected to apply the Cumulative Effect Method approach under IFRS 15. Under IFRS 15,ACCA has adjusted opening reserves, a reduction of 1.8m, with deferred income increasing by 1.2m and accrued income reducing by 0.6m. The change reflects the requirement of IFRS 15 toassess the transfer of goods or services to the customer and to identify the performance obligationsin the contract. On examination of the facts for member admission fees and student registration fees,these contracts did not result in a transfer of services at the point of admission/registration, insteadprovided access to the benefits of membership in advance of the subscription being billed in thefollowing period.10

ASSOCIATION OF CHARTERED CERTIFIED ACCOUNTANTSNotes to the Financial StatementsFor the year ended 31 March 20191General information (continued)Therefore, application of IFRS 15 requires member admission fees to be deferred over the periodfrom admission to the date of the member’s first annual subscription, student initial registrationsbeing deferred over the period from registration to the date of the student’s first annualsubscription and student subscriptions being recognised over the period from the date on whichit was raised until the date of the next year’s subscription. Prior to this change membersadmission fees and student initial registration fees were recognised immediately with nodeferral. A proportion of student subscriptions which formed part of a second annual subscriptionrun had previously been accrued and recognised over a 12 month period.New and revised IFRS in issue but not yet effectiveAt the year end the following new standards, interpretations and amendments, which havenot been applied in these financial statements, may have an effect on ACCA’s future financialstatements: IFRS 16: LeasesIFRS 16 requires lessees to recognise nearly all leases on the balance sheet which willreflect their right to use an asset for a period of time and the associated liability forpayments. IFRS 16 was introduced on 1 January 2019 and is expected to impacton the ACCA’s future financial statements as it will change how ACCA accountsfor leases, which were previously classed as operating leases. A right of useasset together with a related lease liability will be required to be recognised in thefinancial statements. ACCA expects that this treatment will apply to all of itsrented offices and some software licences. ACCA estimates that on 1 April2019, the net book value of right of use assets brought onto the balance sheetwill be 36.3m and the value of the corresponding lease liability will be 44.3m. Theimpact on the income statement is estimated to be an increase of 0.6m. IFRS 16 ismandatory and ACCA will adopt the full retrospective approach from 1 January 2019. Itis anticipated that the effect of first time adoption of this standard will reduce openingnet assets by c 0.4m. The calcula

These consolidated financial statements present the results for ACCA and its subsidiaries for the year ended 31 March 2019. ACCA publishes an Integrated Report which provides a wide range of information about ACCA’s strategy, governance, performance and prospects to show