ACCESS Family Business - April 2019

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Family Business

With David Pring

WELCOME o KPMG Family Business ea ure ar icles, which I hope you enjoy reading.

I you would like o discuss hese ar icles or how KPMG can help wi h your business, please eel ree o con ac me on 9455 9996 or davidpring@kpmg.com.au

Welcome Blue skies, some clouds: Enterprise client pulse check captures mid-market mood n BRENT MURPHY US over hal o small o medium sized businesses are op imis ic abou heir uure especially hose based in NSW (66 percen ) and Vic oria (49 percen ), wi h Queensland and Sou h Aus ralia close behind.

Te la es KPMG En erprise clien survey also shows i hey have he means, hey’re looking o harness echnology and innova ion o keep ahead o he game.

Tey know his will give hem a dis inc advan age over heir compe i ors and enable hem o ward of disrup ors. No only are hey inves ing in ech bu hey’re looking ou wards o new marke s: 41 percen considered overseas expansion as de ni e or a dis inc possibili y.

Businesses owners repor ed hey are nding i more di cul o secure a loan, wi h 30 percen o mid-sized businesses experiencing di cul ies.

Companies obviously need loans o grow and wi hou a change in lending, his resul sugges s heir op imis ic ou look may be reviewed over he nex 12 mon hs.

Wha is clear is here is a s rong correlaion be ween he down urn in he housing marke and business con dence. Tose who were grea ly or somewha afec ed by he down urn in housing were also more likely o be pessimis ic abou he u ure o heir business, rela ive o hose wi h an op imis ic ou look (61 percen versus 35 percen ).

Tis down urn has afec ed almos hal o responden s, a worrying rend when i comes o also eeling posi ive abou personal nances.

My mid-marke clien s who can aford o do so are adop ing a ‘wai and see’ approach: hey have decided o bide heir ime un il he housing marke drops even ur her be ore inves ing in real es a e.

Te governmen has pu orward a number o ini ia ives o help small business, bu surprisingly he $20,000 ins an asse wri eof scheme is ye o show an impac , wi h only 5 percen o our survey responden s repor ing a posi ive ou come.

Similarly, measures o ackle he Black Economy and reduce ax avoidance announced a las year’s Federal Budge – again aimed predominan ly a he mid-marke – were repor ed by 86 percen as having had no direc impac as ye on heir organisa ion.

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Te En erprise Pulse Check shows ha , compared o o her coun ries, clien s also believe Aus ralia remains highly axed and are urging bo h sides o poli ics o reassess our curren ax s ruc ure o galvanise businesses ha need help mos .

Clien s also eel R&D suppor and incenives are diminishing and governmen s o every persuasion should do more o encourage in erna ional expansion. Tey complain abou red ape and regula ory burdens. Tey

grumble ha he clima e or en repreneurs is challenging and ha he business ven ures o he u ure should be os ered.

Bu despi e every hing, hey s ill say hey eel ‘cau iously op imis ic’.

Wha remains clear is ha he mid marke is resilien and resource ul. O en re erred o as he “engine room o he naion’s economy”, employing nearly a quar er o all Aus ralians and responsible or almos 40 percen o Aus ralia’s business revenue,

mid-marke en erprises will ake economic uncer ain y in heir s ride and are capable o seeing he blue skies behind he clouds.

I you would like o read he KPMG En erprise Pre-Budge Clien Pulse Check 2019 please visi kpmg.com/au/ en erprise, or please con ac David Pring on 9455 9996 or davidpring@kpmg.com. au.

ARTICLE FIRST PUBLISHED BY BRENT M URPHY, PARTNER, KPMG ENTERPRISE ON KPMG N EWSROOM

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When is a contract not a revenue contract? n KIM HENG ASB 15 Revenue rom Con rac s wi h Cus omers is now applicable. Tis ar icle discusses si ua ions when a con rac migh be par ially in he scope o he new revenue s andard and par ially in he scope o ano her s andard.

Te new revenue s andard is a residual s andard. I picks up any con rac s wi h cusomers ha are le a er you have iden i ed any o her s andards ha migh apply rs .

Mos commonly his o her s andard could be AASB 117/ AASB 16 Leases bu i could also be o hers such as AASB 9 Financial Ins rumen s or AASB 4 Insurance Con rac s.

For example, a company may be ren ing ou a building and providing cleaning and main enance services o he enan .

Te ren al would be accoun ed or under he lease’s s andard, whils he cleaning and main enance services would be cap ured by he new revenue s andard. ypically you rs apply he guidance in he o her s andards o work ou how you separa e he par s ha are in scope o ha s andard and wha is le is in he revenue s andard.

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Why does it matter?

I ’s emp ing o hink ha spliting a conrac in o i s diferen componen s really isn’ ha impor an . Especially i bo h elemen s have similar revenue pro les i.e. par s raigh line opera ing lease revenue and par overime service revenue like he ren al example discussed earlier.

Whils ha is rue, i is impor an o remember ha he new revenue s andard also in roduces a whole sui e o new disclosure requiremen s.

Te disclosure requiremen s in he new revenue s andard only apply o con rac s o he ex en ha hey are wi hin he scope o he s andard. here ore i you do no spli he con rac and assume i ’s all in scope o he new revenue s andard, hen you may end up providing more disclosures abou he whole con rac , han you would have had o i you had spli he con rac in o he revenue and o her componen par s.

Having said ha , when you do separa e

a con rac in o i s componen s you will need o provide he appropria e disclosures or he o her par s o he con rac as well, e.g. leasing or nancial ins rumen s disclosures.

Tere may also be ins ances where he iming o recogni ion o revenue could be di eren . For example, i par o he arrangemen is a nancial ins rumen , he rea men o cash ows received will be diferen o ha under he new revenue s andard. In ano her example, a service provider migh use a dedica ed machine o provide a service o a cus omer, and also provide a main enance services or he machine across he con rac li e.

Whils he ren al income on he machine may be recognised s raigh line as an opera ing lease, he revenue alloca ed o he main enance services migh be recognised each ime hey are provided no s raigh -line, resul ing in

diferen revenue recogni ion pro les or he wo componen s.

How do you split the contract? o work ou wha is in he scope o each s andard, you s ar wi h he o her s andards rs . I nancial ins rumen s are involved i may be ha a er you have recognised any nancial asse s or liabili ies a air value, here is no hing le o be scoped in o AASB 15.

I leases are involved, once you have adop ed he new leases s andard, ha s andard ells you o use he normal ‘s andalone selling price’ principles in he revenue s andard o alloca e revenue be ween he lease and revenue componen .

Alloca ing be ween various s andards can be more complex han alloca ing revenue be ween per ormance obliga ions as you mus

deal wi h requiremen s and in erac ions o a number o diferen s andards.

For example, con rac leng hs due o renewal op ions may be in erpre ed diferen ly under he leasing and revenue s andards, po en ially impac ing he o al o revenue/ income o be recognised and iden i ca ion o diferen promises in he con rac . You will need o care ully consider he in erplay be ween s andards care ully.

Tere ore, his is no some hing ha should be atemp ed las minu e bu needs o be sys ema ically hough hrough.

I you wish o discuss his ur her, or any o her aspec s o he implemen a ion o AASB 15, please con ac David Pring on 9455 9996 or davidpring@kpmg.com.au.

First published by Kim Heng - Partner, KPMG Australia.

Aus ralian s ar -up ecosys em needs grow h n BEN VAN DELDEN n GEORGIE ALEY n PIERS HOGARTH-SCOTT

3. Focus on Australia’s strengths Aus ralia has a s rong ood sa e y cul ure and rading sys em, a rai he res o he world admires and sees as having huge po en ial.

Tere is a risk ha Aus ralia will lose i s di eren ia ion hrough chasing grow h. Tere needs o be a mind ulness abou s icking o wha makes Aus ralia unique.

REA efor has been made owards inves ing in ood and agribusiness, however Aus ralia is s ill lagging wi h echnology compared wi h many global coun erpar s.

Te es ablishmen o s ar -up hubs, unds, incuba ors and accelera ors across Aus ralia has been promising when i comes o suppor ing he Aus ralian ood and agribusiness sec or wi h innova ive echnology.

However, here is s ill a long way o go o ma ch global leaders in he space. Four key ocus areas o achieve his are:

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4. Create new ecosystems

1. The role of Government

Aus ralia needs o be u ure ocused.

Sus ainabili y, circular economy and a connec ion o hose who are ea ing he ood are he hemes o he u ure. Tough s need o be given o urbanised areas and in egra ing he green bel around ci ies.

While Aus ralia mos de ni ely has a varie y o unique oferings or he global marke , here should also be ime aken o gain inspira ion and learn rom he in erna ional ne work o ur her connec in his AgriFood ech revolu ion.

Israel is a grea example o disrup ive produc ion sys ems, he Ne herlands is a grea example o urban arming, he US has s rong ven ure capi al and Sou h Eas Asia and China have huge, as -growing marke s.

Aus ralia needs o work wi h hese in erna ional players as he oppor uni y is presen , and he urgency or AgriFood ech adop ion is immedia e.

oo o en he Governmen is seen merely as a source o unding, however i can play a much more impor an role in assis ing he AgriFood ech indus ry wi h echnological innova ion. As new echnologies come o marke , o en he rs ime he Governmen will see hese is when i si s be ween budge and legal.

As he regula or, i has o make a bold decision whe her or no o up ake he echnology and make i available o he marke . I he AgriFood ech indus ry could ake on an advisory role and work alongside Governmen in he developmen al s age, i could advoca e or he up ake o hese new echnologies

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and heir posi ive use in he indus ry, hus increasing he po en ial or more innova ive ou comes.

2. Overcoming the adoption challenge Adop ion o AgriFood ech is a common problem, par icularly across Aus ralia and New Zealand. Tousands o armers who are s ruggling o adop new echnologies are also acing drough and oods (in Aus ralia), and pressure rom he commu-

ni y abou over in ensi ca ion o land (in New Zealand).

Tis increases he impor ance o crea ing an ecosys em in which echnology developers are brough oge her wi h echnology users.

Te ocus needs o shi rom solving a single issue in he produc ion sys em, o rede ning and reshaping he en ire produc ion sys em.

Te Governmen mus consider implemen aion o ax concessions or use o AgriFood ech on- arm o encourage up ake o new echnology a an earlier s age.

First published by Ben van Delden - Partner, KPMG Australia, Georgie Aley - Director, Food & Agribusiness KPMG Australia and Piers Hogarth-Scott - National Leader IoT, KPMG Australia.

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