| Significant accounting policies | Note 2. Significant
accounting policies The principal accounting policies adopted in the preparation of the consolidated financial statements are
set out below. Going concern The Group has determined there is material uncertainty that may cast significant doubt on the Group’s
ability to continue as a going concern but has concluded it is appropriate to prepare the consolidated financial statements on a going concern basis which contemplates continuity of normal business activities,
the realization of assets and settlement of liabilities in the ordinary course of business. The operating cash flows generated by the Group are inherently linked to several key uncertainties and risks
including, but not limited to, volatility associated with the economics of Bitcoin mining and the ability of the Group to execute its business plan. For the year ended 30 June 2023, the Group incurred a loss after tax of $171,871,000 (2022: $419,770,000)
and net operating cash inflows of $6,045,000 (2022: $21,557,000). As at 30 June 2023, the Group had net current assets of $65,229,000 (2022: net current assets of $75,148,000)
and net assets of $305,361,000 (2022: net assets of $437,362,000). As further background, the Group’s miners are designed specifically to mine Bitcoin and its future success will depend in a large part upon the value of Bitcoin, and any sustained decline
in its value could adversely affect the business and results of operations. Specifically, the revenues from Bitcoin mining operations are predominantly based upon two factors: (i) the number of Bitcoin rewards
that are successfully mined and (ii) the value of Bitcoin. A decline in the market price of Bitcoin, increases in the difficulty of Bitcoin mining, changes in the regulatory environment, the halving event
expected in Q4 FY2024 and/or adverse changes in other inherent risks would significantly negatively impact the Group’s operations. Due to the volatility of the Bitcoin price and the effects of the other
aforementioned factors, there can be no guarantee that future mining operations will be profitable. The strategy to mitigate these risks and uncertainties is to try execute a business plan aimed at
operational efficiency, revenue growth, improving overall mining profit, managing operating expenses and working capital requirements, maintaining potential capital expenditure optionality, and securing
additional financing, as needed, through one or more debt and/or equity capital raisings. The continuing viability of the Group and its ability to continue as a going concern and meet its debts
and commitments as they fall due are therefore significantly dependent upon several factors. These factors have been considered in preparing a cash flow forecast over the next 12 months to consider the going
concern of the Group. The key assumptions include:
●
A base case scenario assuming recent Bitcoin prices and global hashrate, with a reduction in global hashrate following the halving event expected
in Q4 FY2024;
●
Four operational sites with installed nameplate capacity of 180MW; 30MW Canal Flats (BC, Canada), 80MW Mackenzie (BC, Canada), 50MW Prince George
(BC, Canada), and 20MW Childress (Texas, USA); and
●
Continued development and expansion of the 600MW site at Childress, Texas. The key assumptions have been stress tested using a range of Bitc oin price and global
hashrate scenarios including with respect to the halving event expected in Q4 FY2024. As a result, the Group has concluded there is material uncertainty related to events or
conditions that may cast significant doubt on the Group’s ability to continue as a going concern and, therefore, that it may be unable to realize its assets and discharge its liabilities in the
normal course of business. However, the Group considers that it will be successful in the above matters and will have adequate cash reserves to enable it to meet its obligations for at least one year from the date of approval of the consolidated financial statements, and, accordingly, has
prepared the consolidated financial statements on a going concern basis. Basis of preparation These consolidated financial statements have been prepared in accordance with the International
Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Historical cost basis The consolidated financial statements have been prepared on a historical cost basis, except for
financial assets and liabilities at fair value through profit or loss. Critical accounting estimates The preparation of the consolidated financial statements requires the use of certain critical accounting
estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the consolidated financial statements, are disclosed in note 3. Principles of consolidation The principles outlined below are guided by IFRS 10 ‘Consolidated Financial Statements’ and pertain to the preparation of consolidated financial statements for Iris Energy Limited
and its subsidiaries. The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Iris
Energy Limited as at 30 June 2023 and 30 June 2022 and the results of all subsidiaries for the years ended 30 June 2023, 30 June 2022, and 30 June 2021. Subsidiaries are all those entities over which the Group has control (as listed in note 27). The Group
controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the
activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. Where the Group loses control over a subsidiary, it derecognizes the assets including goodwill and liabilities in the subsidiary together with any cumulative translation
differences recognized in equity. The Group recognizes the fair value of the consideration received and the fair value of any investment retained together with any gain or loss in profit or loss. Intercompany transactions, balances and unrealized gains on transactions between entities in the Group
are eliminated upon consolidation. Accounting policies of subsidiaries align to the policies adopted by the Group. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in
ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value of the share of the non-controlling
interest acquired is recognized directly in equity attributable to the parent. Operating segments Operating segments are presented using the ‘management approach’, where the information presented is on
the same basis as the internal reports provided to the Chief Operating Decision Makers (CODM). The CODM is responsible for the allocation of resources to operating segments and assessing their performance.
Functional and presentation currency D uring the year ended 30 June 2022,
the Directors elected to change the Group’s presentation currency from Australian dollars (A$) to United States dollars ($, US$ or US dollars) effective from 1 July 2021. The change in presentation
currency was a voluntary change which has been accounted for retrospectively. The consolidated financial statements for 30 June 2022 have been restated to US dollars using the procedures outlined
below
●
Statement of profit or loss and other comprehensive income and statement of cash flows for each group entity were consolidated into US
dollars using average foreign currency rates prevailing for the relevant period.
●
Assets and liabilities in the consolidated statement of financial position were translated into US dollars at the closing foreign currency
rates on the relevant balance sheet dates.
●
The equity section of the consolidated statement of financial position, including foreign currency translation reserve, accumulated losses,
share capital and the other reserves, were translated into US dollars using the historical rates, being the rate on the date of the transaction
●
Earnings per share and dividend disclosure were also restated to US dollars to reflect the change in presentation currency. The functional currency of the Parent is Australian dollars, whilst the presentation currency of the
Group is in US dollars. Some subsidiaries have a functional currency other than Australian dollars which is translated to the presentation currency. The presentation currency of US dollars has
been adopted to suit the needs of the primary users of the financial statements. Transactions in currencies other than an entity’s functional currency are initially recorded in the
functional currency by applying the exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in currencies other than an entity’s functional currency are
retranslated at the foreign exchange rate ruling at the reporting date. Foreign exchange differences arising on translation are recognized in the consolidated statements of profit or loss. Foreign exchange differences that arise on the
translation of monetary items that form part of the net investment in a foreign operation are recognized in the foreign currency translation reserve in the consolidated statements of financial position. Foreign operations The assets and liabilities of foreign operations are translated into US dollars using the relevant
exchange rates at the reporting date. The revenues and expenses of foreign operations are translated into US dollars using the average exchange rates, which approximate the rates at the dates of the
transactions, for the period. All resulting foreign exchange differences are recognized in other comprehensive income through the foreign currency translation reserve in equity. The foreign currency reserve, reflecting the cumulative translation differences, Revenue and other income recognition The Group recognizes revenue and other income as follows: Revenue from contracts with customers Revenue is recognized at an amount that reflects the consideration to which the Group is expected to
be entitled in exchange for transferring goods or services to a customer. For each contract with a customer, the Group: identifies the contract with a customer; identifies the performance obligations in
the contract; determines the transaction price which takes into account estimates of variable consideration and the time value of money; allocates the transaction price to the separate performance
obligations on the basis of the relative stand-alone selling price of each distinct good or service to be delivered; and recognizes revenue when or as each performance obligation is satisfied in a manner
that depicts the transfer to the customer of the goods or services promised. Bitcoin mining revenue The Group operates data center infrastructure supporting the verification and validation of Bitcoin
blockchain transactions in exchange for Bitcoin, referred to as “Bitcoin In the mining pools which the Group participated in during the years ended 30 June 2023, 30 June 2022 and 30 June 2021, the
Group is not directly exposed to the pool’s success in mining blocks. The Group is rewarded in Bitcoin for the hashrate it contributes to these mining pools. The reward for the hashrate contributed by
the Group is based on the current network difficulty and global daily revenues from transaction fees, less mining pool fees. Bitcoin mining revenue comprises of the block reward and transaction
fees bundled together in a gross daily deposit of Bitcoin into the Group’s exchange wallet. Bitcoin received from the mining pool operator are remitted to the pool participants’ wallets net of the
fees of the mining pool operator. The mining pool operator fees is reflected in the quantity of Bitcoin received by the Group and recorded as a reduction in Bitcoin mining revenue. The Group measures the non-cash consideration received at the fair market value of the Bitcoin
received. Management estimates fair value on a daily basis, as the quantity of Bitcoin received multiplied by the price quoted on www.kraken.co m (‘Kraken’) on Nil Other income Other income is recognized when it is probable that the economic benefits will flow to the Group,
and the amount of income can be reliably measured. Other income is measured at the fair value of the consideration received or receivable. Gains from the sale of other assets are recognized when the
control of the asset has been transferred, and it is probable that the entity will receive the economic benefits associated with the transaction. Income tax The income tax expense for the period is the tax payable on that period’s taxable income based on
the applicable income tax rate for each jurisdiction, adjusted by the changes in deferred tax assets and liabilities attributable to temporary differences, unused tax losses and the adjustment
recognized for prior periods, where applicable. Deferred tax assets and liabilities are recognized for temporary differences at the tax rates
expected to be applied when the assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted, except for:
●
when the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a transaction
that is not a business combination and that, at the time of the transaction, affects neither the accounting nor taxable profits; or
●
when the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures, and the timing of the
reversal can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets are recognized for deductible temporary difference only if the Group considers
it probable that future taxable amounts will be available to utilize those temporary differences and losses. The carrying amount of recognized and unrecognized deferred tax assets are reviewed at each
reporting date. Deferred tax assets recognized are reduced to the extent that it is no longer probable that future taxable profits will be available for the carrying amount to be recovered. Previously
unrecognized deferred tax assets are recognized to the extent that it is probable that there are future taxable profits available to recover the asset. Deferred tax assets and liabilities are offset only where there is a legally enforceable right to
offset current tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable authority on either the same taxable entity or
different taxable entities which intend to settle simultaneously.
Uncertainties exist with respect to the interpretation of complex tax regulations, changes in tax
laws, and the amount and timing of future taxable income. These uncertainties may require management to adjust expectations based on changes in circumstances, which may impact the amount of deferred
tax assets and deferred tax liabilities recognized in the statement of financial position and the amount of other tax losses and temporary differences not recognized. In such circumstances, some or
all of the carrying amounts of recognized deferred tax assets and liabilities may require adjustment, resulting in a corresponding credit or charge to the consolidated statement of profit or loss and
other comprehensive income. Current and non-current classification Assets and liabilities are presented in the consolidated statement of financial position based on
current and non-current classification. An asset is classified as current when it is either expected to be realized or intended to be sold
or consumed in the Group’s normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realized within 12 months after the reporting period; or the asset is cash or
cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other assets are classified as non-current. A liability is classified as current when it is either expected to be settled in the Group’s
normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within 12 months after the reporting period; or there is no unconditional right to defer the settlement
of the liability for at least 12 months after the reporting period. All other liabilities are classified as non-current. Deferred tax assets and liabilities are always classified as non-current. Cash and cash equivalents Cash and cash equivalents includes cash at bank, deposits that can be withdrawn
without notice Financial assets Financial assets are initially
measured at fair value. Transaction costs are included as part of the initial measurement, except for financial assets at fair value through profit or loss. Such assets are subsequently measured at
either amortized cost, fair value through profit or loss, or fair value through other comprehensive income depending on their classification. Classification is determined based on both the business
model within which such assets are held and the contractual cash flow characteristics of the financial asset unless an accounting mismatch is being avoided. Financial assets are derecognised when the rights to receive cash flows have expired or have been
transferred and the Group has transferred substantially all the risks and rewards of ownership. When there is no reasonable expectation of recovering part or all of a financial asset, its carrying
value is written off. Financial assets at amortized cost A financial asset is measured at
amortized cost only if both of the following conditions are met: (i) it is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and (ii) the
contractual terms of the financial asset represent contractual cash flows that are solely payments of principal and interest.The financial assets at amortized cost include cash and cash equivalents
and other receivables (except sales tax receivables). Impairment of financial assets The Group recognises a loss allowance for expected credit losses on financial assets which are
either measured at amortized cost or fair value through other comprehensive income. The measurement of the loss allowance depends upon the Group’s assessment at the end of each reporting period as to
whether the financial instrument’s credit risk has increased significantly since initial recognition, based on reasonable and supportable information that is available, without undue cost or effort to
obtain. Where there has not been a significant increase in exposure to credit risk since initial
recognition, a 12-month expected credit loss allowance is estimated. This represents a portion of the asset’s lifetime expected credit losses that is attributable to a default event that is possible
within the next 12 months. Where a financial asset has become credit impaired or where it is determined that credit risk has increased significantly, the loss allowance is based on the asset’s
lifetime expected credit losses. The amount of expected credit loss recognised is measured on the basis of the probability weighted present value of anticipated cash shortfalls over the life of the
instrument discounted at the original effective interest rate. Property, plant and equipment Property, plant and equipment is measured at historical cost less accumulated depreciation and
impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Depreciation is calculated on a straight-line basis to write off the net cost of each item of
property, plant and equipment (excluding land) over their expected useful lives as follows:
Buildings
20 years
Plant and equipment
3-10 years
Mining hardware
4 years The residual values, useful lives and depreciation methods are reviewed, and adjusted if
appropriate, at each reporting date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s
carrying amount is greater than its estimated recoverable amount. An item of property, plant and equipment is derecognized upon disposal or when there is no
future economic benefit to the Group. Gains and losses between the carrying amount and the disposal proceeds are taken to profit or loss. Development assets consist of data center sites under development. Development assets are not
depreciated until they are available for use. Once an asset becomes available for use, it is transferred to another category within property, plant and equipment and depreciated over its useful
economic life. Mining hardware includes both installed hardware units and units that have been delivered but
are in storage, yet to be installed. Depreciation of mining hardware commences once units are onsite and available for use. R epair and maintenance costs incurred are expensed to ‘other operating expenses’ in the
consolidated statements of profit or loss Leases The Group assesses at contract inception whether a contract is, or contains, a lease. That is,
if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Group applies a single recognition and measurement approach for
all leases, except for short-term leases and leases of low-value assets. The Group has elected not to
recognize right-of-use assets and lease liabilities for short-term leases that have a term of 12 months or less, and leases of low value assets. The Group recognizes the lease payments associated
with these leases as an expense on a straight-line basis over the lease term. A right-of-use asset is
recognized at the commencement date of a lease. The right-of-use asset is measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease
liabilities. The cost of the right-of-use assets includes the amount of the lease liability recognized, adjusted for, as applicable, any lease payments made at or before the commencement date net of
any lease incentives received, any initial direct costs incurred, and, except where included in the cost of inventories, an estimate of costs expected to be incurred for dismantling and removing the
underlying asset, and restoring the site or asset. Right-of-use assets are depreciated from the commencement of the lease on a straight-line basis over the shorter of the lease term and the
estimated useful lives of the assets. At the
commencement date of the lease, the Group recognizes lease liabilities measured at the present value of the lease payments to be made over the lease term. The lease payments include fixed payments
(including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amount expected to be paid under residual value
guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating the lease, if the
lease term reflects the Group exercising the option to terminate. In calculating the present value of the lease payments, the Group uses the interest rate
implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate.The lease
liability is subsequently increased by the interest cost on the lease liability and decreased by lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is
a modification, a change in the lease term, a change in the lease payments (e.g. changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a
change in the assessment of an option to purchase the underlying asset. The Group has applied judgement to determine the lease term for contracts which include renewal and termination options. Goodwill Goodwill arises on the acquisition o f a business. Goodwill is not amortized.
Instead, the cash-generating unit (CGU) to which goodwill has been allocated is tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be
impaire Impairment of other non-financial assets At the end of reporting period, property, plant and equipment and right-of-use assets are
reviewed to determine whether there is any indication that those assets have suffered an impairment loss. If there is an indication of possible impairment, the recoverable amount of any affected
asset (or group of related assets) is estimated and compared with its carrying amount. An impairment loss is recognized in the profit or loss for the amount by which the asset’s carrying amount
exceeds its recoverable amount, where the recoverable amount is the higher of an asset’s fair value less costs of disposal (FVLCOD) or the value in use (VIU). In assessing VIU, the estimated
future cash flows of the asset are discounted to their present value using a discount rate that reflects the risks specific to the asset or the CGU to which the asset belongs and relevant market
assessments. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash
inflows from other assets or groups of assets (cash-generating unit (CGU)) A recognized impairment loss
on an asset is subject to reversal if there is a subsequent change in the variables and assumptions that were used to calculate the asset’s recoverable amount. Such a reversal is executed only
when the asset’s estimated recoverable amount exceeds its current carrying amount. However, the adjusted carrying amount after reversal must not exceed the asset’s carrying amount that would have
been determined (net of depreciation and amortization) had no impairment loss been recognized for the asset in prior years. Trade and other payables These amounts represent liabilities for goods and services provided to the Group prior to the
end of the financial year and which are unpaid. They are initially recognized at fair value and subsequently measured at amortized cost using the effective interest method.
However, due to their short-term nature, they are not discounted. Hybrid financial instruments (SAFE
and convertible notes) Hybrid financial instruments
are separated into the host liability and embedded derivative components based on the terms of the agreement. On issuance, the liability component of the hybrid financial instrument is initially
recognized at the fair value of a similar liability that does not have an equity conversion option. The embedded derivative component is initially recognized at fair value and changes in the fair
value are recorded in profit or loss. The host debt is carried at amortized cost using the effective interest method until it is extinguished on conversion or redemption. Any directly attributable
transaction costs are allocated to the liability and embedded derivative components in proportion to their initial carrying amount. Financial liabilities Trade and other payables and borrowings are initially recognized at the fair value of the
consideration received, net of transaction costs. They are subsequently measured at amortized cost using the effective interest method. The Group de-recognizes financial liabilities when, and only when, the Group’s obligations are
discharged, cancelled or they expire. The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in profit or loss. Finance costs Finance costs attributable to qualifying assets are capitalized as part of the asset. All other
finance costs are expensed using the effective interest rate method. Provisions Provisions are recognised when the Group has a present (legal or constructive) obligation as a
result of a past event, it is probable the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision
is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. If the time
value of money is material, provisions are discounted using a current pre-tax rate specific to the liability. The increase in the provision resulting from the passage of time is recognised as a
finance expense. Employee benefits Short-term employee benefits Liabilities for wages and salaries, including non-monetary benefits, annual leave and long
service leave expected to be settled wholly within 12 months of the reporting date are measured at the amounts expected to be paid when the liabilities are settled. Other long-term employee benefits The liability for annual leave and long service leave not expected to be
settled within 12 months of the reporting date are measured at the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using
the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Share-based payments Equity-settled share-based compensation benefits are provided to employees. Equity-settled
transactions are awards of shares, or options over shares and restricted stock units (‘RSUs’), that are provided to employees in exchange for the rendering of services. The cost of equity-settled transactions is measured at fair value on grant date. Fair value is
independently determined using the Black-Scholes-Merton option pricing model and Monte-Carlo simulations which take into account the exercise price, the term of the option or the RSU, the impact of
dilution, the share price at grant date, expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option, together with
non-vesting conditions that do not determine whether the Group receives the services that entitle the employees to receive payment. The cost of equity-settled transactions are recognized as an expense with a corresponding
increase in equity over the vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the best estimate of the number of awards that are
likely to vest and the expired portion of the vesting period. The amount recognized in profit or loss for the period is the cumulative amount calculated at each reporting date less amounts already
recognized in previous periods. Market conditions are taken into consideration in determining fair value. Therefore, any awards
subject to market conditions are considered to vest irrespective of whether or not that market condition has been met, provided all other conditions are satisfied. If equity-settled awards are modified, as a minimum, an expense is recognized as if the
modification has not been made. An additional expense is recognized, over the remaining vesting period, for any modification that increases the total fair value of the share-based compensation
benefit as at the date of modification. If equity-settled awards are
cancelled or settled during the vesting period (other than a grant cancelled by forfeiture when the vesting conditions are not satisfied), this is treated as an acceleration of vesting and the
amount that otherwise would have been recognised for services received over the remainder of the vesting period will be recognized immediately through share-based payments expense in the profit or
loss. Fair value measurement When an asset or liability, financial or non-financial, is measured at fair value for
recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date; and assumes that the transaction will take place either: in the principal market; or in the absence of a principal market, in the most advantageous market. |
