2.3 Standards, interpretations and amendments to existing standards

Standards, interpretations and amendments to existing standards

Standards, interpretations and amendments to existing standards that are effective in 2019

The Company has adopted the following standards starting 1 January 2019 and accordingly, changed its accounting policies. Except as otherwise indicated, the adoption of these amendments to standards did not have any significant impact on the Company’s financial statements.

Standard number	Title	Effective date
IFRS 16	Leases – New	January 1, 2019

 

IFRS 16 Leases
IFRS 16 is effective from periods beginning on or after 1 January 2019.

IFRS 16 specifies how an IFRS reporter recognises, measures, presents and discloses leases. The Standard provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. Lessors continue to classify leases as operating or finance, with IFRS 16’s approach to lessor accounting substantially unchanged from its predecessor, IAS 17.

Transition

The Company has initially applied IFRS 16 at 1 January 2019. It has applied IFRS 16 using the cumulative effect method, under which the comparative information is not restated.

The Company has assessed that the adoption of IFRS 16 had no material impact on the financial statements since 1 January 2019.

Other pronouncements

Other accounting pronouncements which have become effective from 1 January 2019 and have therefore been adopted do not have a significant impact on the Company’s financial results or position.

• IFRIC 23 Uncertainty over Income Tax Treatments
• IFRS 9 Prepayment Features with Negative Compensation (Amendments to IFRS 9)
• IAS 28 Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28)
• Annual Improvements to IFRS 2015-2017 Cycle
• Plan Amendment, Curtailment or Settlement (Amendments to IAS 19)

These amendments do not have a significant impact on these financial statements and therefore the disclosures have not been made.

 

Standard not yet effective and has not been adopted early by the Company

Standard number	Title	Effective date
IFRS 17	Insurance Contracts	January 1, 2021

 

Management anticipates that the above relevant standard will be adopted in the Company’s accounting policies for the first year beginning after the effective date of the standard. Information on the relevant new standard that is not yet effective has been provided below. The Company’s management is currently assessing the impact of IFRS 17 on its financial statements.

The nature and effects of the key changes in the Company’s accounting policies resulting from its adoption of IFRS 17 are summarised below.

Background

In May 2017, the IASB issued IFRS 17, a comprehensive new accounting standard for insurance contracts covering recognition and measurement, presentation and disclosure. Once effective, IFRS 17 will replace IFRS 4, Insurance Contracts. In September 2017, the Board established a Transition Resource Group (TRG) for IFRS 17 that will be tasked with analysing implementation-related questions on IFRS 17. The TRG met in February, May and September 2018.

Scope

IFRS 17 applies to all types of insurance contracts (i.e., life, non-life, direct insurance and re-insurance), regardless of the type of entities that issue them, as well as to certain guarantees and financial instruments with discretionary participation features. A few scope exceptions will apply.

Recognition, measurement and presentation of insurance contracts

The overall objective of IFRS 17 is to provide an accounting model for insurance contracts that is more useful and consistent for insurers.

In contrast to the requirements in IFRS 4, which are largely based on grandfathering previous local accounting policies, IFRS 17 provides a comprehensive model for insurance contracts, covering all relevant accounting aspects. The core of IFRS 17 is the general model, supplemented by:

• A specific adaptation for contracts with direct participation features (the variable fee approach)
• A simplified approach (the premium allocation approach) mainly for short-duration contracts

The main features of the new accounting model for insurance contracts are as follows:

• The measurement of the present value of future cash flows, incorporating an explicit risk adjustment, remeasured every reporting period (the fulfilment cash flows)
• A Contractual Service Margin (CSM) that is equal and opposite to any day one gain in the fulfilment cash flows of a group of contracts, representing the unearned profit of the insurance contracts to be recognised in profit or loss over the service period (i.e., coverage period)
• Certain changes in the expected present value of future cash flows are adjusted against the CSM and thereby recognised in profit or loss over the remaining contractual service period
• The effect of changes in discount rates will be reported in either profit or loss or other comprehensive income, determined by an accounting policy
• The presentation of insurance revenue and insurance service expenses in the statement of comprehensive income based on the concept of services provided during the period
• Amounts that the policyholder will always receive, regardless of whether an insured event happens (nondistinct investment components) are not presented in the income statement, but are recognised directly on the balance sheet
• Insurance services results (earned revenue less incurred claims) are presented separately from the insurance finance income or expense
• Extensive disclosures to provide information on the recognised amounts from insurance contracts and the nature and extent of risks arising from these contracts

Transition

IFRS 17 is effective for reporting periods starting on or after 1 January 2021, with comparative figures required. Early application is permitted, provided the entity also applies IFRS 9 Financial Instruments and IFRS 15 on or before the date it first applies IFRS 17.

The Board decided on a retrospective approach for estimating the CSM on the transition date. However, if full retrospective application, as defined by IAS 8 for a group of insurance contracts, is impracticable, an entity is required to choose one of the following two alternatives:

• Modified retrospective approach – based on reasonable and supportable information available without undue cost and effort to the entity, certain modifications are applied to the extent full retrospective application is not possible, but still with the objective to achieve the closest possible outcome to retrospective application
• Fair value approach – the CSM is determined as the positive difference between the fair value determined in accordance with IFRS 13 Fair Value Measurement and the fulfilment cash flows (any negative difference would be recognised in retained earnings at the transition date)

Both the modified retrospective approach and the fair value approach provide transitional reliefs for determining the grouping of contracts. If an entity cannot obtain reasonable and supportable information necessary to apply the modified retrospective approach, it is required to apply the fair value approach.