Annual report 2019

2.6. Changes to accounting principles (policy)

The Group has not changed any accounting principles (policy) in the present consolidated financial statements, except the changes resulting from IFRS 16 implementation.

IFRS 16 „Leases”

IFRS 16 „Leases” was published by the International Accounting Standards Board on 13 January 2016 and approved by the European Commission Regulation No. 2017/1986 of 31 October 2017 for use in European Union member states. The standard is obligatorily applicable to annual reporting periods beginning on 1 January 2019 or after that date.

IFRS 16 superseded, as at 1 January 2019, the following standards and interpretations:

  • IAS 17 „Leases”,
  • IFRIC 4 „Determining whether an Arrangement contains a Lease”,
  • SIC-15 „Operating Leases—Incentives”,
  • SIC-27 „ Evaluating the Substance of Transactions Involving the Legal Form of a Lease”.

The new standard presents a comprehensive model of identification of lease agreements and their settlement in the financial statements of lessors and lessees.

IFRS 16 uses the model of right to control to identify leasing agreements. The standard contains detailed guidelines for assessing whether a given contract contains lease elements, services or both of these characteristics. An agreement is classified as a leasing agreement if it transfers the right to control the use of an identified asset for a given period of time in exchange for a payment. Significant changes were introduced as regards settlement for the lessee. As regards the leasing recognition model used by the lessees, the classification of the lease as operating or financial was rejected. In the scope of all leasing contracts and agreements containing the leasing element, the assets (the right to use the asset in a given period of time) and leasing liabilities are recognized. The standard does not introduce significant changes in the scope of requirements for lessors when compared to IAS 17. The lessor continues to classify the lease as operating lease or finance lease as two separate types of leasing.

As a general rule, as at the commencement date of the lease, the lessee will recognize the lease liability (liability to make lease payments) and the asset that constitutes the right to use the subject of the lease for the duration of the leasing contract (right to use an asset) for all leasing agreements. At the same time, IFRS 16 gives the opportunity to benefit from simplifications regarding short-term contracts and leasing of low-value items.

IFRS 16 allows lessees to apply the currently used methods of recognizing operating leases to recognize short-term lease contracts and lease of low-value items. Short-term leasing is characterized by the maximum possible duration of the contract of 12 months, including its renewal options. Determining whether the lease is a short-term lease is based only on the maximum possible duration of the contract, i.e. the period for which the enforceable rights and obligations arise. Lessees cannot benefit from the above-mentioned simplification in case of short-term contracts with the option to purchase the leased asset irrespective of the intention and expectations of the lessee as to the subject of the contract.

On the commencement date, the lessee measures the lease liability based on the current value of lease payments remaining to be paid as at that date. Lease payments are discounted using the interest rate of the lease, if such a rate can be easily determined.

Otherwise, the lessee applies the marginal interest rate of the lessee. The following elements are included in the measurement of leasing liabilities:

  • fixed payments, less any lease incentives receivable;
  • variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;
  • amounts expected to be payable by the lessee under residual value guarantees;
  • the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and
  • payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate thelease.

Floating fees, which do not depend on the index or rate and do not have a certain minimum level, are not included in the value of the lease liability. These fees are recognized in the profit or loss account in the period of the occurrence of the event that causes their maturity.

On the commencement date, the lessee measures an asset due to the right to use at its cost. The cost of an asset due to the right of use should include:

  • the initial value of the lease liability,
  • leasing payments made at the time or before the conclusion of the contract less any incentives received,
  • all initial costs incurred by the lessee, and
  • estimated costs of dismantling and removing the underlying asset, that must be incurred by the lessee in connection with the assets included in the agreement in order to restore the place in which it is located or the asset itself to the conditions required under the leasing contract.

After the initial recognition, the right to use is reduced by depreciation and total impairment losses and adjusted in connection with the revaluation of the lease liability due to changes in the lease, which do not require the recognition of a separate lease component.

Assets with to the right of use are amortized on a straight-line basis over the shorter of two periods: the leasing period or the useful life of the underlying asset, unless the Group has sufficient certainty that it will obtain ownership before the end of the leasing period – then the right to use is depreciated from the day of commencement until the end of the asset’s useful life.

The Group applies the exemptions provided for in IFRS 16 and does not recognize the asset components due to the right of use in the case of short-term leases and leases covering components of low-value assets in relation to cars and property. Short-term leases are defined as leases which have a period of no longer than 12 months as at the beginning date (including periods for which the lease can be extended, if it can be assumed with reasonable assurance that the lessee will exercise that right) and do not include a call option. Low-value assets are those which have a value of no more than EUR 5,000.

First application of IFRS 16

In accordance with the requirements, as of 1 January 2019, the Group applied IFRS 16 Leases for the first time.

The Group implemented IFRS 16 using a retrospective approach modified with cumulative impact on 1 January 2019 (IFRS 16, C5 (b), C8 (b) (ii)), hence without retrospective changes in the presentation, according to which the recognized value of the lease liability is equal to the value of the right of use, adjusted by previously recognized pre-paid or accrued lease payments.

Lease definition

The Group has previously used the definition of lease determined in accordance with IFRIC 4. In accordance with IFRS 16, the Group assesses whether the contract constitutes or contains a lease based on the definition of leasing provided for in this Standard.

As at the date of initial application of IFRS 16, the Group used the practical solution of not re-assessing the nature of contracts concluded before 1 January 2019. In connection with the above, the Group applied the exclusion from IFRS 16 in relation to contracts that were not previously identified as leasing in accordance with IAS 17 or IFRIC 4.

Group as a lessee

In accordance with the previously applied IAS 17 Leases, the Group classified leasing contracts as a financial or operating lease based on an assessment of whether the entire risk and benefits resulting from ownership of the leased asset were transferred to the lessee. In accordance with IFRS 16, the Group recognizes a component of assets due to the right of use and leasing liabilities for the majority of leases – i.e. those leasing contracts are recognized in the statement of financial position.

For leasing contracts, previously classified as operating leases, the Group recognized assets due to the right of use and leasing liabilities as follows:

  • the leasing liability was measured at the present value of the remaining lease payments, discounted using the marginal interest rate at the date of the initial application,
  • the value of the right of use of the underlying asset components for individual lease agreements (separately for each contract) has been determined in a value reflecting the leasing liability, adjusted for previously recognized prepaid or accrued lease payments.

Using the modified retrospective method of implementing IFRS 16, the Group used the following practical solutions for leases previously classified as operating leases in accordance with IAS 17:

  • the Group has applied the exclusion in the application with respect to leasing contracts, which period ends up to 12 months from the date of the first application of IFRS 16 or their value does not exceed the amount of EUR 5,000,
  • the Group excluded the initial direct lease costs from the valuation of the right to use the asset as of the initial application of IFRS 16,
  • the Group used its experience and knowledge while determining the leasing period, for contracts containing the option of extending or terminating the lease,
  • the Group used a practical expedient related to impairment review and relied on its assessment to evaluate whether leases are onerous and the right-of-use asset at the date of initial application need to be adjusted.

For leases that were previously classified as finance leases in accordance with IAS 17, the balance sheet amount of the right to use the asset and liability as at 1 January 2019 was determined as the balance sheet amount of the leased asset and leasing liabilities directly before that date, valued in accordance with IAS 17.

The weighted average value of the right of use, the marginal interest rate applied to the lease liabilities recognized in the financial statements on the date of the first application of IFRS 16, in contract currencies, was the following:

  • for liabilities in EUR 817%,
  • for liabilities in PLN 601%.

As at 1 January 2019, that is the day of first application of IFRS 16, the Group recognized PLN 596,492 thousand of assets due to the right of use and leasing liabilities in the amount of PLN 610,497 thousand. Difference in the amount of PLN 14,005 thousand refers to previously recognized prepaid or accrued lease payments and provisions for the restructuring of the branch network.

The amount of future non-discounted operating lease payments as at 31 December 2018 disclosed in the Group’s financial statements 695,455
The amount of future undiscounted payments due to the lease of low value assets (532)
Amount of future not discounted payments on short-term leases recognized on a straight-line basis as an expense at 1 January 2019 (13,788)
Other adjustments due to discount as at 1 January 2019 (70,638)
Leasing liabilities as at 1 January 2019 610,497


Group as a lessor

With reference to contracts in which the Group is a lessor, as at the moment of IFRS 16 implementation, the Group did not make any adjustments.

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