150 / 198
NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS
continued
For the year ended 31 May 2016
BLUE LABEL INTEGRATED ANNUAL REPORT 2016
148
10. Accounting framework
continued
10.3 Standards, amendments and interpretations not yet effective
The Group has evaluated the effect of all new standards, amendments and interpretations that have been issued but
which are not yet effective. Based on the evaluation, management does not expect these standards, amendments
and interpretations to have a significant impact on the Group’s results and disclosures. The expected implications of
applicable standards, amendments and interpretations are dealt with below.
IFRS 9 –
Financial Instruments
IFRS 9, ‘Financial instruments’, addresses the classification, measurement and recognition of financial assets and financial
liabilities. The complete version of IFRS 9 was issued in July 2014. It replaces the guidance in IAS 39 that relates to the
classification and measurement of financial instruments. IFRS 9 retains but simplifies the mixed measurement model and
establishes three primary measurement categories for financial assets: amortised cost, fair value through other
comprehensive income and fair value through profit and loss. The basis of classification depends on the entity’s business
model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required
to be measured at fair value through profit and loss with the irrevocable option at inception to present changes in fair
value in other comprehensive income. There is now a new expected credit losses model that replaces the incurred loss
impairment model used in IAS 39. For financial liabilities there were no changes to classification and measurement except
for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at fair value
through profit or loss. IFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge
effectiveness tests. It requires an economic relationship between the hedged item and hedging instrument and for the
‘hedged ratio’ to be the same as the one management actually use for risk management purposes.
Contemporaneous documentation is still required but is different to that currently prepared under IAS 39.
The standard is effective for accounting periods beginning on or after 1 January 2018. Early adoption is permitted.
The Group is currently considering the impact on the consolidated financial statements. The impact on the financial
statements has not yet been fully determined but it is expected to result in a change in the measurement of revenue
to adjust for the effects of the time value of money.
IFRS 16 –
Leases
IFRS 16, ‘Leases’ states that lessees should be required to recognise assets and liabilities arising from all leases (with
limited exceptions) on the statement of financial position. Lessor accounting has not substantially changed in the new
standard.
The model reflects that, at the start of a lease, the lessee obtains the right to use an asset for a period of time and
has an obligation to pay for that right. In response to concerns expressed about the cost and complexity to apply the
requirements to large volumes of small assets, the IASB decided not to require a lessee to recognise assets and
liabilities for short-term leases (less than 12 months), and leases for which the underlying asset is of low value (such
as laptops and office furniture).
A lessee measures lease liabilities at the present value of future lease payments. A lessee measures lease assets,
initially at the same amount as lease liabilities, and also includes costs directly related to entering into the lease. Lease
assets are amortised in a similar way to other assets such as property, plant and equipment. This approach will result
in a more faithful representation of a lessee’s assets and liabilities and, together with enhanced disclosures, will
provide greater transparency of a lessee’s financial leverage and capital employed.
IFRS 16 supersedes IAS 17, ‘Leases’, IFRIC 4, ‘Determining whether an Arrangement contains a Lease’, SIC 15, ‘Operating
Leases – Incentives’ and SIC 27, ‘Evaluating the Substance of Transactions Involving the Legal Form of a Lease’.
The standard is effective for accounting periods beginning on or after 1 January 2018. Early adoption is permitted.
The Group is currently considering the impact on the consolidated financial statements. The impact will be significant
as the Group currently leases its premises. This will result in an increase in lease liabilities and right of use assets in the
statement of financial position with a corresponding reduction in operating lease expenses and an increase in
depreciation and finance costs in the income statement.