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Interpretations and amendments issued by the International Accounting Standards Board and the International Financial Reporting Interpretations Commit

The Group has not decided about earlier application of standards, interpretations or amendments that have been published but have not yet become effective. The Management of the parent company has been assessing their impact on the accounting policies applied by the Group and on its future financial statements.

The following standards, interpretations and amendments have been issued by the Accounting Standards Board or the International Financial Reporting Interpretations Committee, but are not yet effective:

  • IFRS 9 Financial Instruments (issued on 24 July 2014) effective for financial years beginning on or after 1 January 2018,
  • IFRS 14 Regulatory Deferral Accounts (issued on 30 January 2014) – by decision of the European Commission the process of endorsement of the Standard in its preliminary version will not be initiated before the final version is issued – not yet endorsed by EU till the date of authorization of these financial statements - effective for financial years beginning on or after 1 January 2016.
  • IFRS 15 Revenue from Contracts with Customers (issued on 28 May 2014), including amendments to IFRS 15. Effective date of IFRS 15 (issued on 11 September 2015) - effective for financial years beginning on or after 1 January 2018,
  • Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets Between an Investor and its Associate or Joint Venture (issued on 11 September 2014) – works leading to endorsement of the Amendments have been deferred indefinitely by the EU – the effective date was deferred indefinitely by IASB,
  • MSSF 16 Leases (issued on 13 January 2016) – not yet endorsed by EU at the date of authorization of these financial statements- effective for financial years beginning on or after 1 January 2019,
  • Amendments to IFRS 4 Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts (issued on 12 September 2016) - – not yet endorsed by EU at the date of authorization of these financial statements- effective for financial years beginning on or after 1 January 2018,
  • Clarifications to IFRS 15 Revenue from Contracts with Customers (issued on 12 April 2016) - not yet endorsed by EU at the date of authorization of these financial statements - effective for financial years beginning on or after 1 January 2018.
  • Amendments to IFRS 2 Classification and measurement of share-based payment transactions (issued on 20 June 2016) - effective for financial years beginning on or after 1 January 2018,
  • Amendments to IAS 28 Investment in Associates and Joint Ventures as part of the Annual Improvements Cycle 2014 - 2016 (issued on 8 December 2016) - effective for financial years beginning on or after 1 January 2018,
  • Amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards as part of the Annual Improvements Cycle 2014 - 2016 (issued on 8 December 2016) - effective for financial years beginning on or after 1 January 2018,
  • IFRIC 22 Foreign Currency Transactions and Advance Consideration (issued on 8 December 2016) - not yet endorsed by EU at the date of authorization of these financial statements - effective for financial years beginning on or after 1 January 2018,
  • Amendments to IAS 40: Transfers of Investment Property (issued on 8 December 2016) - effective for financial years beginning on or after 1 January 2018,
  • IFRS 17 Insurance Contracts (issued on 18 May 2017) - not yet endorsed by EU at the date of authorization of these financial statements - effective for financial years beginning on or after 1 January 2021,
  • IFRIC 23 Uncertainty over Income Tax Treatments (issued on 7 June 2017) - not yet endorsed by the EU at the date of authorization of these financial statements - effective for financial years beginning on or after 1 January 2019,
  • Amendments to IFRS 9 Prepayment Features with Negative Compensation (issued on
    12 October 2017) - not yet endorsed by the EU at the date of authorization of these financial statements - effective for financial years beginning on or after 1 January 2019,
  • Amendments to IAS 28 Long-term Interests in Associates and Joint Ventures (issued on
    12 October 2017) - not yet endorsed by the EU at the date of authorization of these financial statements - effective for financial years beginning on or after 1 January 2019.
  • Annual Improvements of IFRSs 2015 – 2017 cycle (issued on 12 December 2017) - not yet endorsed by the EU at the date of authorization of these financial statements - effective for financial years beginning on or after 1 January 2019,
  • Amendments to IAS 19 Plan Amendment, Curtailment or Settlement (issued on 7 February 2017) - not yet endorsed by the EU at the date of authorization of these financial statements - effective for financial years beginning on or after 1 January 2019.

The effective dates are the dates resulting from the standards announced by the International Accounting Standards Board. Dates of application of the standards in the European Union may be different from the dates of application resulting from the standards and are announced at the moment of approval for application by the European Union.

Implementation of IFRS 15

The International Financial Reporting Standard 15 Revenue from Contracts with Customers („IFRS 15”), issued in May 2014, and amended in April 2016, establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.
The new standard will supersede all current revenue recognition requirements under IFRS. The standard is applicable for annual periods beginning on or after 1 January 2018.

The Group plans to adopt the new IFRS 15 on the required effective date using the modified retrospective method, i.e. together with the effect of first-time adoption of the standard recognized on the first day of its application.

The principal activity of the Group comprises provision of construction and erection services for the power industry and manufacture of switchgear and other electrical equipment or components.

  1. Sale of finished goods
    If the contract includes only one performance obligation – sales of finished goods. Generally, in the result of the performed analysis, the Group has not found essential differences concerning the moment of revenue recognition, i.e. a point in time when control of the good is transferred to the customer.
  2. Sale of construction and installation services
    If the contract includes only one performance obligation – rendering of construction and installation services. Generally, as a result of the performed analysis, the Group has not found essential differences concerning the moment of revenue recognition, i.e. during the specified time based on the stage of completion. Additionally it has been confirmed that the stage of completion is best measured by the contract costs incurred. In the case of maintenance services the percentage off completion is measured according to time units or quantity survey of works, depending on the nature of a contract.
  3. Sale of engineering design and analyses, delivery of automation cubicles and systems
    Before the IFRS 15 has been implemented, the Group’s revenue was recognized over time, if the contracts achieved appropriate thresholds in respect of value and duration. According to the IFRS 15 classification of some projects will be changed (projects which will not be settled over time according to the stage of completion), and in consequence the retained earnings of the Group as at 31 December 2017 will be reduced by 167 thousand PLN.
  4. Sale of packages of goods and services or packages of several services rendered in different time
    The Group pursues a policy of joint recognition of revenue if two services are strictly connected or performance of one depends on completion of the other. It particularly refers to a package of services performed as the scope of one contract on the same site, for example when one service was ordered by the general contractor and another directly by the owner. Before 31 December 2017 the Group recognized revenue separately for works related to each functional area within comprehensive projects. It means that, for instance, revenue from engineering, prefabrication of cubicles, delivery of equipment and commissioning were recognized separately, even if they were parts of the same comprehensive performance obligation. According to IFRS 15 such services should be considered jointly as a single obligation, unless otherwise provided either by nature or context of the contract.
    In consequence of the change of revenue recognition, retained earnings as at 31 December 2017 will be reduced by 169 thousand PLN.

 

  1. Identifying performance obligations
    As at the date of first adoption of IFRS 15 the Group has not identified any substantial contracts which would include more than one performance obligation. However, in the future each contract will be analysed in respect of identifying of separate performance obligations. In the case of contracts with multiple obligations, the transaction price will be allocated proportionally according to unit selling prices of the identified separate performance obligations. In the future separate performance obligations may refer to the provided performance guaranties or defect liability guaranties relating to the obligation. The Group will apply the following accounting approach to the provided guaranties.
    • In the case of market guaranties or longer guaranties, but with the validity period imposed by the customer – the Group will continue recognizing the associated costs in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets.
    • other non-standard long-term guaranties will be regarded as distinct performance obligations. In this case a part of the consideration, based on the unit selling prices, will be allocated to such a guaranty and the revenue will be recognized in the period of its validity, up to this point a part of the consideration will be presented as a contractual obligation – “amounts due to customers for construction contract work”.
  2. Variable consideration.
    IFRS 15, to help establishing the contract consideration, has introduced a concept of variable consideration. According to IFRS 15, if the transaction price specified in the contract includes a variable amount, the Group shall estimate the amount of consideration to which it expects to be entitled in return for transfer of the promised goods or services to the customer, and includes a part of or full amount of variable consideration to the transaction price only to the extent that it is highly probable that it its inclusion will not result in a significant revenue reversal in the future when the uncertainty has been subsequently resolved. The Group has identified the following significant components of variable consideration in the contracts:

    • liquidated damages for delay in performance of an obligation or a contract – in this respect the company has estimated the amount of variable consideration which does not meet the criteria of recognition as revenue according to IFRS 15. In consequence of this, as at 1 January 2018 the retained earnings will be reduced by 12 254 thousand PLN in correspondence with the item “amounts due from customers for construction contract work”;
    • satisfying the guaranteed technical performance parameters – with no impact on the financial statements, as it was recognised similarly in the currently applied accounting policies (principles).
  3. Advances received from customers.
    The company presents advances received from customers in the item „Other non-finance liabilities”. According to the current accounting policies (principles) the Group does not recognize cost of interest on the received advances, also long-term advances.
    Pursuant to IFRS 15, the Group assesses whether a contract includes a significant financing component. The Group decided to use the practical expedient according to which it does not adjust the promised amount of the consideration for the effects of a significant financing components in the contracts where the Group expects, at contract inception, that the period between the transfer of a promised good or service to a customer and when the customer pays for that good or service will be one year or less. Therefore, for short-term advances, the Group will not account for a financing component even if it is significant.
    In the case of contracts with customers, for which the period between the transfer of a promised good or service to a customer and when the customer pays for that good or service is longer than one year, the Company assesses that they include a significant financing component if it is not explicitly determined in the contract or following the negotiations that the advance is a security for contract performance or constitutes at least 10% of the transaction price.


    The Group expects that the adoption of IFRS 15 will have the following impact on the financial statements as at 1 January 2018:
    • the retained earnings will be reduced by 1 750 thousand PLN, and
    • other financial liabilities will increase by 2 160 thousand PLN.
  4. Presentation and disclosure requirements
    IFRS 15 introduces new requirements for presentation and disclosures. The Group has assessed that some of the disclosures will have a significant impact. Particularly, the Group is expecting additional or extended disclosures concerning:
    • the adopted accounting policies (principles) referring to revenue recognition;
    • judgements, particularly on the scope of variable consideration or contracts covering more than one separate performance obligation;
    • more detailed quantitative information concerning such issues as calculation of the recognized revenue, advances, and a significant financing components, variable considerations.

Basing on the performed analysis, the Group does not expect any significant changes in respect of operating segments and disaggregation of the revenue into categories compared to the information disclosed in accordance with the currently applied accounting policies (principles). Nevertheless, the Group will disclose sufficient information to enable the users of the financial statements to understand the relationship between the recognition of the disaggregated revenue categories and revenue information disclosed for each reportable segment.

In summary, the Group expects the impact of IFRS 15 implementation to be as follows:

The Group expects the impact of IFRS 15 implementation to be as follows:
ASSETSAdjustments in PLN'000
Assets 3 364
Deferred tax assets 1 295
Amounts due from customers for construction contract work (18 791)
Total assets (14 132)
EQUITY, LIABILITIES AND PROVISIONS
Retained earnings (14 340)
Amounts due to customers for construction contract work (1 952)
Other financial liabilities 2 160
Total equity and liabilities (14 132)

File in XLSX format
The Group expects the impact of IFRS 15 implementation to be as follows file .xlsx6 kB

1. Variable considerations - penalties

ASSETSAdjustments in PLN'000
Deferred tax assets 2 875
Amounts due from customers for construction contract works (15 129)
Total assets (12 254)
EQUITY, LIABILITIES AND PROVISIONS
Retained earnings (12 254) (12 254)
Total equity and liabilities (12 254)

File in XLSX format 
Variable considerations - penalties file .xlsx6 kB

2. A significant financing component in contracts - advances
ASSETSAdjustments in PLN'000
Deferred tax assets 410
Total assets 410
EQUITY, LIABILITIES AND PROVISIONS
Retained earnings (1 750)
Other financial liabilities 2 160
Total equity and liabilities 410

File in XLSX format 
A significant financing component in contracts - advances file .xlsx6 kB

3. Change of project classification (revenue settled over time into settled in a point of time)
ASSETSAdjustments in PLN'000
Deferred tax assets 39
Inventories 1 295
Amounts due from customers for construction contract works (1 501)
Total assets (167)
EQUITY, LIABILITIES AND PROVISIONS
Retained earnings (167)
Total equity and liabilities (167)

File in XLSX format
Change of project classification (revenue settled over time into settled in a point of time) file .xlsx6 kB

4. Sale of goods or services packages (another classification of performance obligation)
ASSETSAdjustments in PLN'000
Deferred tax assets 40
Amounts due from customers for construction contract works (2 161)
Total assets (2 121)
EQUITY, LIABILITIES AND PROVISIONS
Retained earnings (169)
Amounts due to customers for construction contract work (1 952)
Total equity and liabilities (2 121)

File in XLSX format
Sale of goods or services packages (another classification of performance obligation) file .xlsx6 kB

Implementation of MSSF 9

In July 2014, the International Accounting Standards Board issued International Financial Reporting Standard 9 Financial Instruments (“IFRS 9”). IFRS 9 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application permitted.
The Group plans to adopt the IFRS 9 on the effective date and will not restate comparative information.
In 2017 the Group performed a preliminary assessment of impact of adoption of IFRS 9 on the accounting policies (principles) applied by the Group in respect of the Group’s business operations or its financial results. This assessment is based on currently available information and may be subject to changes arising from further reasonable and supportable information being made available to the Group in the period when the it applies IFRS 9 for the first time.
The Group expects no significant impact on its statement of financial position and equity except for the effect of applying the impairment requirements of IFRS 9. The Group expects an increase
in the loss allowance resulting in a negative impact on equity as discussed below. In addition, following the adoption of IFRS 9, the classification of certain financial instruments will change.

  1. Classification and measurement
    The Group does not expect a significant impact on its balance sheet or equity on applying the classification and measurement requirements of IFRS 9. It expects to continue measuring at fair value all financial assets currently held at fair value.
    The Group will apply the option to recognize later changes of fair value of the equity shares in non-listed companies in other comprehensive income, and, therefore , the application of IFRS 9 will not have a significant impact. In the Group’s financial results.
    Trade receivables are held to collect contractual cash flows, and the Group does not sell its trade receivables in factoring – they will continue to be measured at amortized cost through profit or loss. The Group has applied a practical expedient and has not identified significant financing components for trade receivables below 12 months.
  2. Impairment
    IFRS 9 requires the company to record expected credit losses on all of its debt securities, loans and trade receivables, either on a 12-month or lifetime basis. The Group will apply the simplified approach and record lifetime expected losses on all trade receivables.
    The Group has determined that, due to the nature of its trade receivables, the loss allowance will increase by about 1 281 thousand PLN with corresponding related increase in the deferred tax asset of 243 thousand PLN.

In summary, the Group expects the impact of IFRS 9 implementation to be as follows:

Impact on the equity (decrease) as of 31 December 2017
 Adjustments in PLN'000
Assets  
Trade and other receivables (1 281)
Deferred income tax asset 243
Total assets (1 038)
Net impact on equity, of which: (1 038)
Retained earnings (1 038)

File in XLSX format 
Impact on the equity (decrease) as of 31 December 2017 file .xlsx6 kB

Implementation of IFRS 16

MSSF 16 „Leases” is effective for annual periods beginning on or after 1 January 2019. The new standard sets out the principles for the recognition, measurement, presentation and disclosure of leases. All lease transactions result in acquiring by the lessee the right to use the underlying asset and a liability to make lease payments. Therefore, IFRS 16 eliminates the distinction between two types of leases: operating and finance leases as in IAS 17, and introduces a single model for accounting by a lessee. A Lessee will be required to recognize:

  • assets and liabilities for all lease transactions concluded for the period over 12 months, except for leases of ’low-value’ assets, and
  • depreciation of the leased asset separately from the interest expense on the lease liability in the income statement.

Lessor accounting under IFRS 16 is substantially unchanged from today’s accounting under IAS 17. In consequence, a lessor continues to classify all leases into operating and finance leases and differentiates the accounting recognition accordingly.
The Group is still assessing the impact of the standard, detailed analysis will be performed in 2018.


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