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5.2 Amendments to the applied IFRS

Annual Report 2019 > 5.2 Amendments to the applied IFRS
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5.2.1 Standards, interpretations and amended standards effective from 1 January 2019

The following changes in standards were applied to the consolidated financial statements.

Standard/interpretation Approving regulation Comments
IFRS 16 – Leases 1986/2017 The effect of the application of IFRS 16 is described in section 5.2.2.
Amendment to IFRS 9 – prepayments with negative compensation 498/2018 Certain options, which force a lender to accept reduced compensation for granting financing (in the case of negative compensation) failed to pass the SPPI test; accordingly any instruments containing such options could not be classified as measured at amortized cost or at fair value through other comprehensive income. According to the amendment, the positive or negative sign of the prepayment amount will not be important; this means that, depending on the interest rate in effect when the agreement is terminated, payment can be made to a party resulting in prepayment. This compensation must be calculated in the same manner for both a penalty for prepayment and also for a gain earned on prepayment. The change did not affect the PZU Group’s consolidated financial statements.
IFRIC 23 interpretation – Uncertainty over Income Tax Treatments 1595/2018 The interpretation is applied when there is uncertainty to the determination of taxable profit, tax losses, taxable income, outstanding tax losses, unused tax credits and tax rates under IAS 12. This interpretation was applied in the PZU Group. Additional information on this matter is presented in section 24.2.
Amendment to IAS 28 – Long-term interests in associates and joint ventures 237/2019 According to the amended IAS 28, long-term interests in associates and joint ventures for which the company does not apply the equity method, the applicable standard is IFRS 9, also with regard to impairment. The change did not affect the PZU Group’s consolidated financial statements.
Amendments to IAS 19 Employee Benefits 402/2019 The amendment contains clarifications for the guidelines in case of a plan amendment, curtailment or settlement during the reporting period. The amendments require entities, after such an event, to use updated actuarial assumptions to calculate current service cost and net interest for the remaining part of the reporting period. The amendments also clarify how requirements concerning the plan’s amendment, curtailment or settlement affect asset threshold requirements. The IASB has decided that the scope of these amendments does not cover the settlement of “significant market fluctuation” (in euro). The amendments apply to plan amendments, curtailments or settlements that will take place on or after 1 January 2019, with the possibility of earlier application. The change did not affect the PZU Group’s consolidated financial statements.
Annual improvements to IFRS 2015-2017 412/2019 The amendments pertain to: IFRS 3 – the amendments clarify that when an entity obtains control of a business that is a joint operation, it remeasures previously held interests in that business; IFRS 11 – the amendments clarify that when an entity obtains joint control of a business that is a joint operation, the entity does not remeasure previously held interests in that business. IAS 12 – the amendments specify that any income tax consequences of dividends (i.e. profit distribution) should be recognized in the profit and loss account, regardless of how the tax arises; IAS 23 – the amendments clarify that if specific loans remain outstanding but the asset is ready for use or sale, the loans are treated as general purpose loans for calculation of the capitalization rate on total loans. The amendments did not affect the PZU Group’s consolidated financial statements.

5.2.2. IFRS 16 – Leases

IFRS 16 has replaced IAS 17 Leases and any interpretations related to this standard and has introduced a full model of identification and settlement of leases in the lessors’ and lessees’ financial statements. The most important change pertains to lessees, for which the new standard eliminates the distinction between financial leases and operating leases.

Introduction of a new standard for contracts previously classified as operating leases in the statement of financial position has resulted in the recognition of a new asset (the right to use the leased object) and a new liability (the liability of remitting lease payments).

Recognition of leases on the lessor’s side has in most cases remained unchanged due to the maintenance of the breakdown between operating leases and financial leases.

Applying IFRS 16 the PZU Group made the following assumptions and adopted the following practical approaches permitted by the standard:

  • As at 1 January 2019 a simplified approach has been applied in accordance with section C5(b) of IFRS 16. Comparative data were not transformed, and the total effect of the first application of IFRS 16 was recognized as an adjustment to the opening balance of retained earnings on the first application date.
  • In the case of leases previously classified as operating leases in accordance with IAS 17 lease assets and liabilities were measured at present value of the remaining lease payments, discounted by the lessee’s marginal interest rate.
  • A single discount rate was used for the portfolio of lease contracts with features that are generally similar.
  • A practical solution concerning short-term leases was applied for operating leases whose lease term ends within 12 months of the day of first application of IFRS 16.
  • If a contract contained a lease extension or termination option then knowledge obtained after the fact was used in order to determine the term of the lease.

In the consolidated profit and loss account for 2019, fees related to lease and rental were replaced by the amortization of the right to use the leased object and by interest expenses on lease liabilities.

The principles of recognizing right-of-use assets and lease liabilities under IFRS 16 are presented in section 47.  

Effect of the application of the new standard

Items of the statement of financial position 31 December 2018 (under IAS 17) Recognition of lease contracts 1 January 2019 (under IFRS 16)
Property, plant and equipment 3,184 1,250 4,434
Investment property 1,697 51 1,748
Financial liabilities 236,316 1,301 237,617
Marginal interest rates applied to the measurement of lease liabilities as at 1 January 2019, by contract currency  
PLN 1.60% – 10.00%
EUR 0.10% – 3.20%
USD 3.31% – 4.11%
GBP 1.41% – 2.78%
UAH 19.70%
Reconciliation of operating lease liabilities recognized in accordance with IAS 17 to liabilities recognized in accordance with IFRS 16  
Value of operating lease liabilities (IAS17) as at 31 December 2018 1,180
Discount effects (91)
Value of finance lease liabilities (IAS17) as at 31 December 2018 10
Recognition of new liabilities in accordance with IFRS 16 366
Short-term contracts (29)
VAT (125)
Lease liabilities (IFRS 16) as at 1 January 2019 1,311

5.2.3. Standards, interpretations and amended standards not yet effective

  • Approved by the regulation of the European Commission

Name of standard/interpretation Effective date Approving regulation Comments
Amendments to the framework 1 January 2020 2019/2075 The amended conceptual assumptions contain several new concepts pertaining to measurement, they incorporate the updated definitions and criteria for recognizing assets and liabilities and the guidelines for reporting financial results. Additionally, they contain explanations pertaining to important areas such as the role of management, prudence and the uncertainty of measurement in financial statements. The amendments will not have a significant influence on the PZU Group’s consolidated financial statements.
Amendments to IAS 1 and IAS 8 – definition of materiality 1 January 2020 2019/2104 According to the new definition, information is material if one may justifiably expect that if it is overlooked, distorted or concealed this may affect the decisions made by the main users of financial statements on the basis of these financial statements. The change will not affect to a material extent the PZU Group’s consolidated financial statements.
Amendments to IFRS 9 and IFRS 7 – reform of the interest rate benchmarks 1 January 2020 2020/34 This amendment requires the preparation of qualitative and quantitative disclosures to enable users of financial statements to understand how the entity’s hedging relationships are affected by uncertainty arising from the benchmark interest rate reform. The amendments introduce temporary exceptions from applying specific hedge accounting requirements in such a way that the reform of interest rate benchmarks does not result in the termination of hedge relations. The key exceptions apply to the requirements that the cash flows are “highly probable”, risk components, prospective assessments, retrospective effectiveness assessments and reclassification of the cash flow hedge provision. The PZU Group is currently analyzing the impact of the amendment on its consolidated financial statements.

  • Not approved by the European Commission:


Name of standard/interpretation Date of issue by IASB Effective date (according to IASB) Comments
IFRS 17 – Insurance contracts 18 May 2017 1 January 2022 The purpose of the standard is to establish the uniform accounting policy for all types of insurance contracts, including the reinsurance contracts held by the insurer. Introduction of this unified standard should ensure comparability of financial reports between different entities, states and capital markets. The new standard defines insurance contract as a contract under which one entity accepts significant insurance risk from the policyholder by agreeing to compensate the policyholder if a specified uncertain future event adversely affects the policyholder. The scope of the standard does not cover, among others, investment contracts, product warranties, loan guarantees, catastrophe bonds and so-called weather derivatives (contracts requiring payment based on the climatic, geological factor or another physical variable that is not specific to the party to the contract). The standard introduces a definition of contract boundary, defining its beginning as the beginning of coverage, the date when first premium becomes due, the moment when facts and circumstances indicate that the contract belongs to the group of onerous contracts – whichever is earliest. The end of the contract boundary occurs when the insurer has the right or practical ability to reassess the risk for a particular policyholder or a policy group, and the premium measurement does not cover the risk related to future periods. In accordance with IFRS 17, contracts will be measured by one of the following methods: - General Measurement Model, GMM – the basic measurement model, wherein the total value of the insurance liability is calculated as the sum of:
  • discounted value of the best estimate of future cash flows – expected (probability-weighted) cash flows from premiums, claims, benefits, acquisition expenses and costs,
  •  risk adjustment, RA – individual estimate of the uncertainty related to the quantity and time of the future cash flows, and
  •  contractual service margin (CSM) – representing an estimate of future profits recognized during the policy term. The CSM value is sensitive to changes in estimates of cash flows, resulting e.g. from changed non-economic assumptions. CSM cannot be a negative value – any losses on the contract shall be recognized immediately in the profit and loss account;
    - premium allocation approach, PAA – a simplified model which can be applied to measurement of insurance contracts with the coverage period below 1 year or where its application does not lead to significant changes in relation to GMM. In this model, liability for remaining coverage is analogous to the provision for unearned premiums mechanism, without separate presentation of RA and CSM, while the liability for incurred claims is measured using the GMM (without calculating CSM).
    - variable fee approach, VFA – model used for insurance contracts with direct profit sharing. The liability value is calculated in the same manner as in the GMM, the CSM value is additionally sensitive to changes in economic assumptions.
    IFRS 17 provides for separate recognition of reinsurance contracts from reinsured insurance contracts. The cedent shall measure reinsurance contracts by the modified GMM method or, if possible, by the PAA method. Modifications of the GMM method arise above all from the fact that reinsurance contracts are usually assets, not liabilities, and the cedent pays a remuneration to the reinsurer rather than deriving profits from the contract. Modifications are also supposed to reduce discrepancies arising from separate recognition of the reinsurance contract from reinsured insurance contracts. In the case of reinsurance contracts, both the profit and the loss calculated as at the contract recognition are recognized in the statement of financial position and settled through the reinsurance coverage period. The assumptions for reinsurance contract measurement shall be consistent with those used for reinsured insurance contract measurement. In addition, measurement shall take into account the risk that the reinsurer fails to fulfill its obligations.
In mid-2018, the PZU Group formally launched project work to implement a standard in all PZU Group insurance companies. As part of the project, PZU Group works, among others, on:
  • analyzing the gap in existing IT processes, tools and systems;
  •  determining new components necessary to be implemented in processes and areas which will be significantly affected by the implementation of IFRS 17;
  •  analyzing the current product offer in terms of segmentation and principles of measurement in accordance with IFRS 17;
  •  work related to the selection of a system to support the reporting process in accordance with the requirements of IFRS 17.

    As at the date of conveying these consolidated financial statements, the European Commission has not endorsed the standard and the IASB is continuing its efforts aimed at giving the standard its final shape. The PZU Group is carrying out project work related to the implementation of the standard. At the present stage of the IFRS 17 implementation project, it is impossible to estimate the effect of application of IFRS 17 on the PZU Group’s comprehensive income and equity.
Amendment to IFRS 3 – Business combinations 22 October 2018 1 January 2020 The amendments aim to state precisely the difference between the acquisition of a business and an asset acquisition. The amendments will not affect the PZU Group’s consolidated financial statements.
Amendment to IAS 1 – classifying liabilities as current and non-current 23 January 2020 1 January 2022 The amendments specify that the conditions which exist at the end of the reporting period are those which will be used to determine if a right to defer settlement of a liability exists and also that the intentions or expectations of an entity regarding the willingness to use the possibility of deferring a liability are not relevant for the classification. The amendments will not affect the PZU Group’s consolidated financial statements.

In summary, in the opinion of the PZU Group, the introduction of the above standards and interpretations (except for IFRS 17) will have no material effect on the accounting policies applied by the PZU Group.