3 Recently issued accounting standards
With regard to the description of the recently issued accounting standards, in addition to what is indicated in the latest Annual Report, which should be used as a reference, the documents issued by the IASB in the first half of 2017, which have not yet been endorsed by the European Commission, are listed below.
On 18 May 2017, the IASB issued document IFRS 17 “Insurance Contracts”, which applies to all insurance contracts and defines the principles of “recognition, measurement, presentation and disclosure”, replacing IFRS 4.
The new principle includes the Building Block Approach (BBA), based on the discounting of anticipated cash flows, the elaboration of a “risk adjustment” and a “contractual service margin” (CSM) which represents the expected profit of an insurance contract. This margin is reported in the income statement in the period in which the insurance cover is provided. Moreover, two alternative approaches with regard to the BBA have been organised, the Variable Fee Approach (VFA) and the Premium Allocation Approach (PAA), applicable in certain cases. The principle also involves a new presentation method for the income statement, where “insurance revenue”, “insurance service expenses” and “insurance finance income or expenses” are presented separately.
The measures contained in IFRS 17 will take effect from financial years starting on or after 1 January 2021, notwithstanding any subsequent deferrals established upon approval by the European Commission.
On 7 June 2017, the IASB issued document IFRIC 23 “Uncertainty over Income Tax Treatments” which provides guidelines on how to calculate current and deferred taxes if there is uncertainty regarding tax treatment relating to the income tax of the entity. In calculating the income taxes to be reported in the financial statements, the entity should consider the probability that the tax authority may or may not accept the tax treatment adopted by the entity. If the above acceptance is deemed unlikely, the entity should reflect the uncertainties in the calculation of current and deferred taxes, making use of one of the following methods: the most likely amount and the expected value; if this is not the case, the income taxes recorded in the financial statements will be consistent with the tax treatment adopted in the tax declaration. The entity should review the estimates of the uncertainties if new information becomes available or there are changes in circumstances. These measures will take effect from financial years starting on or after 01 January 2019, notwithstanding any subsequent deferrals established upon approval by the European Commission.
Accounting principles issued by the IASB and endorsed by the European Commission that will come into force from 1 January 2018
With regard to the accounting principles issued by the IASB and endorsed by the European Commission IFRS 9 “Financial instruments” and IFRS 15 “Revenue from contracts with customers”, which come into force on 1 January 2018 supplementing what has already been described in the 2016 Annual Report, which should be referred to, the Snam Group is completing its investigation into the impacts of the application of the new accounting standards on the consolidated financial statements and on the financial statements of subsidiaries.
With regard to regulated revenue, which represents a large part of the Group’s revenue, we can confirm that the application of IFRS 15 will not have a significant impact on the consolidated financial statements of the Snam Group. Contracts involving the Snam Group’s non-regulated activities were also analysed. This mainly includes contracts for the provision of services between Snam and subsidiaries, also jointly or associated, relating to services carried out and managed centrally by Snam S.p.A. and project management services for which there is currently not expected to be any significant impact.
With regard to IFRS 9, the assessment of the impacts on the recurring transactions of the main areas affected by the new features of the standards, described below, is in the process of being completed: (i) new impairment model for forward looking receivables: taking into consideration the fact that the majority of receivables relate to regulated activities for which there are guarantees in favour of Snam and/or the intervention of the Energy and Environmental Services Fund (CSEA) in the cases set out in the regulator codes and current legislation, following the analyses conducted it is not felt that the change to the model will have significant effects; (ii) hedge accounting: substantial changes are not expected with regard to hedging transactions following the analysis of existing contracts; (iii) classification of financial instruments: in consideration of the fact that Snam mainly holds financial assets and liabilities measured at amortised cost, the classification of financial instruments pursuant to IFRS 9 based on the business model and the characteristics of the instrument will not produce significant changes in the valuation of existing instruments.
As far as non-recurring transactions are concerned, note that the liability management transaction which took place in 201529 and was recorded in the accounts according to the rules of IAS 39, will be affected by the application of the new accounting rules of IFRS 9. Specifically, in the case of cash flow changes resulting from a change or exchange of financial liabilities that were not subject to de-recognition, IFRS 9 requires the recalculation of the amortised cost of the new financial liability, actualising the new contractual flows using the effective original interest rate, and the reporting of the profit or loss resulting from the change or exchange of a financial liability in the income statement.
At the date of the first application of the new principle (1 January 2018) Snam has estimated an increase in shareholders’ equity in the order of approximately €35 million, before the tax effect.
In this regard, taking into account the fact that the new accounting rules of IFRS 9 do not apply to financial instruments that were subject to de-recognition at the date of the first application of the new principle, the estimate of the effects does not include the share of financial liabilities subject to reacquisition following the liability management transaction that took place in 2016.
29 In November 2015, Snam successfully concluded a complex liability management transaction involving the €1.0 billion buyback of outstanding bonds maturing in less than two years on average and the simultaneous issue of a new eight-year, fixed-rate bond worth €0.7 billion. For more information, please see the .