SNAM 2014 Annual Report - 6 Recently issued accounting standards

Accounting standards and interpretations issued by the IASB/IFRIC and approved by the European Commission, but not yet applied

The IFRS approved by the European Commission in 2014 are listed and summarised below.

Regulation 2015/28 issued by the European Commission on 17 December 2014 approved the regulatory provisions in the document “Annual Improvements to International Financial Reporting Standards 2010-2012 Cycle”. These provisions made amendments to: (i) IFRS 2, by clarifying the definition of “vesting condition” and adding definitions of service and result conditions; (ii) IFRS 3, by clarifying that obligations to pay contingent considerations, other than those defined as equity instruments, are measured at fair value through profit or loss at each reporting date; (iii) IFRS 8, by requiring disclosure of the judgements made by management in aggregating the operating segments, including a description of the segments that have been aggregated and the economic indicators that have been assessed in determining that the aggregated segments share similar economic characteristics; (iv) IAS 16 and IAS 38, by clarifying the way in which the gross carrying amount is calculated when revaluation takes place; and (v) IAS 24, by establishing the information to be provided when a third party provides key management personnel services to the reporting entity. The new provisions will take effect from financial years starting on or after 1 February 2015.

Regulation 1361/2014 issued by the European Commission on 18 December 2014 approved the provisions in the document “Annual Improvements to International Financial Reporting Standards 2011-2013 Cycle”. The provisions contained in the document made amendments to: (i) IFRS 3, by clarifying that IFRS 3 does not apply to the accounting for the formation of a joint arrangement (as defined by IFRS 11) in the financial statements of the joint arrangement itself; (ii) IFRS 13, by clarifying that the provision allowing the fair-value measurement of a group of financial assets and liabilities on a net basis applies to all contracts (including non-financial contracts) within the scope of IAS 39 or IFRS 9; and (iii) IAS 40, by clarifying that reference should be made to IFRS 3 to determine whether or not the acquisition of investment property constitutes a business combination. The new provisions are applicable as of financial years starting on or after 1 January 2015.

Regulation 2015/29, issued by the European Commission on 17 December 2014, approved the amendments made to IAS 19 by the provisions of the document “Defined benefit plans: employee contributions”. The amendments allow contributions paid by employees or third parties that are independent of the number of years of service to be recognised as a reduction in the current service cost for the period, instead of attributing these contributions across the entire time period in which the service is rendered. The new provisions will take effect from financial years starting on or after 1 February 2015.

Accounting standards and interpretations issued by the IASB/IFRIC and not yet approved by the European Commission

Listed and described below are the newly issued amendments, principles and interpretations which, as at the preparation date of these financial statements, have not yet been approved by the European Commission but which cover subjects that are relevant to the group’s financial statements.

Since the texts mentioned below are yet to be approved by the European Commission, the effectiveness of their provisions may be deferred to a later date than specified therein.

With reference to the description of newly issued accounting principles, IASB rulings yet to be approved by the European Commission are reported below.

On 30 January 2014, the IASB issued the document “IFRS 14 Regulatory Deferral Accounts”, the interim standard for the Rate-regulated Activities project. The document’s scope includes First-time Adopters which, according to the provisions of IFRS 14, are allowed to continue recognising amounts related to rate-regulated activities in accordance with the previous standards. In order to improve comparability with entities that already applied IFRS, the standard requires that the effect of this accounting method be presented separately from the other items.

On 6 May 2014, the IASB issued the document “Accounting for Acquisitions of Interests in Joint Operations (Amendments to IFRS 11)”, in order to clarify the accounting treatment of acquisitions of interests in joint operations representing a business.

On 12 May 2014, the IASB issued the document “Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to IAS 16 and IAS 38)”, in order to clarify that a revenue-based method of depreciation and amortisation is not considered to be appropriate since it reflects only the revenue flows generated by the asset in question and not the way in which the economic benefits embodied in said asset are consumed.

In compliance with the decrees provided by the IASB, the provisions contained in the aforementioned documents will take effect from financial years starting on or after 1 January 2016, notwithstanding subsequent deferrals established upon approval by the European Commission.

On 28 May 2014, the IASB issued the document “IFRS 15 – Revenue from Contracts with Customers”, which provides a single model for recognising revenue based on the transfer of control of a good or service to a customer. This new standard represents a significant departure from the current requirements set forth by IFRS. It provides a more structured approach to measuring and recognising revenue, including a detailed application guide. In compliance with the decrees provided by the IASB, the provisions contained in IFRS 15 will take effect from financial years starting on or after 1 January 2017, notwithstanding subsequent deferrals established upon approval by the European Commission.

On 24 July 2014, the IASB issued the document “IFRS 9 – Financial Instruments”, together with the relevant Basis for Conclusions and Implementation Guidance, to replace all previously issued versions of the standard. The new provisions: (i) provide for simpler classification categories for financial instruments and for this classification to be based on the characteristics of the instrument and the business model of the company in question; they also remove the obligation to separate embedded derivatives; (ii) identify a new impairment model that uses forward-looking information to bring forward the recognition of credit losses compared with the incurred-loss model, which delays recognition until a loss event takes place; and (iii) introduce substantial reforms to hedge accounting in order to ensure that hedges are aligned with the companies’ risk management strategies and founded on a more principle-based approach. The provisions of the aforementioned texts, which replace those contained in IAS 39 – “Financial Instruments: Recognition and Measurement”, will take effect from financial years starting on or after 1 January 2018, notwithstanding any subsequent deferrals established upon approval by the European Commission.

On 12 August 2014, the IASB issued the document “Equity Method in Separate Financial Statements – Amendments to IAS 27”, the provisions of which permit the equity accounting of investments in subsidiaries, joint ventures and associates in separate financial statements as well the previous cost method or in compliance with IAS 39. The chosen accounting option must be applied across all equity investment categories.

On 11 September 2014, the IASB issued the document “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture – Amendments to IFRS 10 and IAS 28”. The amendments introduced aim to provide a more detailed definition of the accounting treatment of gains or losses arising from transactions with joint ventures or associates measured using the equity method, particularly in relation to: (i) the loss of control of a subsidiary (governed by IFRS 10), and (ii) downstream transactions (governed by IAS 28). The accounting treatment to be adopted in the financial statements of the investor depends on whether the object of the transaction is a business, as defined by IFRS 3. The amendments introduced specify that: (i) the gains (or losses) from the re-measurement at fair value of an investment held in a previous subsidiary that is not a business, which now qualifies as an equity-accounted joint venture or associate, are recognised in the investor’s financial statements only to the extent of the share held by minority investors in said joint venture or associate; and (ii) the gains (or losses) from downstream transactions between an entity and its joint ventures or associates, relating to assets that do not constitute a business, must be recognised in the entity’s financial statements in full (IAS 28).

On 25 September 2014, the IASB issued the document “Annual Improvements to IFRS 2012-2014 Cycle”, which: (i) in relation to IFRS 5, clarifies that any change in classification of an asset (or disposal group) from held for sale to held for distribution to shareholders (or vice-versa) should be considered as a continuation of the original disposal plan rather than as a new plan; (ii) in relation to IFRS 7 – “Financial Instruments: Disclosures”, provides additional guidance on determining whether there is continued involvement in transferred financial assets, in the case where there is a related servicing contract, in order to establish the level of disclosure required; in relation to the same standard, it also clarifies the applicability of disclosure required on the offsetting of financial assets and liabilities in interim financial statements; (iii) in relation to IAS 19, it clarifies that the rate used to discount bonds must be determined using the market yields on leading corporate bonds denominated in the same currency rather than at country level; and (iv) in relation to IAS 34, it clarifies the meaning of disclosure “elsewhere in the interim financial report”, specifying that this information must be available in the same timeframes.

On 18 December 2014, the IASB issued the document “Disclosure Initiative – Amendments to IAS 1”, which includes a series of clarifications on materiality, the aggregation of items, the structure of notes to the financial statements, information about accounting criteria and the presentation of other components of comprehensive income arising from the equity accounting of equity investments.

On the same date, the IASB issued the document “Investment Entities: Applying the Consolidation Exception – Amendments to IFRS 10, IFRS 12 and IAS 28”, which clarifies the issues relating to the application of the consolidation exception for investment entities.