6. Recently issued accounting standards
Accounting standards and interpretations issued by the IASB/IFRIC and approved by the European Commission, but not yet in force
The main accounting standards and interpretations approved by the European Commission in 2016 but not yet in force are listed and described below.
Through regulation no. 2016/1905, issued by the European Commission on 22 September 2016, the regulatory provisions of IFRS 15 “Revenue from Contracts with Customers”, issued by the IASB on 28 May 2014, were approved. The document provides a single model for recognising revenue (including that derived from contract work) based on the transfer of control of a good or service to a customer. It provides a more structured approach to measuring and recognising revenue, including a detailed application guide. Specifically, the key principle of IFRS 15 requires that revenues are recognised for an amount which reflects the consideration that the entity has the right to receive with regard to the transfer of the goods and/or services. This principle breaks down into five stages: (i) identification of the contract (contracts) with the customer; the provisions of the principle apply to every single contract except for cases in which the actual principle requires the entity to consider several contracts together and makes provision as a result for the accounting; (ii) identification of the performance obligations (or the contractual promises to transfer goods and/or services) in the contract; (iii) calculating the price of the transaction; if the consideration is variable, this is estimated by the entity, to the extent to which it is highly probably that when the uncertainty associated with the variable consideration is later resolved there will not be a significant downwards adjustment to the amount of cumulated revenues measured; (iv) allocation of the transaction price to the performance obligations identified, usually based on the prices relating to the standalone sale of each of the goods or services; and (v) recording of the revenue when and/or to the extent to which the related performance obligation has not been satisfied. IFRS 15 also includes the request for financial statement information to be provided with regard to the nature, amount, timing and uncertainty of revenues and related cash flows. The Group revenue streams come from regulated activities carried out in the transportation and dispatching, storage and regasification segments, where income is governed by the regulatory framework defined by the Authority, which defines the revenue cap annually. On the basis of this consideration, and a preliminary analysis conducted into the main existing contracts, it is believed that the application of IFRS 15 will not have significant impacts on the consolidated financial statements of the Snam Group. After the changes introduced by the amendment issued on 11 September 2015, the provisions of IFRS 15 will take effect from financial years starting on or after 1 January 2018; currently Snam is not planning to exercise the right of early adoption granted by the principle. The standard requires mandatory retroactive application and transition can take place in two possible ways: through a full retrospective approach in conformity with IAS 8 or through a modified retrospective approach. If the second approach is chosen, IFRS 15 is only applied retroactively to contracts which have not been concluded at the initial application date (1 January 2018). Snam is evaluating which of the two retroactive options to apply.
For the full implementation of IFRS 15, the Group expects its analyses to be completed by the end of 2017, in time for the evaluation of the quantitative aspects of the adoption of the new principle, to be presented in the financial statements at 31 December 2017.
Regulation 2016/2067, issued by the European Commission on 22 November 2016, endorses the regulatory provision in “IFRS 9 Financial Instruments”, issued by the IASB on 24 July 2014, together with the Basis for Conclusions and the Implementation Guide, replacing all the previous versions issued for the principle. The new provisions: (i) amend the classification of financial assets and provide for this classification to be based on contractual financial flows of the actual asset as well as the business model of the company; (ii) also eliminate the obligation of separating the embedded derivatives in the financial assets; (iii) 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 with reference to financial assets measured at amortised cost, financial assets measured at fair value in the other comprehensive income statement components, receivables from lease agreements, as well as assets from contracts and certain loan supply and financial guarantee agreement commitments; (iv) introduce substantial reforms to the qualification of hedge transactions in order to ensure that hedges are aligned with the companies’ risk management strategies and founded on a more principle-based approach. As a result, IFRS 9 has also amended IFRS 7 “Financial instruments: disclosures”. 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. The impact of the adoption of this principle on the Group is currently being analysed, however, the Group does not expect significant impacts from the application on recurring transactions.
Accounting standards and interpretations issued by the IASB/IFRIC and not yet approved by the European Commission
The following are newly issued accounting standards and interpretations for which the approval process by the European Commission has not yet been completed.
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”. In particular, the aim of the amendments is to provide a more detailed definition of the accounting treatment and the recognition of related effects in the income statement of the loss of control of an investee company due to its transferral to an associate or joint venture. The accounting treatment used in the investor’s financial statements depends on whether the object of the transaction is or is not a business as defined by IFRS 3. On 17 December 2015, the IASB indefinitely deferred the adoption date for the regulatory provisions in this document.
On 13 January 2016, the IASB issued “IFRS 16 Leases”, which defines leasing as a contract which gives an entity the right to use an asset for a given period of time in exchange for a consideration and eliminates the distinction for the lessee between finance leases and operating leases, introducing a single accounting model for recognising leases. By applying this model the entity recognises: (i) in its balance sheet items an asset, representative of its right to use, and a liability, representative of the obligation to make the contractually-required payments, for all leases of more than twelve months whose value can be considered significant; (ii) in the income statement the depreciation of the asset recognised and the interest on the payable entered separately. A distinction is maintained between operating leases and finance leases for the purpose of preparing the financial statements of lessees. The provisions of IFRS 16, which replace those in IAS 17 “Leasing” and in the interpretations, will take effect from financial years starting on or after 1 January 2019, notwithstanding any subsequent deferrals established upon approval by the European Commission.
On 19 January 2016, the IASB issued the document “Recognition of Deferred Tax Assets for Unrealised Losses – Amendments to IAS 12”, which clarifies that unrealised losses on debt securities recognised at fair value and at cost for tax purposes give rise to deductible temporary differences; it also clarifies that the estimate of future taxable income: (i) includes income arising from the realisation of assets for amounts higher than the relative book value; and (ii) excludes the reversal of deductible temporary tax differences. These measures will take effect from financial years starting on or after 1 January 2017, notwithstanding any subsequent deferrals established upon approval by the European Commission.
On 29 January 2016 the IASB issued “Disclosure Initiative – Amendments to IAS 7”, which clarifies how to improve the disclosure of financial liabilities in order to allow uses of the financial statements to understand the changes, resulting from currency movements and not liabilities resulting from financing transactions, resulting, where necessary, from: (i) flow associated with financing transactions; (ii) the acquisition or loss of control of a subsidiary or a business; (iii) changes in foreign exchange rates; (iv) changes in fair value; (v) other changes. These measures will take effect from financial years starting on or after 1 January 2017, notwithstanding any subsequent deferrals established upon approval by the European Commission.
On 12 April 2016 the IASB issued “Clarifications to IFRS 15 Revenue from Contracts with Customers”, which clarifies: (i) when a contractual promise to transfer goods and/or services can be identified separately from other performance obligations in a contract; (ii) how to determine whether the entity is a principal or an agent, depending on whether it controls the underlying goods or services before the transaction; (iii) how to determine whether the revenues from a licence agreement should be recognised throughout the period or at a given time. The document also provides two (optional) expedient procedures with regard to the transition to IFRS 15, according to which an entity can opt: (i) if the full retrospective method is being used, not to make the restatement of the contracts completed at the start of the first comparative period presented (the principle already included a similar approach in the case of the modified retrospective approach); (ii) instead of accounting the effects of each single amendment separately, to calculate the aggregate effects of all the changes made from the start date of the contract until the beginning of the first comparative period presented or the date of the first application in the case of the full retrospective method or the modified retrospective approach, respectively. These measures 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 20 June 2016 the IASB issued “Classification and Measurement of Share – based Payment Transaction – Amendments to IFRS 2”, which: (i) clarifies the effects of the (vesting and non-vesting) conditions on the measurement of the cash-settled share-based transactions; (ii) specifies that the changes in cash-settled and equity-settled share-based transactions generates the elimination of the original liability, the recognition in shareholders’ equity of the share-based payment regulated through equity instruments at fair value at the amendment date, to the extent to which, at the same date, the services were rendered and the any difference was immediately posted in the income statement; (iii) with regard to share-based payment transactions with net settlement resulting from withholdings at source made by the employer as a result of tax laws and regulations, introduces an exception so that these transactions are classified as equity-settled in their entirety, if there were identified as such in the absence of the net settlement imposed by the application of tax regulations. These measures will take effect from financial years starting on or after 01 January 2018, notwithstanding any subsequent deferrals established upon approval by the European Commission.
On 12 September 2016 the IASB introduced “Applying IFRS 9 Financial instruments with IFRS 4 Insurance Contracts – Amendments to IFRS 4”, which is designed to solve the problems that insurance companies face if they apply the new standard on financial instruments, IFRS 9, before the IASB replaces the current principle IFRS 4 with the new one currently in the process of being prepared. The document introduces two approaches: (i) for all entities that issue insurance contracts coming under the scope of the application of IFRS 4 and which IFRS 9 will apply to, there is the option of reclassifying the changes in fair value resulting from designated financial assets from the income statement to other components of the comprehensive income statement (CIS) (overlay approach), as if the entity were applying IAS 39 to these assets; (ii) for entities mainly carrying out insurance activities, there is an option for temporary exemption which allows the application of IFRS 9 to be postponed until 2021 (the deferral approach). These measures will take effect from financial years starting on or after 01 January 2018, notwithstanding any subsequent deferrals established upon approval by the European Commission.
The provisions in “Annual Improvements to IFRS Standards 2014 – 2016 Cycle”, issued by the IASB on 8 December 2016 have made changes to: (i) IFRS 1, eliminating the short-term exemptions with regard to IFRS 7, IAS 19 and IFRS 10 with reference to Investment entities for first time adopters; (ii) IFRS 12, clarifying that the information required by the principle, with the exception of that set out in paragraphs B10-B16, applies to all equity investments which are classified as held for sale, held for distribution to shareholders or as discontinued operations in accordance with IFRS 5; (iii) IAS 28 clarifying that the option for an investment company, a mutual fund, an investment fund or similar entities to value its investments in associates or joint ventures at fair value with effects on the income statement can be exercised separately for each single investment, at the time of the initial measurement; the changes also clarify that an entity, which is not an investment entity but which holds an investment in associates or joint ventures which are investment entities, can opt to keep the fair value measurement made by these investment entities for the purpose of valuing its own investments. The provisions of IFRS 1 and IAS 28 are effective from the financial years beginning on or after 1 January 2018, while the changes relating to IFRS 12 are effective from the financial years beginning on or after 1 January 2017, with the exception of any deferrals established during approval by the European Commission.
On 8 December 2016 the IASB issued “Transfers of Investment property – Amendments to IAS 40”, which clarifies that an entity should reclassify a property to, or from, the category of property investments if and only if there is a change in use of the property; a change in management’s intended use with regard to a property does not, in itself, constitute evidence of a change in use. These measures will take effect from financial years starting on or after 01 January 2018, notwithstanding any subsequent deferrals established upon approval by the European Commission.
On the same date the IASB issued “IFRIC 22 Foreign Currency Transaction and Advance Consideration”, which establishes that when foreign currency transactions take place whereby payment is made or received in advance, the exchange rate to apply for the initial recording of the asset, costs or revenue generated from the transaction for which advance payment/collection took place, corresponds to the exchange rate in force on the advance payment date. These measures will take effect from financial years starting on or after 01 January 2018, notwithstanding any subsequent deferrals established upon approval by the European Commission.
Snam is analysing the standards in question, where applicable, to assess whether their adoption will have a significant impact on the financial statements.