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5.3 Amendments to the applied IFRS

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5.3.1. Standards, interpretations and amended standards effective from 1 January 2020

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

Name of standard/ interpretation Approving regulation Comments
Amendments to the framework 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 did not have a significant influence on the PZU Group’s consolidated financial statements.
Amendments to IAS 1 and IAS 8 – definition of materiality 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 did not exert a significant influence on the PZU Group’s consolidated financial statements.
Amendments to IFRS 9 and IFRS 7 – reform of the interest rate benchmarks (IBOR) 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 applied an exemption resulting from the amended standards and did not verify the effectiveness of the hedging relationships.
Amendment to IFRS 3 – Business combinations 2020/551 The amendments aim to state precisely the difference between the acquisition of a business and an asset acquisition.

The amendments did not affect the PZU Group’s consolidated financial statements.
Amendment to IFRS 16 – payment modifications due to the COVID-19 pandemic 2020/1434 This amendment permits a lessee to treat all changes in lease payments arising from arrangements as if they did not constitute a modification of the lease, without making the judgments required by the standard. The payment modifications in question must be a direct consequence of the COVID-19 pandemic.

The change did not affect the PZU Group’s consolidated financial statements.

5.3.2. 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 IFRS 4 – Extension of the temporary exemption from the application of IFRS 9 1 January 2021 2020/2097 The amendment has extended the temporary exemption from the application of IFRS 9 by two years (postponing the expiration date of the exemption from the annual periods beginning on 1 January 2021 to the annual periods beginning on or after 1 January 2023 – in compliance with the effective date of IFRS 17 ‘Insurance contracts’), while leaving the option of an earlier implementation. The amendment is a consequence of the amendments to IFRS 17 published on 25 June 2020.

It will not apply to the PZU Group due to the implementation of IFRS 9 at the beginning of 2018.
Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 – Reform of the interest rate benchmarks (IBOR - phase 2) 1 January 2021 2021/25 The key amendments stipulate that:
  • settlement of modifications of financial assets, financial liabilities and lease liabilities which will be required as a direct consequence of the reform of the interest rate benchmarks and carried out on the basis of economically equivalent principles through update of the effective interest rate,
  • the reform of the interest rate benchmarks directly does not lead to discontinuation of application of hedge accounting principles. Hedging relationships (and the related documentation) must be amended to reflect the modification of the hedged position, hedging instrument and hedged risk. Amended hedging relationships should satisfy all qualifying criteria for application of hedge accounting, including effectiveness requirements,
  • to enable users to understand the nature and scope of the risks following from the reform of interest rate benchmarks to which the entity is exposed, and how the entity manages such risks, as well as the progress of the entity in transition from the interest rate benchmarks to alternative reference rates and how the entity manages the transition, it is required to disclose:
    • information about the method of managing the transition from the interest rate benchmarks to alternative reference rates, progress made as at the reporting date and the risks resulting from the transition,
    • quantitative information on financial assets not being derivatives, financial liabilities not being derivatives, and derivatives which are still subject to interest rate benchmarks subject to the reform, broken down by material interest rate benchmarks,
    • information on the extent to which the reform of the interest rate benchmarks has caused changes in the entity’s risk management strategy, description of such changes and the way in which the entity manages this risk.

The PZU Group is currently analyzing the impact of these amendments 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
25 June 2020
(amendments to the standard)
1 January 2023 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 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.

On 25 June 2020, the IASB published amendments to IFRS 17, the most important of which was to defer the implementation of the standard until 1 January 2023.
In addition to the detailed clarifications on distinct types of insurance contracts, the amendment also introduced the possibility of modifying actuarial estimates related to the implementation of IFRS 17 in subsequent interim financial statements or in the annual report (requirement of consistent application at the reporting entity’s level) and simplified the principles of presenting contracts in the statement of financial position, permitting the aggregation of assets or liabilities at the portfolio level rather than for separate contract groups.

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 is working on the following, among other things:
  • 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;
  • 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 IAS 1 – classifying liabilities as current and non-current 23 January 2020 1 January 2023 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.
Amendments to IFRS 3 14 May 2020 1 January 2022 The amendments include:
  • updated references to the framework (from 2018 instead of 1989);
  • added requirement to apply IAS 37 or IFRIC 21 instead of the framework – for transactions and events falling in the scope of this standard and interpretations for the purpose of identifying liabilities taken over in a business combination;
  • unambiguous prohibition of the recognition of contingent assets acquired in a business combination.

The amendment will not affect the PZU Group’s consolidated financial statements.
Amendment to IAS 16 – Property, plant and equipment: revenue obtained before putting into use 14 May 2020 1 January 2022 The amendment forbids any deduction from the initial value of property, plant and equipment of amounts obtained from the sale of products produced in the course of bringing an asset to a condition where it is fit for use as intended (from test production). Such proceeds from sales and related costs will be recognized in the profit or loss.

The amendment will not affect the PZU Group’s consolidated financial statements to any significant extent.
Amendment to IAS 37 – Onerous contracts – costs of fulfillment of contractual obligations 14 May 2020 1 January 2022 The amendments define what costs should be taken into account when deciding whether or not the contract in question is an onerous contract. The amendments specify that “contract performance costs” are costs directly related to the contract which include:
  • incremental contract performance costs, such as direct costs of material, direct labor; and
  • allocation of other costs that are directly related to the performance of the contract, e.g. allocation of the depreciation charge on the items of property, plant and equipment taken advantage of to perform the contract.

The amendment will not affect the PZU Group’s consolidated financial statements to any significant extent.
Amendments to IFRS 2018-2020 14 May 2020 1 January 2022 The amendments pertain to:
  • 1st IFRS 1 – the amendment permits a subsidiary that adopts IFRS for application later than its parent and applies paragraph D16(a) of IFRS 1 to measure cumulative foreign exchange differences using the amounts reported in the parent’s consolidated financial statements based on the date of the parent’s transition to IFRS;
  • 2nd IFRS 9 – the amendment clarifies that for the purposes of the “10 percent” test, only fees paid or received between the borrower and the lender, including fees paid or received by the borrower or lender on behalf of the other party, should be considered in making a decision on the possible derecognition of a financial liability;
  • 3rd IFRS 16 – the amendment has removed the example concerning the reimbursement of lease improvements by the lessor (due to related uncertainties);
  • 4th IAS 41 – to ensure consistency with IFRS 13, the amendment has removed the requirement from paragraph 22 of IAS 41 according to which reporting entities should exclude cash flows from taxation when measuring the fair value of a biological asset using the present value method.

The amendments will not exert a material influence on the PZU Group’s consolidated financial statements.
Amendments to IAS 1 – Presentation of Financial Statements 12 February 2021 1 January 2023 In accordance with the amendments, the entity will be obligated to disclose material accounting policy information rather than significant accounting principles (as previously). The amendment contains examples of identification of material accounting policies and stipulates that an accounting policy may be material due to its nature, even if the figures are immaterial. An accounting policy is material if the users of the financial statements need it to understand other material information in such statements. Disclosure of immaterial accounting policies may not obscure material accounting policies.

The amendment will not affect the PZU Group’s consolidated statements to any significant extent.
Amendments to IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors 12 February 2021 1 January 2023 The amendments to IAS 8 comprise:
  • replacement of the definition of a change in estimates with a definition of estimates. In accordance with the new definition, estimates are “monetary amounts in financial statements that are subject to measurement uncertainty”,
  • explanation that a change in the estimate resulting from new information or new events is not a correction of error. In addition, the effects of a change in input data or measurement technique applied to determine the estimate are changes in estimates, unless they follow from a correction of errors of previous periods,
  • clarification that a change in an accounting estimate may affect only the current period’s profit or loss, or the profit or loss of both the current period and future periods. The effect of the change relating to the current period is recognized as income or expense in the current period. The effect, if any, on future periods is recognized as income or expense in those future periods.

The amendment will not affect the PZU Group’s consolidated statements to any significant extent.
Amendment to IFRS 16 – payment modifications due to the COVID-19 pandemic after 30 June 2021 11 February 2021 1 April 2021 The amendment makes it possible to extend the possibility of treating changes pertaining to lease payments under granted arrangements as if they did not constitute a modification of lease on all payments due on or before 30 June 2022 (currently the arrangement pertains only to payments due by 30 June 2021). The amendment should be applied retrospectively, recognizing the cumulative effect as a correction of the opening balance of retained earnings or other capital component as at the beginning of the annual period in which the amendment was applied.


The amendment will not affect the PZU Group’s consolidated statements to any significant extent.

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.