IFRS
Alliander’s financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as at 31 December 2017, as adopted by the European Union (EU), and the provisions of Title 9, Book 2 BW. IFRS consists of the IFRS standards as well as the International Accounting Standards issued by the International Accounting Standards Board (IASB) and the interpretations of IFRS and IAS standards issued by the IFRS Reporting Interpretations Committee (IFRIC) and the Standing Interpretations Committee (SIC), respectively.
The significant accounting policies used in the preparation of the consolidated financial statements are set out below. The historical cost convention applies. However, certain assets and liabilities, including derivatives, are measured at fair value. Unless stated otherwise, these accounting policies have been applied consistently to the years covered in these financial statements.
The preparation of financial statements requires the use of estimates and assumptions based on experience and considered appropriate by management given the specific circumstances. These estimates and assumptions have an impact on the carrying amounts and presentation of the reported assets and liabilities, the off-balance-sheet rights and obligations and the reported income and expenditure during the year. The actual outcomes may differ from the estimates and assumptions used. Note [35] to the financial statements gives further information on the areas and items in the financial statements where estimates and assumptions are used. Unless stated otherwise, all amounts reported in these financial statements are in millions of euros.
Unrealised profits on transactions between the Alliander group and its associates or joint ventures are eliminated pro rata according to the group’s interest in the entity concerned. Unrealised losses are also eliminated, unless the transaction gives rise to the recognition of impairment losses. If appropriate, the accounting policies of associates and joint ventures are adjusted to ensure the consistent application of accounting policies throughout the Alliander group.
New and/or amended IFRS standards applicable in 2017
The IASB and the IFRIC have issued new and/or amended standards and interpretations which are applicable to Alliander with effect from the 2017 financial year. The standards and interpretations below have been endorsed by the European Union.
IAS 12 ‘Recognition of deferred tax assets for unrealised losses’ clarifies a number of specific situations surrounding the recognition or otherwise of deferred tax assets and the measurement thereof.
IAS 7 ‘Disclosure initiative – Amendments to IAS 7 Statement of Cash Flows ‘Changes in liabilities arising from financing activities’’ requires more detailed disclosure of changes in liabilities from financing activities so as to provide a proper view of changes arising from cash flows and non-cash changes.
In order to achieve this, the following changes must be disclosed, where applicable:
Changes from financing cash flows;
Changes arising from obtaining or losing control of subsidiaries or other operations;
The effect of changes in foreign exchange rates on foreign currency assets and liabilities;
Changes in fair values; and
Other changes
The IAS 12 amendment has no impact on the 2017 financial statements; the effect of the IAS 7.44A amendment is covered in the disclosures in note [13].
Expected changes in accounting policies
In addition to the above-mentioned new and amended standards, the IASB and the IFRIC have issued new and/or amended standards and/or interpretations in the period which will be applicable to Alliander in subsequent financial years. These standards and interpretations can only be applied if adopted by the European Union. The following changes may be of relevance to Alliander.
IFRS 15 'Revenue from Contracts with Customers' replaces the existing standards IAS 11 'Construction Contracts' and IAS 18 'Revenue Recognition' on 1 January 2018. In essence, IFRS 15 means that contracts with customers are decomposed into the performance obligations. The recognition of related assets and obligations and the recognition of revenue will be derived from the specific transaction prices of those performance obligations. The disclosure requirements under IFRS 15 are considerable.
IFRS 15 has the option of two different approaches for the transition to this new standard, viz. full retrospective or prospective. With full retrospective transition, the cumulative effect of the transition to the new standard is recognised on 1 January 2017 with the comparative figures in the 2017 financial statements presented entirely in accordance with IFRS 15. In the case of prospective transition, the cumulative effects of the transition are recognised on 1 January 2018 while the comparative figures continue to be based on the old standard. Alliander has opted for the full retrospective approach.
In 2015, an implementation programme was initiated for all Alliander business units to assess contracts, services and supplies in terms of the new standard, to identify any changes in measurement and recognition and in required disclosures and to ascertain the impact this would have on the accounting and other systems. This implementation programme was concluded in 2017. The impact for the regulated activities and for the deregulated activities is immaterial in terms of both the measurement and the recognition of revenue. In connection with the implementation, a number of changes have been made to the financial systems enabling the reporting requirements to be met with effect from 1 January 2018.
The main findings to come out of the implementation exercise are that, as from 1 January 2018, more extensive disclosure requirements will be applicable, particularly with respect to progress on contracts with customers, performance obligations and segmentation of revenue. Also, with effect from 2018, there will be a shift of amounts in the income statement between other income and revenue. Recognised as revenue will be the income from contracts with customers (IFRS 15) while other income, such as rental income, will be accounted for in other income. For 2017, this means that a net amount of approximately €100 million shifts from other income to revenue.
IFRS 9 'Financial Instruments'. In July 2014, the IASB published the complete version of IFRS 9 'Financial Instruments', bringing together the various parts of the IASB project to replace IAS 39. It covers recognition and measurement, impairment and any hedge accounting in relation to financial instruments and largely replaces the requirements of IAS 39. IFRS 9 is applicable to reporting periods beginning on or after 1 January 2018.
IFRS 9 includes amended requirements for the recognition and measurement of financial assets. The classification of financial assets is related to the business model applicable to the assets and introduces a new category for certain instruments, viz. fair value through other comprehensive income (FVOCI). IFRS 9 includes a new impairment model for all financial instruments, based on the expected losses rather than actual losses, as under IAS 39. In the recognition and measurement of financial liabilities, the only difference concerns the treatment of changes in the credit risk of a liability that is recognised at fair value. The effect of changes in the credit risk of a liability is recognised in other comprehensive income (OCI). IFRS 9 also contains new requirements for hedge accounting, enabling an entity to reflect its risk management more accurately in the financial statements. IFRS 9 is applicable to reporting periods beginning on or after 1 January 2018.
An implementation programme was begun at Alliander in 2017. The financial assets were evaluated in accordance with the new IFRS 9 standard. Any changes in recognition, measurement and disclosure requirements were identified, along with the impact on accounting records and systems. Alliander has a modest portfolio of financial instruments which, in relation to the available-for-sale financial assets category, comprises an investment in corporate debt issued by a large international company. With the application of IFRS 9 in 2018, there will be a change in the recognition and measurement of the assets concerned. These assets serve as collateral for the liabilities in relation to cross-border leases. Given the business model, i.e. ‘hold to maturity’, the bonds will be carried at amortised cost under IFRS 9. This change means that the carrying amount of the bonds is reduced by €43 million, charged to other reserves. The original recognition in equity of a revaluation reserve of €38 million and the associated deferred tax of €13 million ceases to apply, this change likewise being accounted for in other reserves. This results in a net increase in other reserves of €8 million, recognised in the opening balance as at 1 January 2018. The impact of the new impairment model was explored and does not lead to material changes. The expected credit losses are mainly recognised on a collective basis. Apart from the financial assets in the regulated domain, Alliander has a modest position in other financial assets relating to the deregulated activities. The impact is mainly of a procedural nature and is minor.
As at 31 December 2017, Alliander did not make use of hedge accounting.
IFRS 16 'Leases'. The IASB published the new standard for leases on 13 January 2016. An implementation programme was begun at Alliander in 2017 to identify all the significant leasing arrangements. The implementation process for the new standard has now reached a stage where it can be decided how Alliander is going to organise the change. Alliander will be implementing IFRS 16 with effect from 1 January 2019, using the modified retrospective approach rather than the full retrospective approach. Fully retrospective implementation would be too burdensome in view of the significance of leases in Alliander’s case. Within the modified retrospective approach, Alliander is considering taking the practical approach of applying the existing type classification of the leases for the current contracts as at 1 January 2019, meaning that the distinction between finance leases and operating leases in the financial reporting in relation to the existing leases as at 1 January 2019 where Alliander is lessee will not be relevant anymore. New leases will, however, be treated in accordance with IFRS 16 with effect from 1 January 2019. An important implication for Alliander as lessee in particular is that rights and obligations under operating leases will be included in the balance sheet. This will have the effect of increasing the size of the balance sheet to a certain extent. There will also be a shift from operating expenses to depreciation and to finance expense in the income statement. Precise figures for the increase in total assets and movements in the income statement cannot be given at this stage. In note [19] it is disclosed that the existing obligations under operating leases amounted to €153 million as at year-end 2017. Under the new standard, a large part of this figure will be recognised in the balance sheet as right-of-use assets and lease liabilities. The greater part of these lease obligations concerns the leasing of premises and vehicles.
The new standard does not affect the way in which the cross-border leases are accounted for, however. The other future amendments to standards and interpretations that have been published are either not relevant to Alliander or do not have any material impact on Alliander and are therefore not considered in greater detail in these financial statements.