33. SHARE INCENTIVE SCHEMES AND SHARE-BASED PAYMENTS
33.1

Financial effect of share-based payment transactions

The annual financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). The basis is consistent with the prior year. No new amended standards or new interpretations were adopted.

33.2

New standards and interpretations not yet adopted

The following standards and interpretations are not yet effective and will be adopted in future years:

IFRS 9 Financial Instruments (November 2009, October 2010 and December 2011, November 2013 and July 2014)

IFRS 9 replaces IAS 39 Financial Instruments: Recognition and Measurement. The standard includes requirements for recognition and measurement, impairment, derecognition and hedge accounting.

Classification and measurement of financial assets and liabilities

Due to the change in classification principles such as the nature of cash flows (Solely Payment of Principal and Interest (SPPI)) as well as the impact of classification based on the business model, the classification and therefore measurement of certain financial assets will change. This mostly refers to equity investments in unquoted instruments that were previously recognised at cost (allowable under IAS 39) which will now be recognised at fair value (according to IFRS 9). Due to the volatility of the movements on such instruments the accounting policy election will be made to recognise these instruments at fair value through other comprehensive income.

Impairment of financial assets

IFRS 9 requires that impairments be recognised for all amortised cost financial assets, contract assets and finance lease receivables based on an expected credit loss (ECL) model. This is a fundamental change to IAS 39 which is based on an incurred loss model. Based on our preliminary assessment we do not anticipate a material impact on the current allowance for doubtful receivables. Some of the factors considered to determine the impact of future events on ECL include reputation, operating environment, industry, regulatory environment and changes in performance/behaviour which would indicate increased credit risk.

Disclosure

There will be a significant shift of focus in terms of disclosure with more transparency of the expected credit losses with a clear distinction of credit impaired and not credit impaired debtors with a high credit risk based on past, present and future events.

We do not anticipate any material impacts to any other disclosures such as financial instruments after considering amendments to IFRS 7 including additional disclosures on the application of IFRS 9. IFRS 9 will be effective for Barloworld for the first time in the year ended 30 September 2019.

IFRS 15 Revenue from Contracts with Customers (May 2014) and Clarification of IFRS 15 (April 2016)

IFRS 15 specifies how and when an entity will recognise revenue as well as requiring such entities to provide users of financial statements with more informative, relevant disclosures. The standard provides a single, principles-based five-step model to be applied to all contracts with customers.

Within Barloworld, five major revenue streams have been identified as follows:

  • Sale of goods
  • Rendering of services
  • Finance insurance (commission)
  • Finance business (finance and operating lease income)
  • Rental received

Disclosure

We have completed an initial impact analysis which indicates that the adoption of IFRS 15 will have a less than 1% impact on the group’s revenue. Therefore the group has elected not to restate comparative figures. Any adjustments at the date of transition will be recognised in opening retained earnings and other reserves as at 1 October 2018.

IFRS 15 also includes a cohesive set of disclosure requirements that would result in Barloworld providing users of the financial statements with comprehensive information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts with customers.

IFRS 15 will be effective for Barloworld for the first time in the year ended 30 September 2019.

IFRS 16 – Leases (January 2016)

IFRS 16 replaces the current guidance in IAS 17. Under IAS 17, lessees were required to make a distinction between a finance lease (on balance sheet) and an operating lease (off balance sheet).

IFRS 16 requires lessees to recognise a lease liability reflecting future lease payments and a ‘right-of-use’ asset for virtually all lease contracts. The IASB has included an optional exception of certain short-term leases and leases of low-value assets. There are no fundamental changes to the accounting for lessor accounting.

The application of IFRS 16 is expected to have a significant impact on the group’s financial statements, particularly in relation to the recognition of ’right-of-use’ assets and lease liabilities that were previously treated as operating leases (refer to the current IAS 17 disclosure of operating leases in note 28). In contrast, the impact on the group’s accounting for finance leases is not expected to be significantly impacted (refer to the current IAS 17 disclosure of finance leases in notes 14 and 18). While a project to fully assess the impact of IFRS 16 is under way it is not practicable to provide a reasonable and reliable estimate of the financial impact at this stage.

IFRS 16 will be effective for Barloworld for the first time in the year ended 30 September 2020.

IFRS 17 – Insurance Contracts (May 2017)

The new standard establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts and supersedes IFRS 4 Insurance Contracts.

The standard outlines a general model, which is modified for insurance contracts with direct participation features, described as the variable fee approach.

The general model is simplified if certain criteria are met by measuring the liability for remaining coverage using the premium allocation approach. The general model will use current assumptions to estimate the amount, timing and uncertainty of future cash flows and it explicitly measures the cost of that uncertainty. It takes into account market interest rates and impact of the policy holders’ options and guarantees.

Profit from selling insurance contracts is deferred in a separate liability component on day one and aggregated in groups of insurance contracts. It is reported systematically through profit and loss over the period during which the insurers provide cover after making adjustments from changes in assumptions relating to future coverage.

Certain transactions as part of Equipment’s maintenance contracts and full maintenance lease contracts sold by Automotive are entered into by the group as insurer which falls within the definition of insurance contracts per IFRS 4 Insurance Contracts.

A project to fully assess the impact of IFRS 17 will be launched shortly; therefore it is not practicable to provide a reasonable and reliable estimate of the financial impact at this stage.

IFRS 17 will be effective for Barloworld for the first time in the year ended 30 September 2022.

The following new and amended standards are expected to have no or minimal impact on presentation, recognition and measurement:

  • Clarification and Measurement of Share-Based Payments Transactions amendments to IFRS 2 (June 2016), effective 2019 financial year
  • Amendments to IAS 28 (October 2017), Long-term Interests in Associates and Joint Ventures, effective 2020 financial year
  • Amendments to IAS 19) (February 2018), Plan Amendment, Curtailment or Settlement, effective 2020 financial year
  • IFRIC 23, Uncertainty over Income Tax Treatments, effective 2020 financial year
  • Annual Improvements to IFRS Standards 2015-2017 Cycle (December 2017), Annual Improvements to IFRS: 2015-2017 Cycle IFRS 3, IFRS 11, IAS 12 and IAS 23 Amendments, effective 2020 financial year