JUST GROUP PLC Annual Report and Accounts 2021
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
1 SIGNIFICANT ACCOUNTING POLICIES continued 1.1 Basis of preparation continued • Amendments to IFRS 9, Financial instruments; IAS 39, Financial instruments: recognition and measurement; IFRS 7, Financial instruments: disclosures; IFRS 4, Insurance contracts; and IFRS 16, Leases – Interest Rate Benchmark Rate (IBOR) Reform Phase 2. During the year the London Inter Bank Offered Rate (“LIBOR”) interest rate benchmark was replaced with the Sterling Overnight Index Average (“SONIA”). In order to avoid unintended accounting consequences from IBOR reform, the IASBmade amendments to accounting standards. The amendments address issues that arise during the reform of an interest rate benchmark rate, including the replacement of one benchmark with an alternative one. The amendments provide relief when changing the basis for determining contractual cash flows for financial assets and liabilities (including lease liabilities), and provide hedge accounting reliefs that will allowmost hedge relationships that are directly affected by IBOR reform to continue. The Group does not have financial assets or liabilities or leases that are based on an interest rate benchmark, and the Group does not use hedge accounting. Therefore there is no impact on profit and loss or equity from these amendments. The following new accounting standards and amendments to existing accounting standards in issue and significant to the Group have not yet been adopted by the Group.
• IFRS 9, Financial instruments (effective 1 January 2018).
Amendments to IFRS 4, Insurance Contracts, published in September 2016 and adopted by the Group with effect from 1 January 2018, permits the deferral of the application of IFRS 9 until accounting periods commencing on 1 January 2023 for eligible insurers. Just continues to defer IFRS 9 as explained in note 1.17. If the Group had adopted IFRS 9 it would continue to classify financial assets at fair value through profit or loss. Therefore, under IFRS 9 all financial assets would continue to be recognised at fair value through profit or loss and the fair value at 31 December 2021 would be unchanged at £24,681.7m. As well as financial assets, the Group also holds Insurance and other receivables and Cash and cash equivalent assets, with contractual terms that give rise to cash flows on specified dates; the fair value of these investments is considered to be materially consistent with their carrying value, as disclosed in notes 19 and 20. • IFRS 17, Insurance contracts (effective 1 January 2023, not yet endorsed). IFRS 17 was issued in May 2017 with an effective date of 1 January 2021. In June 2020, the IASB issued an amended standard which delayed the effective date to 1 January 2023. The amendments issued in June 2020 aimed to assist entities implementing the standard. The transition requirements of IFRS 9 prescribe that comparative periods are not restated for certain accounting changes introduced by IFRS 9. This can result in accounting mismatches with restated IFRS 17 comparative information. As a result the IASB published an amendment to IFRS 17 in December 2021 permitting an entity to present financial asset comparative information as if the classification and measurement requirements of IFRS 9 had been applied to that financial asset. Once effective, IFRS 17 will replace IFRS 4 that was issued in 2005. The final standard remains subject to endorsement by the UK Endorsement Board which has sought views of accounts preparers and users in a final consultation process that closed in February 2022. The Group has participated actively in industry consultations to date, with implementation matters continuing to be debated, these are expected to conclude in time for the 1 January 2023 effective date. IFRS 17 provides a comprehensive revision of the accounting for insurance contracts including their valuation, income statement presentation and disclosure. The main impact of the standard applicable to annuities is the deferment of premium revenues and expenses on the balance sheet within a “contractual service margin” (“CSM”) account instead of recognition at point of sale under IFRS 4. The CSM is then recognised in the profit or loss account over the life of contracts. The presentation of insurance revenue in the statement of comprehensive income will be based on the concept of insurance services provided in the period rather than the value of premiums as presented under IFRS 4. The standard also requires an explicit allowance for non-financial risk instead of the prudence margins held on an implicit basis under IFRS 4. Given the long-term nature of the Group’s business, the impact of IFRS 17 on the measurement and presentation of insurance contracts in the Group’s statutory reporting is expected to be significant. The transition requirements of IFRS 17 include three approaches: retrospective, modified retrospective and fair value approach. Although the impact is not known or reasonably estimatable, there is expected to be a reduction in equity on transition as a result of the deferment of premium revenues and expenses on the balance sheet within the CSM. The Group initiated a project in 2017 to develop measurement and reporting systems and processes which will apply to all of the Group’s insurance business. The requirements of the new standard are complex and will require fundamental changes to accounts reporting systems and processes as well as the application of significant judgement. A steering committee chaired by the Group Chief Financial Officer provides oversight and strategic direction, a technical committee provides governance over the technical interpretation and accounting policies selected, with delivery of the project managed within the Group’s broader Finance Transformation Programme. During 2021 the Group has made significant progress. The following amendments to existing standards in issue have not been adopted by the Group and are not expected to have a significant impact on the financial statements. The amendments include clarifications that are not inconsistent with the Group’s existing accounting treatment and other insignificant changes. • IAS 16, Property, plant and equipment – Amendments in respect of proceeds before intended use (effective 1 January 2022, not yet endorsed); • IFRS 3, Business combinations – Amendments to references to the conceptual framework for financial reporting (effective 1 January 2022, not yet endorsed); • IAS 37, Provisions, contingent liabilities and contingent assets – Amendments in respect of costs of fulfilling a contract (effective 1 January 2022, not yet endorsed);
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