116 JUST GROUP PLC Annual Report and Accounts 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
1 SIGNIFICANT ACCOUNTING POLICIES continued 1.1 Basis of preparation continued The impact on transition is as follows:
1 January 2019 £m
(13.3) (12.2)
Operating lease commitment at 31 December 2018 as disclosed in the Group’s consolidated financial statements
Discounted at the incremental borrowing rate at 1 January 2019
2.6
Break clauses reasonably certain to be exercised Lease liabilities recognised on transition to IFRS 16
(9.6)
9.6
Right-of-use asset presented in property, plant and equipment on transition to IFRS 16
–
Retained earnings
During the year the Group has recognised £2.8m of depreciation charges and £0.3m of interest costs from these leases.
The following new accounting standards, interpretations and amendments to existing accounting standards in issue, but not yet effective, have not been early adopted by the Group. Unless stated, the new and amended standards and interpretations are being assessed but are not expected to have a significant impact on the Group’s financial statements:
• IFRS 17, Insurance Contracts (not yet endorsed by the EU).
Since May 2017, when the draft standard was issued with an effective date of 1 January 2021, the IASB has in June 2019 issued a further Exposure draft including an extension of effective date to 1 January 2022, and in March 2020, the IASB’s Board will consider a further extension of the effective date. IFRS 17 provides a comprehensive approach for accounting for insurance contracts including their valuation, income statement presentation and disclosure. 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 main feature of the standard applicable to annuities is the deferment of recognition of premium revenues with recognition over the life of contracts. The impact of IFRS 17 continues to be assessed but it is anticipated there is likely to be a significant change relating to the measurement and presentation of insurance contracts in the Group’s statutory reporting. The Group has not early-adopted any standard, interpretation or amendment that has been issued but is not yet effective. There are no other new accounting standards or amendments to existing accounting standards relevant to the Group effective from 1 January 2019. 1.2 Significant accounting policies and the use of judgements, estimates and assumptions The preparation of financial statements requires the Group to select accounting policies and make estimates and assumptions that affect items reported in the Consolidated statement of comprehensive income, Consolidated statement of financial position, other primary statements and Notes to the consolidated financial statements.
The major areas of judgement used as part of accounting policy application are summarised below. Accounting policy Item involving judgement Critical accounting judgement 1.6 Classification of insurance and investment contracts
Assessment of significance of insurance risk transferred.
1.18
Financial investments
Classification of financial investments, including assessment of market observability of valuation inputs. The use of a variant of the Black-Scholes option pricing formula with real world assumptions. The measurement of the no-negative equity guarantee underlying the fair value of loans secured by mortgages uses a variant of the Black-Scholes option pricing formula, which has been adapted to use real world assumptions instead of risk neutral assumptions due to the lack of relevant observable market inputs to support a risk neutral valuation approach. This approach is in line with common industry practice and there does not appear to be an alternative approach that is widely supported in the industry. We acknowledge that there has been significant recent academic and market debate concerning the valuation of no-negative equity guarantees and we intend to continue to actively monitor this debate.
1.18
Measurement of fair value of loans secured by residential mortgages, including measurement of the no-negative equity guarantees
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