Note 46 New IFRSs 2018
IFRS 15 Revenue from contracts with customers
IFRS 15 Revenue from contracts with customers, replaces as of 2018 existing standards related to income recognition such as IAS 18 Revenue, IAS 11 Construction contracts and IFRIC 15 Agreements for the construction of real estate. No material effects have been identified. According to IFRS 15 income is recognized when control over a product or service is transferred to a customer, which is a change from the current reporting standards that are based on the transfer of risks and benefits. Even if IFRS 15 entails a new method of determining how and when income is recognized, requiring a new way of thinking compared to how income is currently recognized, it has not led to any material effects for the Peab Group.
Peab has chosen to apply IFRS 15 retroactively by recalculating the financial reports for 2017.
Until the end of 2017 there were differences between operative and legal reporting in business area Project Development. The differences have also been reflected in how executive management and the Board have followed up the Group on the whole. Peab applies IFRIC 15, Agreements for the construction of real estate, in legal reporting. This principle requires applying IAS 18, Revenue, for housing projects in Finland and Norway as well as our own home developments in Sweden, which means income from projects is first recognized when the home is turned over. Operative and segment reporting is based on the percentage of completion. After implementing IFRS 15, our own home developments in Sweden and all homes in Norway will be reported according to so-called “income over time”. IFRS 15 will not lead to any changes in reporting regarding housing projects in Finland compared to the current application since income is first recognized when the home is turned over to the buyer. After implementation of IFRS 15 segment reporting will mirror legal reporting. The differences between operative and legal reporting will therefore no longer exist after implementation of IFRS 15.
According to IFRS 15 the sales price of the identified performance obligations in contracts with customers is divided up. Income is recognized when a performance obligation is met, which can be at a certain point in time or over time. In regards to Peab’s construction contract operations in business area Construction and Civil Engineering IFRS 15 does not entail any material change in when the income is recognized or for what amount. Business area Industry recognizes income according to both IFRS 15 and IAS 17 but the shift to IFRS 15 does not entail any material change in the way income is recognized. In business area Project Development most income is recognized over time. Swedish tenant-owner projects are reported according to IFRS 15 over time, which is the same as previously. This means that income is recognized depending on the project’s level of completion based on accrued expenses in relation to the project’s total calculated costs. Land is sold and buildings are constructed according to the contract with the tenant-owner association, which is an independent legal entity.
As previously, feared costs are expensed as soon as they are known. According to IFRS 15 the part of a feared loss that has not been worked-up is recognized as a provision. This is a change compared to IAS 11 where the part of a feared loss that has not been worked-up is recognized as Worked-up but not invoiced income among current assets or Invoiced but not worked-up income among current liabilities.
No material effects have been identified due to Peab’s recalculation to IFRS 15. As of 1 January 2017 the recalculation effected equity by SEK -1 million. The recalculation to IFRS 15 reduced net sales in 2017 by SEK 245 million to SEK 49,845 million and operating profit improved by SEK 2 million to SEK 2,407 million. Total comprehensive income for the year 2017 was not affected by the recalculation and therefore equity at the end of 2017 was SEK 1 million lower due to the recalculation.
Cash flow was not affected by the recalculation but it causes some deferment within changes in working capital primarily because work-in-progress is reclassified to project and development property.
Implementation of IFRS 15 also entails new presentation demands primarily regarding income allocation into categories, contract balances and performance obligations, which will affect Peab’s Annual Report for 2018.
IFRS 9 Financial instruments
IFRS 9 Financial instruments, replaces IAS 39 Financial instruments: Recognition and measurement, as of 2018. IFRS 9 differs from IAS 39 foremost regarding classification and valuation of financial assets and financial liabilities, write-downs of financial assets and hedging accounting. IFRS 9 allows a company to continue to apply the rules in IAS 39 for hedging accounting even after 1 January 2018 until IASB has finished its project on so-called “macro hedging”. Peab has chosen to apply all parts of IFRS 9 as of 1 January 2018. In addition, Peab has chosen to apply the exemption in IFRS 9 that permits not recalculating comparable information for previous periods. However, the changed principles for hedging accounting will not affect the Group. The other effects of IFRS 9 for Peab are described below.
Classification and valuation of financial assets and financial liabilities
Peab has holdings of unlisted funds that under IAS 39 have been classified as “Financial assets available-for-sale” (see note 35), which means that the funds have been valued at fair value via other comprehensive income. The funds do not meet the criteria in IFRS 9 for equity instruments and cash flow from the funds does not consist solely of payments in capital and interest. The funds will therefore be valued at fair value via the income statement under IFRS 9. The amount of SEK 4 million in “Fair value reserve” that refers to the funds on 31 December 2017 will be transferred to profit brought forward in the opening balance on 1 January 2018.
Peab also has holdings in unlisted shares and participations under IAS 39 valued at acquisition method less any write-downs since fair value could not be reliably determined. However, under IFRS 9 these shares must be valued at fair value. When transitioning to IFRS 9, fair values were re-examined and the recognized values corresponded more or less to fair value. Future changes in values will be recognized in profit for the year.
IFRS 9 will not have any effect on the recognition of Peab’s financial liabilities.
Write-downs of financial assets
IFRS 9 requires loss reserves for anticipated credit losses. This differs from current regulations that only require loss reserves if something occurs that leads Peab to believe a customer may not be able to pay the entire balance due. Historically Peab has only had small credit losses in current operations. Implementation of IFRS 9 will therefore only raise Group reserves for credit losses to a certain extent. The loss reserve per item affected as of 1 January 2018 are shown in the table below. The increase in loss reserves due to the transition to IFRS 9 will charge profit brought forward in the opening balance on 1 January 2018 by SEK -7 million net after reductions for deferred tax.
|Group, MSEK||Increase in credit risk reserve on 1 January 2018|
|Interest-bearing long-term receivables||5|
New presentation requirements follow with the implementation of IFRS 9, primarily regarding hedging accounting and credit risks that will affect Peab’s Annual Report in 2018.
Report on Group financial position in summary, 2017-01-01
|MSEK||Reported balance sheet||Adjustment IFRS 15||Adjusted balance sheet|
|Interest-bearing long-term receivables||1,762||1,762|
|Other financial fixed assets||1,757||22||1,779|
|Deferred tax recoverables||69||-7||62|
|Total fixed assets||9,901||15||9,916|
|Project and development properties||7,007||690||7,697|
|Interest-bearing current receivables||336||336|
|Other current receivables||11,736||5||11,741|
|Total current assets||21,708||-508||21,200|
|Equity and liabilities|
|Interest-bearing long-term liabilities||2,728||2,728|
|Deferred tax liabilities||372||-12||360|
|Other long-term liabilities||776||776|
|Total long-term liabilities||3,876||-12||3,864|
|Interest-bearing current liabilities||2,294||2,294|
|Other current liabilities||16,059||-480||15,579|
|Total current liabilities||18,353||-480||17,873|
|Total equity and liabilities||31,609||-493||31,116|
Report on Group income statement, Jan-Dec 2017
|MSEK||Reported income statement||Adjustment IFRS 15||Adjusted income statement|
|Sales and administrative expenses||-2,620||11||-2,609|
|Other operating income||305||305|
|Other operating expenses||-25||-25|
|Profit for the year||2,057||-1||2,056|
|Profit for the year attributable to:|
|Shareholders in parent company||2,057||-1||2,056|
|Non controlling interests||0||0|
|Profit for the year||2,057||-1||2,056|
Report on Group financial position in summary, 2017-12-31 respectively 2018-01-01
|MSEK||Reported balance sheet 2017-12-31||Adjustment IFRS 15 |
|Adjusted balance sheet |
|Adjustment IFRS 9 |
|Adjusted balance sheet |
|Interest-bearing long-term receivables||1,520||1,520||-5||1,515|
|Other financial fixed assets||1,147||8||1,155||1,155|
|Deferred tax recoverables||15||-6||9||9|
|Total fixed assets||11,228||2||11,230||-5||11,225|
|Project and development properties||6,439||1,153||7,592||7,592|
|Interest-bearing current receivables||411||411||411|
|Other current receivabels||11,855||-91||11,764||-5||11,759|
|Total current assets||21,048||-287||20,761||-5||20,756|
|Equity and liabilities|
|Interest-bearing long-term liabilities||2,573||2,573||2,573|
|Deferred tax liabilities||211||-10||201||-3||198|
|Other long-term liabilities||840||840||840|
|Total long-term liabilities||3,624||-10||3,614||-3||3,611|
|Interest-bearing current liabilities||1,169||1,169||1,169|
|Other current liabilities||17,121||-274||16,847||16,847|
|Total current liabilities||18,290||-274||18,016||–||18,016|
|Total equity and liabilities||32,276||-285||31,991||-10||31,981|