Note 1 – Accounting principles

The quarterly report has been prepared according to the IFRS standards that have been adopted by EU as well as the interpretations of the valid standards adopted by EU, IFRICs. This report for the Group has been prepared according to IAS 34, Interim financial reporting as well as applicable regulations in the Annual Accounts Act. The parent company quarterly report has been prepared according to chapter 9 in the Annual Accounts Act, Quarterly reports and RFR 2, Accounting rules for legal entities. The quarterly report has been prepared for the Group and parent company according to the same accounting principles and conditions applied in the latest Annual Report, except for the amended accounting principles described below.

In addition to the financial reports and their accompanying notes further information according to IAS 34.16A can be found in other sections of the quarterly report.

The Group began to apply IFRS 16, Leases in 2019.

IFRS 16 Leases

IFRS 16, Leases replaced IAS 17, Leases as of January 1, 2019. IFRS 16 will basically require Peab as a lessee to report all leasing contracts as assets and liabilities on the balance sheet, representing the right to use the leased asset respectively the obligation to pay leasing fees. Regarding leasing contracts, depreciation of the leasing asset and interest costs on the leasing liability are recognized in the income statement. This will not have any material effect on pre-tax profit. Affected leases primarily cover rent for offices and other premises, leaseholds, land rentals and vehicles. IFRS 16, Leases is applied in segment reporting.

When changing over to the new standard Peab has elected the modified retroactive method with the alternative to let the right-of-use asset be measured at the amount of the lease liability at the changeover with adjustments for any prepaid or accrued leasing fees. The elected changeover method does not require recalculating comparable periods.

Right-of-use leases shorter than 12 months or which end within 12 months from the changeover date are classified as current leases and therefore not included in liabilities or right-of-use assets. In addition, Peab has elected not to recognize leases for which the underlying asset has a low value as a right-of-use asset respectively a lease liability.

Existing finance leases previously recognized according to IAS 17, Leases are reclassified according to IFRS 16 for the amount they were recognized at the day immediately before application of the new standard.

An incremental borrowing rate has been determined per country, right-of-use period and type of asset per January 1, 2019.

Effects of the changeover to IFRS 16 are given below. For further information concerning the changeover to IFRS 16 see the Annual Report 2018, note 45.

Recognition of additional leases according to IFRS 16

Parent company

The new standard IFRS 16, Leases which is applied as of January 1, 2019 does not affect the parent company since the standard is exempt from application in corporations and leasing in the parent company is insignificant.

Revenue recognition of Swedish tenant-owned housing projects

Peab has in quarterly reports and the Annual Report 2018 communicated that to­geth­er with sev­er­al other major hous­ing de­vel­op­ers Peab has re­ceived ques­tions from Nas­daq Stock­holm AB (Nas­daq) dur­ing 2018 re­gard­ing the ap­pli­ca­tion of IFRS 15 Rev­enue from con­tracts with cus­tomers as well as whether the tenant-​owned hous­ing as­so­ci­a­tion or the final home buy­ers are, in terms of ac­count­ing, Peab’s cus­tomers ac­cord­ing to IFRS 15. The rec­on­cil­i­a­tion be­tween Nas­daq and ESMA (European Securities and Markets Authority) came to the con­clu­sion that, in this case, the ac­count­ing review should be fo­cused on the ap­pli­ca­tion of IFRS 10 Con­sol­i­dat­ed fi­nan­cial state­ments and to what extent tenant-​owned hous­ing as­so­ci­a­tions should be included in Peab’s con­sol­i­dat­ed fi­nan­cial state­ments. For more information, see the Annual Report 2018, section Revenue recognition of Swedish tenant-owner projects, page 53.

Re­gard­ing the mat­ter of whether or not a com­pa­ny has con­trol­ling in­ter­est over a tenant-​owned hous­ing as­so­ci­a­tion, and there­by ought to con­sol­i­date the as­so­ci­a­tion, there is, tak­ing into con­sid­er­a­tion all rel­e­vant facts and cir­cum­stances, room for com­pa­nies within the framework of IFRS 10 Con­sol­i­dat­ed fi­nan­cial state­ments to ar­rive at dif­fer­ent con­clu­sions. After a re­view of several crucial fac­tors our con­clu­sion is that Peab can­not be con­sid­ered to have con­trol­ling in­ter­est over tenant-​owned hous­ing as­so­ci­a­tions from the time a tenant-​owned hous­ing as­so­ci­a­tion signs a contract for a land transfer and turnkey contract ac­cord­ing to the stipulations in IFRS 10 Con­sol­i­dat­ed fi­nan­cial state­ments. This conclusion is shared by our accountants.

In the be­gin­ning of De­cem­ber 2018 Nas­daq sent a let­ter to Peab with the in­for­ma­tion that Nas­daq had de­cid­ed to crit­i­cize Peab for a lack of clar­i­ty in the An­nu­al Re­port for 2017 con­cern­ing the grounds for Peab’s as­sess­ment that con­trol­ling in­ter­est does not exist when rev­enue over time is ap­plied to tenant-​owned hous­ing as­so­ci­a­tions. Nas­daq re­quired that clear­er in­for­ma­tion should be pre­sent­ed in the An­nu­al Re­port for 2018, which Peab has done. The let­ter also stat­ed that Nas­daq considered the case closed and that Fi­nansin­spek­tio­nen had been no­ti­fied, which took over the matter as of January 1, 2019. During the spring of 2019 Finansinspektionen continued to examine the matter and put further questions to Peab which the company has answered. On June 3, 2019 Peab received a reconciliation letter from Finansinspektionen containing observations and preliminary judgements from Finansinspektionen. Finansinspektionen’s preliminary judgement is that Peab should have consolidated the tenant-​owned hous­ing as­so­ci­a­tions in 2017. Peab was given the opportunity to reply in the form of an opinion regarding Finansinspektionen’s reconciliation letter. Peab delivered its opinion on June 27, 2019 and contested Finansinspektionen’s preliminary conclusion. Peab believes it is wrong to consolidate the tenant-​owned hous­ing as­so­ci­a­tions since the company does not have a controlling interest. In addition, in Peab’s opinion the current application best describes Peab’s housing business both in terms of internal steering and risk profile. When there is a broad spectrum of differences in practice in interpretations of IFRS the IFRS Interpretations Committee is usually requested to provide a clarification and possibly make changes in the IFRS. Peab believes the matter is so generally widespread and of such importance that the IFRS Interpretations Committee ought to review it. After reading Peab’s opinion Finansinspektionen will determine how to further handle the matter. Regardless of the accounting method applied Peab’s risk profile, internal steering and monitoring will remain the same. It will only affect the external legal accounting of these operations.