5.1 Changes in accounting policies, accounting estimates and errors

The accounting policies are changed only if the change:

  • is required by IFRS; or
  • results in the financial statements providing reliable and more relevant information about the effects of transactions, other events or conditions on the Group's financial position, financial performance or cash flows.

Changes in accounting policies upon initial application of IFRS are applied in accordance with transitional provisions included in IFRS. When changes in accounting policies are made upon initial application of IFRS that do not include specific transitional provisions applying to that change, or the changes are made voluntarily, the entity shall apply the change retrospectively. Retrospective application of a change in accounting policy requires to adjust the opening balance of each affected component of equity for the earliest prior period presented and the other comparative amounts disclosed for each prior period presented as if the new accounting policy had always been applied.

The items of financial statements determined based on accounting estimates shall be subject to verification if changes occur in the circumstances on which the estimate was based or as a result of new information or more experience.

The results of a change in estimates shall be accounted for prospectively. This means that the amounts concerning transactions, other events and conditions are adjusted from the moment when the change occurred (the change impacts only the current statement of comprehensive income or the results in a given period and future periods).

It is assumed that errors are adjusted in the period when they were made (and not detected). Thus, essential errors from previous periods shall be adjusted retrospectively, and the differences are charged to equity.

5.1.1. Changes in the applied IFRS

5.1.1.1. Standards and interpretations as well as changes in standards effective from 1 January 2016

The following new standards, interpretations and changes in standards have been applied to these consolidated financial statements:

Standard/Interpretation Date of entry into force for periods beginning on the following day Resolution endorsing a standard or interpretation Description
Amendment to IAS 16 and IAS 41 – Bearer plants 1 January 2016 2113/2015 The amendment introduces a definition of bearer assets and removes them from the scope of the application of IAS 41 by moving them to IAS 16, which results in change in the method of valuation. The aforesaid change did not exert any effect on the consolidated financial statements of PZU Group.
Amendment to IFRS 11 – Settlement of acquisition of shares in a joint venture 1 January 2016 2173/2015 The amendment clarifies that the purchaser of the shares in joint operations must comply with all the rules regarding acquisition accounting under IFRS 3 and other IFRSs that are not in conflict with IFRS 11 and disclose the information required by these standards. The aforesaid change did not exert any effect on the consolidated financial statements of PZU Group.
Amendment to IAS 16 and IAS 38 – explanation of acceptable methods of depreciation 1 January 2016 2231/2015 The amendment clarifies that the adoption of depreciation methods based on revenues generated by the assets is not appropriate. The aforesaid change did not exert any effect on the consolidated financial statements of PZU Group.
Amendments to IFRS 2012–2014 1 January 2016 2343/2015 Amendment to IFRS 5 – adding guidance on how to reclassify assets held for sales to assets held for distribution to owners and conversely, and instances of discontinued classification of assets held for distribution to owners. Amendment to IFRS 7 – adding guidance on how to conduct disclosures of contracts on handling assets and explanations of amendments applied to IFRS 7 concerning offsetting in condensed interim financial statements. Amendment to IFRS 19 – explanation that high quality corporate bonds used for the estimation of the discount rate applied to calculate post-employment benefits shall be denominated in the same currency in which the benefits will be paid (hence, the market activity concerning the bonds should be evaluated at the currency level). Amendments to IAS 34 – clarification of terms. The aforesaid changes did not exert any effect on the consolidated financial statements of PZU Group.
Amendment to IAS 1 – Disclosure initiative 1 January 2016 2406/2015 Adding requirements with respect to an orderly layout of financial statements, introduction of the requirement of reconciling indirect totals in the statement of profit or loss, comprehensive statement of profit or loss, statement of financial standing, and in addition adding guidance on importance, level of detail of presentation and accounting principles. The amendment resulted in minor modifications of the layout of basic tables in the consolidated financial statements of PZU Group.
Amendment to IAS 27 – Equity method in the separate financial statements 1 January 2016 2441/2015 The amendment allows entities to use the equity method in the valuation of investments in subsidiaries, associates and joint ventures in the separate financial statements. The aforesaid change did not exert any effect on the consolidated financial statements of PZU Group.
Amendments to IFRS 10, IFRS 12 and IAS 28 – Investment entities: exemptions from consolidation applied 1 January 2016 1703/2016 IFRS 10 – adding supplementary guidance instructing investment entities to perform obligatory consolidation of non-investment subsidiaries rendering services related to investment; adding guidance on the lack of duty to perform consolidated statements in the case of lower-level parent entities being subsidiaries of investment entities. IAS 28 – adding guidance on the application of measurement using the equity method by an investor not being an investment entity with respect to an associated investment entity or a joint-venture.   The aforesaid changes did not exert any effect on the consolidated financial statements of PZU Group.

5.1.1.2. Standards, interpretations and changes in standards issued but not effective as at the balance sheet date

The following standards, interpretations and changes in standards have been issued but are not effective as at the balance sheet date:

Endorsed by the European Commission ordinance:

Standard/Interpretation Date of entry into force for periods beginning on the following day Resolution endorsing a standard or interpretation Description
IFRS 15 – Revenue from contracts with customers 1 January 2018 1905/2016 IFRS 15 defines how and when to recognize revenues and requires the provision of more detailed disclosures. The standard replaces IAS 18 “Revenue”, IAS 11 “Construction contracts” and many interpretations related to revenue recognition. The Standard applies to almost all contracts with customers (the main exceptions relate to lease agreements, financial instruments and insurance contracts). The fundamental principle of the new standard concerns the recognition of revenues in such a way as to reflect the transfer of goods or services to customers and in such amount that reflects the amount of remuneration (i.e. payments), to which the company expects to obtain the rights in exchange for goods or services. The standard provides also guidelines for recognition of transactions which were not regulated in detail by the hitherto applicable standards (e.g. revenues from services or amendments of contracts), as well as broader explanations concerning recognition of multi-element contracts.Due to the lack of application in relation to insurance companies of PZU Group, the potential impact of adopting the new standard on comprehensive revenues and equity has not been estimated.
IFRS 9 – Financial instruments 1 January 2018 2067/2016 The standard will replace IAS 39, and it establishes the requirements regarding the recognition and measurement of impairment, derecognition of financial instruments and hedge accounting. The standard introduces a new approach to the classification of financial assets, which depends on the characteristics of cash flows and the business model associated with the given assets. The standard unifies the impairment model for all financial instruments. The new expected loss impairment requires faster recognition of expected credit losses.
The standard introduces a reformed model of hedge accounting, with enhanced disclosure requirements for the activity related to risk management.  Classification and measurement In accordance with IFRS 9, financial assets are classified for valuation in:
  • amortized cost; 
  • fair value through profit or loss; 
  • fair value through other total income.  

The instruments are classified at first application of IFRS 9 or at instrument recognition. Classifications can change only in the extremely rare instances of changes to the business model.Debt instruments
Asset classification results from the business model and characteristics of cash flow generated by individual assets. The business model determines the objective of maintaining the financial instrument (acquisition of contractual cash flows or implemented change to fair value). The characteristics of cash flows determine whether they are only solely principal and interest (SPPI) understood as the cost of money in time. If the instrument passes the SPPI test and the business model assumes maintenance of the instrument for acquisition of contractual cash flows, the debt instrument qualifies for valuation in amortized cost. The entity can choose valuation in fair value by financial result if it eliminates inconsistencies in valuation methods. Valuation in fair value by other total income covers instruments, for which the business model assumes both acquisition of contractual cash flows or and profit through sale of the instrument. The option applies only to instruments passing the SPPI test. For this option, the total changes to fair value apply to other total income while impairment losses, interest revenue, and currency differences are presented in the bill of gains and losses.  Capital assets
Capital assets may be measured at fair value through financial result or through other total income. For the second option, the changes to fair value apply to other total income and are never subject to transfer to the bill of gains and losses. The dividends and impairment losses from such assets are covered in the bill of gains and losses:  Financial liabilities
Valuation of financial liabilities does not change considerably besides the need to recognize the change to fair value resulting from the changes to own credit risk in other total income.  Impairment
IFRS 9 introduces the obligation to recognize expected losses and not just incurred losses like in accordance with IAS 39. For debt assets valuated in amortized cost and in fair value by other total income, the impairment will be measured as 12-month or lifelong expected credit losses. The new approach will entail considerable consequences for modeling of credit risk parameters and the ultimate value of created losses. The currently applied impairment identification period and IBNR will no longer be applied. The impairment will be determined in three categories:

  • basket 1 – low credit risk basket – a 12-month expected credit loss will be recognized; 
  • basket 2 – portfolio with considerable credit risk growth – a lifelong expected credit loss will be recognized; 
  • basket 3 – credits with impairment – a lifelong expected credit loss will be recognized;  

The way of impairment loss calculation will also determine the recognition of interest income – it will be determined based on gross exposure for baskets 1 and 2 and based on net for basket 3.  Hedge accounting
On the date of implementation of IFRS 9, there is an option for a decision concerning continuation of hedge accounting in accordance with IAS 39. In this case, cohesion between appropriate hedge connections and risk management strategy should be ensured. Furthermore, IFRS 9 increases the range of items for establishment as hedge items, allows for establishment of financial assets or liabilities in fair value by financial result as hedge instruments, cancels the obligation or retrospective hedge effectiveness management, increases the range of required disclosures concerning management of cash flow risks resulting from hedge transactions and the effect of hedge accounting on the financial statement.  PZU Group reviews financial assets and assigns them to the appropriate business model. Implementation of IFRS 9 may produce changes in classification of certain financial assets (specifically the need for valuation of certain receivables from credits in fair value due to the failure of the SPPI test). The introduction of the new impairment model will affect the value of impairment losses in PZU Group, specifically in range of exposure classified in basket 2. At the implementation of IFRS 9, the one-off change resulting from the new models will be recognized in capital.At this stage, it is not possible to estimate the impact of IFRS 9 on the total income and equity PZU Group.

Not endorsed by the European Commission:

Standard/Interpretation Date of issuance by IASB Date of entry into force for periods beginning on (by IASB) Description
Amendment to IFRS 4 – Implementation of IFRS 9 Financial Instruments including IFRS 4 Insurance Contracts 12 September 2016   1 January 2018 Under the amendment to IFRS 4 issued by IASB on 12 September 2016, insurance companies are entitled to postpone the implementation of IFRS 9 until the time of entry into force of IFRS Phase II concerning insurance contracts, yet no later than 1 January 2021. PZU Group, however, is not authorized to enjoy this exemption due to significant share of bank activity.
IFRS 14 – Regulatory accruals 30 January 2014 1 January 2016 1) Allowing entities applying IFRS for the first time, and which now the regulatory deferral accounts in accordance with their previous generally accepted accounting principles, the continuation of the recognition of these balances in the transition to IFRS.   The standard does not affect PZU Group.
Explanation to IFRS 15 – Revenue from contracts with customers 12 April 2016 1 January 2018 Explanation provides guidelines concerning the identification of obligations to be fulfilled (determining in which cases the provisions included in the agreement are “separate” goods or services which shall be settled separately), accounting of licenses with respect to intellectual property (determining in which cases the revenue from licenses regarding intellectual property shall be settled “over a specific period” and in which cases at “a given point in time”), and the distinction between a principal and an agent (clarifying that a principal, within the scope of a given arrangement, controls the goods or services before they are received by clients). Amendments to the standard include also additional practical solutions which make the implementation of a new standard easier.
IFRS 16 – Leasing 13 January 2016 1 January 2019 IFRS 16 replaced IAS 17 Leasing and the related interpretations of the standard. With respect to lessees, the new standard eliminates the distinction between finance and operating leases. The recognition of current operating leases in the statement of financial standing leads to the recognition of a new asset (the right to use the object of lease) and a new liability (liabilities from lease payments). The rights to use the leased assets will be subject to accumulated depreciation and the liabilities will be charged with interest. As a result, higher costs in the initial stage of the lease will be generated, even if the parties agreed on fixed annual fees. The recognition of leases in most cases will remain unchanged, as the distinction between operating and finance leases did not change.   Due to the long lead time of entry into force of the new standard, the potential impact of adopting the new standard on comprehensive revenues and equity has not been estimated yet.
Amendment to IAS 7 – Disclosure initiative 29 January 2016 1 January 2017 The amendment includes the presentation of disclosures enabling the assessment of changes in the value of liabilities arising from financial activities (resulting both from cash flows and non-cash changes).   In order to apply the requirements, additional disclosures will need to be included in the consolidated financial statements of PZU Group.
Amendment to IAS 12 – Recognition of deferred tax assets for unrealized losses 19 January 2016 1 January 2017 The amendment clarifies, among other things, that unrealized losses related to debt instruments measured at fair value, with tax values equal to their initial cost, may lead to negative temporary differences.   The amendment will not affect the consolidated financial statements of PZU Group.
Amendment to IFRS 2 – Classification and measurement of share-based payment transactions 20 June 2016 1 January 2018 The amendment covers the guidance unifying the accounting requirements for the cash-settled share-based payment transactions, which adopts the same approach as in the case of equity instruments-settled share-based payment transactions, an exception in IFRS 2, and the explanation to the situation in which cash-settled share-based payment changes into equity instruments-settled share-based payment due to a change in the contractual terms.   The amendment will not affect the consolidated financial statements of PZU Group.
Amendments to IFRS 10 and IAS 28 – Sales or transfer of assets between an investor and an associate or a joint venture 11 September 2014 Deferred for an indefinite time The major effect of the amendment is recognition of the full profit or loss whenever a transaction concerns organized business (irrespective of whether it is located within a subsidiary or not); partial profits or losses are recognized when a transaction concerns particular assets that do not form organized business, even when they are located in a subsidiary.   The amendments will not affect the consolidated financial statements of PZU Group.
Amendment to IAS 40 – Reclassification of investment property 8 December 2016 1 January 2018 The amendment clarifies when an entity shall reclassify property under construction to or from the category of investment property if the manner in which property is used changes in the situations other than precisely listed in IAS 40.   The amendment will not affect the consolidated financial statements of PZU Group.
Amendments to IFRS 2014-2016 8 December 2016 1 January 2017/ 1 January 2018 Amendments concern: IFRS 1 – abolition of exemptions provided for entities applying IFRS for the first time in the scope of certain disclosure; IFRS 12 – disclosure concerning assets classified as held for sale or discontinued operations in accordance with IFRS 5; IAS 28 – concerning capabilities of given entities to make individual decisions with respect to the measurement of shares in associates and joint ventures at fair value through profit or loss in accordance with IFRS 9.   The amendments will not affect the consolidated financial statements of PZU Group.
Interpretation of IFRIC 22 – Transactions in foreign currencies and prepayments 8 December 2016 1 January 2018 The interpretation clarifies what exchange rate shall be applied with respect to transactions denominated in the foreign currency in accordance with IAS 21 if a client makes non-refundable prepayment for delivery of goods or services. The interpretation will not affect the consolidated financial statements of PZU Group.

1) European Commission put on hold the approval process by the time the final version of the standard has been published.

Summing up, PZU Group is of the opinion that the introduction of the aforementioned standards and interpretation will not considerably impact the accounting policies applied by PZU Group, except for IFRS 9 and 15, whose impact on the accounting policies applied by PZU Group has not been assessed yet.

5.1.2 Explanation of differences between the statements published previously and the current consolidated financial statements

5.1.2.1. Change in presentation of amounts in the consolidated financial statements

To improve legibility of the consolidated financial statement, all amounts are presented in PLN millions instead of in PLN thousands as previously. Due to the conversation from thousands to millions, some amounts presented in the consolidated financial statement may differ from the values presented in the consolidated financial statement for the year concluded on 31 December 2015 because of round-offs.

5.1.2.2. Change in the manner of drafting the consolidated cash flows statement

In the consolidated cash flow statement, cash flows from operating activity have been presented using indirect method, rather than direct one applied before. The change results from recognition of the banking activity and is aimed to produce the cash flow statement that is consistent with the market practice and easily comparable with other financial statements.

5.1.2.3. Changes in the manner of grafting the segment reports

To improve clarity, the reports on segments are presented in a modular system (separate tables for individual segments) instead of the previous matrix system. Simultaneously, changes were made to the calculation of the result on corporate and mass insurance through elimination of intra-segment transactions.

5.1.2.4. Purchase price allocation of the acquisition of shares of Alior Bank

In relation to the completion of the purchase price allocation of the acquisition of Alior Bank shares, the retrospective restatement of data as at 31 December 2015 was made. Additional information concerning this settlement is presented in point 2.4.1.2.

5.1.2.5. Derecognition of items in the consolidated statement of financial standing

Due to the irrelevance of the amounts, in order to provide greater transparency of the consolidated statement of financial standing, the items “Estimated salvages and subrogations” and “Current income tax receivables” have been removed from the assets. The related amounts previously recognized under these items have been moved to “Other assets” and “Receivables”. The item “Current income tax liabilities” has been removed from the liabilities and the amount has been recognized under “Liabilities”.

5.1.2.6. Amendment to the presentation of liabilities arising from securities lending

In order to provide greater transparency of the consolidated statement of financial standing, the liabilities arising from securities lending were presented under “Financial liabilities”, and not under “Other liabilities”, as it was done before.

5.1.2.7. Recognition of interests received in the consolidated cash flow statement

In order to ensure the most adequate recognition of interests received on debt instruments, in the investment activity of the consolidated cash flow statement income from such interests were moved from “Redemption of debt instruments” and is presented under “Interest received”.

5.1.2.8. Effect of the amendments on the consolidated financial statements

The effect of the above-mentioned amendments on the items of the consolidated statement of financial standing is presented in the following tables.

Assets 31 December 2015
(approved) 		Adjustment 31 December 2015
(restated) 		1 January 2015
(approved) 		Adjustment 1 January 2015
(restated)
Goodwill 1,507 25 1) 1,532 769 - 769
Other assets 699 114 2) 813 235 128 2) 363
Estimated subrogations and salvages 114 (114) 2) item removed 128 (128) 2) item removed
Deferred tax assets 349 20 1) 369 27 - 27
Financial assets - loans 43,403 (77) 1) 43,326 14,694 - 14,694
Receivables 3,271 67 2) 3,338 3,085 - 3,085
Current income tax receivables 67 (67) 2) item removed - - item removed
Total assets 105,429 (32) 1) 105,397 67,573 - 67,573

1) Change described in 5.1.2.4
2) Change described in 5.1.2.5
3) Change described in 5.1.2.6

effect_of_the_amendments_on_the_consolidated_financial_statements_pzu2016.xlsx

Equity and liabilities 31 December 2015
(approved) 		Adjustment 31 December 2015
(restated) 		1 January 2015
(approved) 		Adjustment 1 January 2015
(restated)
Non-controlling interest 2,255 (61) 1) 2,194 1 - 1
Total equity 15,179 (61) 1) 15,118 13,168 - 13,168
             
Financial liabilities 44,488 207 3) 44,695 9,403 - 9,403
Other liabilities 3,679 29 1)
(207) 3)
69 2) 		3,570 3,820 54 2) 3,874
Current income tax liabilities 69 (69) 2) item removed 54 (54) 2) item removed
Total liabilities 90,250 29 1) 90,279 54,405 - 54,405
Total equity and liabilities 105,429 (32) 1) 105,397 67,573 - 67,573

1) Change described in 5.1.2.4
2) Change described in 5.1.2.5
3) Change described in 5.1.2.6

effect_of_the_amendments_on_the_consolidated_financial_statements_table_2_pzu2016.xlsx

Consolidated cash flows statement 31 December 2015
(approved) 		Adjustment 31 December 2015
(restated)
Redemption of debt instruments 45,542 (324) 1) 45,218
Interest received 1,413 324 1) 1,737
Cash inflows from investment activities  645,441 -  645,441

 

1) Change described in point 5.1.2.7

effect_of_the_amendments_on_the_consolidated_financial_statements_table_3_pzu2016.xlsx

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