IFRS 16, description of effects of future adoption, telecoms

Telenor ASA – Annual report – 31 December 2018

Industry: telecoms

NOTE 1 General information, compliance and changes in international Financial Reporting Standards (extract)
• IFRS 16 Leases (effective from 1 January 2019). IFRS 16 establishes significant new accounting policies for lessees. IFRS 16 eliminates the current distinction between operating and finance leases as is required by IAS 17 Leases and, instead, introduces a single lease accounting model for lessees. When applying the new model, the Group will recognise a liability to make lease payments (i.e. the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e. the right-of-use asset) for all leases with a lease term of more than 12 months, unless the underlying asset is of low value, and recognise depreciation of the right-of-use assets separately from interest on lease liabilities in the income statement.

The Group will remeasure the lease liability upon the occurrence of certain events (e.g. a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). Generally, the amount of remeasurement of the lease liability will be recognised as an adjustment to the right-of-use asset.

The change will have a significant positive impact on EBITDA in the Group’s consolidated income statement, and increase the opening balance of total assets and liabilities for 2019 by NOK 26 billion. The estimated annual effects on the Group’s financial statements based on lease contracts as of 1 January 2019 are as follows:

– Lease expenses recognised as operational expenses will be reduced and impact EBITDA positively by approximately NOK 5 billion.
– Depreciation of leased assets will increase by approximately NOK 4 billion.
– Interest expense related to the lease liability will increase by approximately NOK 1.5 billion.

The Group has made the following accounting policy choices and elected to apply the following practical expedients related to the implementation of IFRS 16:

– Fixed non-lease components embedded in the lease contract will not be separated and hence recognised as lease liabilities and capitalised as right-of-use assets.
– Leases with a lease term of 12 months or shorter will not be capitalised.
– Low-value leases, meaning mainly office equipment, will not be capitalised.
– Intangible assets, such as spectrum and licences, will be recognised as a lease.
– Lease assets and lease liabilities will be presented separately in the statement of financial position.
– The Group has elected to apply the modified retrospective approach for transition to IFRS 16, meaning the Group will not restate the comparatives for 2018. Right-of-use assets and liabilities will be measured at the same amount, taking into consideration prepayments and accruals recognised as of 31 December 2018.