In the current year, the Group and the Bank have applied all of the new and revised Standards and Interpretations issued by the International Accounting Standards Board ("IASB") and the International Financial Reporting Interpretations Committee ("IFRIC") of the IASB that are relevant to its operations and effective for accounting periods beginning on 1 July 2018. 

New and revised Standards that are effective for the current year 

The following relevant revised Standards have been applied in these financial statements. Except for IFRS 9, their application has not had any significant impact on the amounts reported for the current and prior periods but may affect the accounting treatment for future transactions or arrangements. 

Impact of initial application of IFRS 9 Financial Instruments

In the current year, the Group and the Bank have applied IFRS 9 Financial Instruments (as revised in July 2014) and the related consequential amendments to other IFRS Standards that are effective for an annual period that begins on or after 1 January 2018. The Group and the Bank initially applied IFRS 9 on 1 July 2018. In accordance with the transition provisions of IFRS 9, the Group and the Bank have elected not to restate the comparative information, which continues to be reported under IAS 39. Differences arising from the adoption of IFRS 9 have been recognised directly in retained earnings.

As a result of the adoption of IFRS 9, the Group and the Bank have adopted consequential amendments to IAS 1 Presentation of Financial Statements, which require separate presentation in the statement of profit or loss and other comprehensive income of interest revenue calculated using the effective interest method.

Additionally, the Group and the Bank adopted consequential amendments to IFRS 7 Financial Instruments: Disclosures that were applied to the disclosures for 2019 but have not been applied to the comparative information. 

IFRS 9 introduced new requirements for:

1. The classification and measurement of financial assets and financial liabilities,
2. Impairment of financial assets, and
3. General hedge accounting.

The Group and the Bank have not applied hedge accounting to its financial instruments during the years ended 30 June 2017, 2018 and 2019. 

Details of these new requirements as well as their impact on the Group’s and the Bank’s financial statements are described below. 

(a) Classification and measurement of financial assets

The date of initial application (i.e. the date on which the Group and the Bank have assessed their existing financial assets and financial liabilities in terms of the requirements of IFRS 9) is 1 July 2018. Accordingly, the Group and the Bank have applied the requirements of IFRS 9 to instruments that continue to be recognised as at 1 July 2018 and have not applied the requirements to instruments that have already been derecognised as at 1 July 2018. Comparative amounts in relation to instruments that continue to be recognised as at 1 July 2018 have not been restated.

All recognised financial assets that are within the scope of IFRS 9 are required to be measured subsequently at amortised cost or fair value on the basis of the entity’s business model for managing the financial assets and the contractual cash flow characteristics of the financial assets, specifically:

• debt instruments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal amount outstanding, are measured subsequently at amortised cost;
• debt instruments that are held within a business model whose objective is both to collect the contractual cash flows and to sell the debt instruments, and that have contractual cash flows that are solely payments of principal and interest on the principal amount outstanding, are measured subsequently at fair value through other comprehensive income (FVTOCI);
• all other debt investments and equity investments are measured subsequently at fair value through profit or loss (FVTPL). 

Despite the aforegoing, the entity may make the following irrevocable election/designation at initial recognition of a financial asset: 

• the entity may irrevocably elect to present subsequent changes in fair value of an equity investment that is neither held for trading nor contingent consideration recognised by an acquirer in a business combination in other comprehensive income; and
• the entity may irrevocably designate a debt investment that meets the amortised cost or FVTOCI criteria as measured at FVTPL if doing so eliminates or significantly reduces an accounting mismatch. 

In the current year, the Group and the Bank have not designated any debt investments that meet the amortised cost or FVTOCI criteria as measured at FVTPL.

When a debt investment measured at FVTOCI is derecognised, the cumulative gain or loss previously recognised in other comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment. When an equity investment designated as measured at FVTOCI is derecognised, the cumulative gain or loss previously recognised in other comprehensive income is subsequently transferred to retained earnings.

Debt instruments that are measured subsequently at amortised cost or at FVTOCI are subject to impairment. See (b) below.

Management reviewed and assessed the Group’s and the Bank’s existing financial assets as at 1 July 2018 based on the facts and circumstances that existed at that date and concluded that the initial application of IFRS 9 has had the following impact on the Group’s and the Bank’s financial assets as regards their classification and measurement:

• Financial assets classified as "loans and receivables" under IAS 39 that were measured at amortised cost continue to be measured at amortised cost under IFRS 9 as they are held within a business model to collect contractual cash flows and these cash flows consist solely of payments of principal and interest on the principal amount outstanding.
• The Bank’s financial assets classified as held to maturity that were measured at amortised cost continue to be measured at amortised cost under IFRS 9 as they are held within a business model to collect contractual cash flows and these cash flows consist solely of payments of principal and interest on the principal amount outstanding;
• The Bank’s investments in debt instruments that were previously classified as available for sale investments and were measured at fair value are held within a business model whose objective is achieved both by collecting contractual cash flows and selling financial assets. These investments have contractual terms that give rise on specified dates to cash flows that are solely payments of principal and interest and are now being measured at FVTOCI. The change in fair value continues to be accumulated in the fair value reserve;
• The Group’s and the Bank’s investment on debt instruments that were previously classified as held for trading and measured at FVTPL continues to be measured at FVTPL; and
• The Group’s and the Bank’s investments in other equity securities (neither held for trading nor a contingent consideration arising from a business combination) that were previously classified and measured as available for sale at cost have been designated as at FVTOCI. The change in fair value on the equity investment is accumulated in the fair value reserves.

There were no financial assets or financial liabilities which the Group and the Bank had previously designated as at FVTPL under IAS 39 that were subject to reclassification or which the Group and the Bank have elected to reclassify upon the application of IFRS 9. There were no financial assets or financial liabilities which the Group and the Bank have elected to designate as at FVTPL at the date of initial application of IFRS 9.
The changes in financial assets are disclosed in Note 4 – Transition disclosure.

(b) Impairment of financial assets

In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model as opposed to an incurred credit loss model under IAS 39. The expected credit loss model requires the entity to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition of the financial assets. In other words, it is no longer necessary for a credit event to have occurred before credit losses are recognised.

Specifically, IFRS 9 requires the entity to recognise a loss allowance for expected credit losses on: 

• Debt investments measured subsequently at amortised cost or at FVTOCI;
• Lease receivables; 
• Trade receivables and contract assets;
• Financial guarantee contracts to which the impairment requirements of IFRS 9 apply; and
• Loans and advances to banks and customers.

In particular, IFRS 9 requires the entity to measure the loss allowance for a financial instrument at an amount equal to the lifetime expected credit losses (ECL) if the credit risk on that financial instrument has increased significantly since initial recognition, or if the financial instrument is a purchased or originated credit-impaired financial asset. However, if the credit risk on a financial instrument has not increased significantly since initial recognition (except for a purchased or originated credit-impaired financial asset), the entity is required to measure the loss allowance for that financial instrument at an amount equal to 12-months ECL.

The impact of impairment of financial asset is disclosed in Note 4 – Transition disclosure.

(c) Classification and measurement of financial liabilities

A significant change introduced by IFRS 9 in the classification and measurement of financial liabilities relates to the accounting for changes in the fair value of a financial liability designated as at FVTPL attributable to changes in the credit risk of the issuer.
The application of IFRS 9 has had no impact on the classification and measurement of the Group’s and the Bank’s financial liabilities which continue to be measured at amortised cost except for financial liabilities held for trading which continue to be measured at FVTPL

New and revised Standards in issue but not yet effective 

At the date of authorisation of these financial statements, the following relevant Standards were in issue but effective on annual periods beginning on or after the respective dates as indicated: 

The directors anticipate that these Standards and Interpretations will be applied in the Group’s and the Bank’s financial statements at the above effective dates in future periods. Except for the impact of IFRS 16 which is detailed below, the directors have not yet had an opportunity to consider the potential impact of the application of these amendments. 

IFRS 16 Leases 

IFRS 16 provides a comprehensive model for the identification of lease arrangements and their treatment in the financial statements for both lessors and lessees. IFRS 16 will supersede the current lease guidance including IAS 17 Leases and the related Interpretations when it becomes effective for accounting periods beginning on or after 1 January 2019. The date of initial application of IFRS 16 for the Group and the Bank will be 1 July 2019.

Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset. The only exceptions are short-term and low-value leases.

Under IFRS 16, right‑of‑use assets will be tested for impairment in accordance with IAS 36 Impairment of Assets. This will replace the previous requirement to recognise a provision for onerous lease contracts.

For short‑term leases (lease term of 12 months or less) and leases of low‑value assets (such as personal computers and office furniture), the Group and the Bank will opt to recognise a lease expense on a straight‑line basis as permitted by IFRS 16.

As at 30 June 2019, the Group and the Bank have non-cancellable operating lease commitments of MUR 34.1M.
A preliminary assessment indicates that the above non-cancellable operating lease arrangements relate to leases other than short-term leases. The Group and the Bank will recognise a right of use asset of MUR 92.8M and a corresponding liability of MUR 90.1M in respect of all these leases. The impact on profit or loss is to decrease other expenses by MUR 34.5M, to increase depreciation by MUR 31.9M and to increase interest expense by MUR 4.7M.

Under IFRS 16, a lessor continues to classify leases as either finance leases or operating leases and account for those two types of leases differently.

The Group’s and the Bank’s activities as a lessor are not material and hence the Group and the Bank do not expect any significant impact on the financial statements. However, some additional disclosures will be required from next year.